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  • 1 Post By fullmetaljacket

Severance Pay is Taxable?

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  1. #1

    Join Date
    Mar 2021
    Posts
    6

    Severance Pay is Taxable?

    Hi All,
    Last year, I was supposed to join a particular company but before joining it self they revoked the offer letter and later they gave me 1 month salary as a severance. I was never employed by that company and before joining itself they revoked.

    So how I need to file the tax? That one month salary will be part of "Lumpsum Payment" while Filing the tax?
    And is the severance payment taxable? And also do I need to inform that company that I filed this amount as taxable?
    Please do help.

    Ricky


  2. #2

    Join Date
    Feb 2021
    Posts
    240

    This is notice pay. Part of wages. I’m not sure but think it’s taxable because the company needs to file this too.


  3. #3

    Join Date
    Dec 2011
    Location
    Sai Kung
    Posts
    275

    Severance Payment and Long Term Service Payment is not taxable under Salaries Tax in Hong Kong. However, certain conditions are to be met to qualify as severance payment. From your scenario, it seems you were paid a "compensation" and not a "severance pay", as you were never really employed by that organisation. They paid you a month's salary to compensate for your inconvenience. That payment is not salary either as you were not their employee.

    If you want to declare this payment, you can submit a personal assessment. If you had other sources of income during last year (employment, business etc.) you'd need to pay tax on that. For personal assessment, you can check with IRD how they recommend to report (and tax) this (if you really want to do that).

    See para 4.1.b of the IRD link for severance pay exemption.

    https://www.labour.gov.hk/eng/public...seGuide/11.pdf

    https://www.ird.gov.hk/eng/pdf/bir60_st_e.pdf

    Ricky84 likes this.

  4. #4

    Join Date
    Mar 2021
    Posts
    6

    Thanks. It completely make sense and agreed it was compensation and not severance.


  5. #5

    Join Date
    May 2009
    Posts
    1,289
    Quote Originally Posted by fullmetaljacket:
    Severance Payment and Long Term Service Payment is not taxable under Salaries Tax in Hong Kong.
    This true but only for the part that is legally required so it has a maximum. Anything above that (if the company pays you more than legally required then the rest would be taxable)