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To what extend the salary can be replaced with performance-based equity compensation in case of a Hong Kong employment visa?

No one has asked me this type of question about compensation for employees for about 17 years now so I’m grateful to the questioner for raising it as she did.

QUESTION

I have successfully registered a business and been awarded an investment visa in Hong Kong.

The company is a start up with limited capital but big plans.

I have identified an individual I’d like to employ, have no doubt he would pass the approvability test, and don’t expect to have issues around quotas.

However my business cannot yet afford to pay a meaningful salary.

I’d like to compensate the individual with equity until such time as the business is generating enough revenue to pay market salaries – a situation both parties are completely happy with.

Is there any ability to sponsor an employment visa given this arrangement?

ANSWER

What a truly excellent question. And I’m sure that most entrepreneurs that have successfully secured an investment visa might at some stage look for the assistance of a third party foreign national to come into Hong Kong to assist them in their plans, and are obviously looking at an equity for compensation arrangement if that will in fact pass muster with the immigration department.

So the essential answer to the question is that yes, it is possible to have equity as a component for the compensation instead of salary, but it must not replace the salary under the General Employment Policy. The approvability test is effectively meaning that the Immigration Department are looking for a basic salary, and that basic salary should come in at the minimum levels, give or take HKD16,000 a month.

So if the value of this time is to be compensated in such a way that anything over the HKD16,000 a month is going to be reflected in an equity grant, then the Immigration Department should buy into that. So probably without too many questions asked on the basis that it’s properly documented and for all practical purposes, the party that’s receiving the equity grant is being compensated ostensibly for the professional nature of the contribution that he’s making.

So ensure that there’s a basic salary and anything above that compensated with equity grant should be fine. Of course, hanging above all of this writ larger were is what the Immigration Department will make of the application when it comes in. Given that, you’ve, I assume, just recently had an investment visa approved, did the potential for this engagement of this foreign national was it reflected in the representations that were made to the Immigration Department as part of your investment visa application? So will this come as a surprise to them or was it anticipated at all times? And how far along have you actually been able to progress your business since the fact of your investment visa approval in accordance with what the Immigration Department were expecting of you when they granted your approval.

So you need to look at where you are in the business,in addition to the individual special skills, knowledge and experience of Elliot and not really available in home to understand how the Immigration Department might respond to this questions such as, you know, have you recruited anybody else locally or is in fact this your first employee?

And as I say, if it is your first employee, was it anticipated in the business plan that the department saw from you originally? So take his application in the round when you’re considering structuring your argument, but also anticipate that as long as he’s getting the basic salary of about HKD16,000 a month with, the balance of his compensation being reflected in an equity grant it should be fine. I don’t imagine that you have too many problems. Okay.

I hope this helps.

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