Share Option

Share option is the right to acquire shares within a period of time in the future. If your employer granted share option to you, you will be assessed to tax on a notional gain, i.e. not when the option is granted to you, but when you exercise, assign or release the option.

There are many types of share option schemes. But in general, the tax benefit of the share option is the difference between the price paid and the market price at the time of exercise. In the case of assigned or lease of the share option, the tax benefit is usually the actual amount of money received by you from such assignment or release, less costs for acquiring the option, if any.

You, as an employee, must report benefits derived from share option in your Tax Return for the relevant year of assessment, including gains connected with a former employment.

Meanwhile, Employers have several things to consider in regards with share option.

a.	Employer must report gains of employees/directors under employment from exercise/assignment/release of share option in the correct form.
b.	For employees/directors about to cease employment, share option gain must be reported in the correct form.
c.	For employees/directors about to cease employment and leave Hong Kong for good, share option gain must be reported in the correct form. In addition, if the employee/director has not yet exercised/assigned/released portion of his rights to share option when he leaves Hong Kong, the Employer should report further information in the correct form.
	i.	The number of shares not yet exercised, assigned or released, and
	ii.	The date of grant.
d.	If former employees/directors realized gain from share options after termination of employment or after termination of employment and there is departure from Hong Kong, then the Employer must report the share option gain under the correct form. In addition, a list should be provided and attached with the form with the following particulars:
	i.	Name of employee/director
	ii.	Hong Kong Identity Card number (or passport number)
	iii.	The sheet number of the relevant form concerned.
e.	For employees/directors seconded/assigned to work in Hong Kong who were granted share options carrying conditions prior to their arrival in Hong Kong (and working for a period of time in Hong Kong is amongst those conditions), the Employer must complete the correct form for each employees/directors and submit a list with the following particulars:
	i.	Number and types of shares covered by the option
	ii.	Consideration, if any, paid for the grant or the option
	iii.	Consideration required to exercise the option
	iv.	The period within which the option must be exercised.
f.	For share options granted during the year, a list should be provided and attached with the Employer’s return with the following particulars:
	i.	Name of employee/director
	ii.	Hong Kong Identity Card number (or passport number)
	iii.	Name of the corporation in respect of which the option was granted; and
	iv.	The number of shares subject to the option.

Share Awards

Shares awarded not in the form of options may give rise to a benefit assessable as a perquisite. You will be assessed to tax in the year you are awarded the shares.

The timing of derivation of the benefit and of valuation of the benefit for tax purposes will generally be determined by terms governing the awards and circumstances under which the awards are granted.

You, as an employee, must report benefits derived from share awards in your Tax Return for the relevant year of assessment.

Meanwhile, Employers must report benefit from share awards as the employee’s income in the correct form.

The matters discussed above are general information only. Taxability of share-based benefits will ultimately depend on the nature of employment, as well as the circumstances and/or conditions imposed on the share options/awards granted to employees. You may consult with a tax professional if further clarification is required.

Source：Hong Kong Inland Revenue Department’s website

- https://www.ird.gov.hk/eng/pdf/pam47e.pdf