Mileage allowance in Hong Kong: everything you wanted to know
Hong Kong is famous for being a global financial hub and business center. With a total of
131,060 private businesses in 2023
, the Fragrant Harbor is always bustling with professionals catching meetings from the Central District to Kowloon Bay.If your employees are using their personal cars to do the same, you’ll need to reimburse them. However, calculating mileage rates and correctly reimbursing your employees in Hong Kong is far from simple. You’ll need to understand everything from the Inland Revenue Department’s guidelines for taxation to industry benchmarks.Swap being tired for tyres. In this article, we show you how mileage allowance works in Hong Kong and how to reimburse your employees for their business travel expenses.How does mileage allowance in Hong Kong work?
Mileage allowance refers to the amount your employees can claim for reimbursement when using their personal vehicle to travel for business purposes. It typically covers the running costs of fuel, road tax, insurance, and general wear and tear. Many countries make these mileage rates compulsory, legally obliging employers to use them as a basis for reimbursement.However, that’s not the case for Hong Kong.The Chinese University of Hong Kong (CUHK) has established rates for duty mile claims in the amount of $4.02 (USD) per kilometer for motorcars, and $1.49 per kilometer for motorcycles and scooters.However, these mileage allowance rates are not mandated by law or compulsory. Instead, they serve more as guidance rates and best practices to help inform employers and employees form an understanding of fair and acceptable rates.In Hong Kong, it’s the employer that sets the standard for mileage rates. The amount fully rests upon:According to the
- Company policy: you can set up mileage allowance rates depending on your own company’s business travel policiestailored to your financial practices and operational needs
- Standard benchmarks and other companies: to reach a fair rate, you can use CUHK’s standard rate guidelines or base rates off of the rates of other companies within your industry
- The nature of your employee’s contract: review your employee’s contract, as their position, hours, and benefits can help indicate standards for setting up fair reimbursement rates
Inland Revenue Department and the Legislative Council
, business travel expenses such as traveling allowance, mileage, accommodation, and meals are generally non-taxable income as long as employees incur them wholly for business purposes and not personal use. It’s also important to mention that while these travel allowance reimbursements are non-taxable, taxpayers still need to declare them as part of their income tax on tax returns.Now that you know how mileage allowance works in Hong Kong, it’s time to establish how to reimburse your employees for mileage in Hong Kong.How to reimburse your employees for mileage in Hong Kong
Hong Kong doesn’t have compulsory reimbursement policies. However, your company will need to set your own mileage allowance rates to ensure your employees are being compensated fairly for business travel.Here’s how to reimburse your employees for mileage in Hong Kong:It’s also crucial to keep up with any changes in guidelines for mileage allowance as these rates can be subject to change each year.
- Create a mileage reimbursement policyif you haven’t already: create a document stating the conditions for mileage reimbursement. Include important information such as procedures for employees reporting mileage, which trips are eligible for reimbursement, rate calculations, and examples.
- Match industry standards, benchmarks, and government guidelines: when deciding on your allowance rates, you can look towards Hong Kong’s guidance rate ($4.02 per kilometer for and $1.49 per kilometer for motor vehicles), industry benchmarks, and other company mileage rate policies.
- Set up a mileage logging system for employees: when traveling for business purposes, have employees document the trip’s purpose, location, destination, date, and total distance traveled. You can either set up a physical logbook or a digital tracking tool for employees to submit; along with a mileage reimbursement form and receipts.
- Ensure your reimbursement is tax compliant: when reimbursing employees, be sure to conduct audits to ensure claims are in line with both your company’s policy and the guidelines outlined by the Inland Revenue Department of Hong Kong. Reimbursements must be wholly for business purposes and necessary for employees to perform their duties.
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FAQS for mileage allowance rates in Hong Kong
1. What other entities don’t have mileage allowance rates mandated by law?
2. Do standard mileage rates for reimbursement apply to public transport as well as motor vehicles in Hong Kong?
3. What are the conditions for Local Subsistence Allowance in Hong Kong?
4. Are there other employee benefits in Hong Kong besides mileage reimbursement?
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