Compare net cash from taking salary against taking the whole profit as a tax-free dividend.
Higher net cash
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Salary route net cash
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Dividend route net cash
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Salaries tax on salary
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Company profits tax (salary route)
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Your breakdown
Updates live as you type| Step | Salary route | All-dividend route |
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The quirk that makes this decision unusual in Hong Kong
In most countries a dividend is taxed twice, once as company profit and again in the shareholder's hands, which is why owners often prefer salary. Hong Kong breaks that pattern. Dividends are not taxable to the recipient at all, so the only tax a dividend ever carries is the profits tax the company already paid before distributing it. That single fact turns the salary-versus-dividend question into a clean rate comparison, and this tool runs both routes on the same pool of profit so you can see which keeps more cash.
The mechanics differ in one important way. A salary is a deductible expense, so it shrinks the company's taxable profit before profits tax bites, but it then attracts salaries tax in your own hands after your MPF deduction and personal allowance. A dividend is paid out of profit that has already borne profits tax in full, then arrives tax-free. The winner depends entirely on whether your effective salaries-tax rate undercuts the company's profits-tax rate.
$1.5 million of profit, with a $600,000 salary option
Using the tool's defaults, a company has $1.5 million available and you are considering drawing $600,000 as salary. The figures below use the rates this calculator applies: the incorporated profits-tax rate of 8.25 percent on the first $2 million, a 5 percent MPF contribution capped at $18,000 a year, the basic allowance of $132,000, and progressive salaries-tax bands. Confirm all of these with the IRD and the MPFA before relying on them, since each can change at the annual Budget.
The dividend route wins, but only by $6,000, and the reason is worth understanding. After the $18,000 MPF deduction and the $132,000 allowance, the $600,000 salary carries $55,500 of salaries tax, an effective rate of about 9.25 percent on the salary. That is just above the 8.25 percent the company would have paid on the same money as profit. The salary loses by roughly that 1 percent gap on $600,000, which is the $6,000 you see.
Where the crossover sits, and the trap of the close call
The lesson is that salary wins only while its effective rate stays below the company's marginal profits rate. A smaller salary, where more of it falls in the 2, 6, and 10 percent bands and the allowance does more work, can flip the result back in favour of salary. Push the salary higher and a larger slice hits the 17 percent band, widening the gap the other way. The result is not a fixed rule, which is why a calculator beats a rule of thumb here.
One common mistake: people chase the route that wins by a few thousand dollars and ignore the rest of the picture. A salary builds your MPF, can support a mortgage application, and counts as income for visa and credit purposes, while a pure dividend strategy does none of that. When the cash difference is as thin as $6,000, those softer factors should usually decide it.
Can I pay myself a small salary and take the rest as dividends?
Yes, and that hybrid is exactly what the tool models. The salary you enter is deducted from company profit, taxed under salaries tax, and the residual profit is distributed as a tax-free dividend. Tuning the salary down toward the level the allowance and lower bands absorb is usually where the best outcome lies.
Does a director have to take any salary at all?
There is no rule forcing a Hong Kong director to draw a salary, and the all-dividend route is legitimate. Bear in mind, though, that the IRD can scrutinise arrangements that look purely tax-driven, and a zero-salary owner forgoes MPF and the income record that lenders and immigration look for. Treat the tax answer as one input, not the whole decision.