realized on exercising or selling the share options granted by the
employer is taxable.
The gain taxable on exercising
the options is the market value as at the date of the exercise less
the price paid by the employee. Any gain or loss on sale of the shares
after the exercise is ignored. So, if you don't want to take the risk
of fall in market value after you get the shares, sell them quickly.
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valuation of open market value of shares.
taxable on selling the options is the net sales proceeds less the
price paid by the employee for the options. If you don't sell the
options, they won't be taxed.
services, for which the share options are granted, are exempt from
tax, then the related gain will be exempt too. At times, the exemption
is computed by time apportionment.
The taxability of
the share options is irrespective of: (a) Who issues the share
options, or (b) Where the shares option are issued, or (c) Whether the
shares acquired by exercising the options are unsold and held by the
employee as capital investment. The crucial questions are: (i) whether the
share options are granted in respect of taxable services in Hong Kong
and (ii) whether they are exercised or sold.
Share option is the right to acquire shares at a prescribed price.
It is different form the share issued to employee
at a discount. Share options are not taxable until it is exercised or
sold by the employee but shares issued at a discount are taxable
at the time of issue. If the shares issued are subject to a
restriction, say a holding period of 2 years, then the taxpayer can
ask for a discount when computing the taxable value.
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If a taxpayer is going to leave Hong Kong,
he can apply for a tax concession.
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The Revenue's assessing practice on
share options is set out in Departmental Interpretation and Practice
Note No. 38. To read it,
to IRD's homepage > English > Publications > Departmental
interpretation and Practice Note.