Feeling confused about your company’s rental reimbursement scheme? You’re not alone! Many Hong Kong employees hear about this benefit but aren’t quite sure how it works or if it’s right for them.What Exactly Is a Rental Reimbursement Scheme?
Despite what the name suggests, a rental reimbursement scheme (RRS) isn’t usually about your company giving you extra money for housing. Instead, it’s a clever way to reduce your taxable income.
Here’s how it works: your company reports your income to the tax authorities after deducting your rental expenses. The tax department then adds back 10% of your rental value when calculating your taxable income.
Let’s Break It Down With a Simple Example
Say your annual salary is $1,000,000 and you pay $20,000 in monthly rent ($240,000 per year).
Without the scheme, your taxable income would be the full $1,000,000.
With the scheme, your company reports $760,000 ($1,000,000 – $240,000). The tax authority adds back 10% rental value ($76,000), making your final taxable income $836,000.
That’s a reduction of $164,000 in taxable income!
When Should You Join Your Company’s Scheme?
As a general rule of thumb, this scheme works in your favor when your annual rent exceeds 9% of your annual income.
If your rent is less than 9% of your income, you might be better off not participating in the scheme.
Important Things to Remember
The rental reimbursement scheme cannot be used simultaneously with residential rental deduction (which allows up to $100,000 tax deduction annually if you don’t own property in Hong Kong).
If you’re unsure which option is better for you, try calculating both and see which gives you more savings.
What About Serviced Apartments?
Serviced apartments may not qualify for residential rental deduction (which requires a stamped tenancy agreement), but your company’s rental reimbursement scheme might accept them. Check with your HR department to confirm.
The Bottom Line
The rental reimbursement scheme can be a great way to reduce your tax burden if your rent is relatively high compared to your income. Take some time to do the math, and you might find yourself with significant tax savings!
Still confused about whether rental reimbursement is right for your situation? We’re here to help! Slide into our DMs on Instagram @DimTax.hk for personalized advice. Our tax experts can answer your specific questions and help you make the best choice for your financial situation.
Remember, understanding your tax benefits is the first step to keeping more of your hard-earned money in your pocket. Reach out today!
