Q300 · As a founder of a pharmaceutical company,…

Q300 · Category F: Fees, budgeting and financial planning (Q251–Q300)

As a founder, setting your own salary requires balancing your personal needs, the company's interests and tax implications. The key is reasonableness. For tax purposes, the salary you pay yourself is treated as an operating expense of the company and may be deducted from assessable profits. However, this deduction is conditional on the salary being “reasonable”, having regard to your responsibilities as a company executive, industry salary levels and the company's ability to pay. If the salary is excessive and far above the market rate, the Inland Revenue Department may challenge its reasonableness and treat the excess as a “disguised dividend”, disallowing it as an expense deduction.

📘 Regulatory basis

Section 16 of the Inland Revenue Ordinance allows deductions for expenses incurred in producing assessable profits, while section 17 provides that expenses not incurred in producing those profits are not deductible. The “reasonableness” of directors’ remuneration is key to determining whether it was wholly “incurred in producing profits”.

📗 Drew Tang's recommendations

During a company's start-up period, we recommend that founders draw a relatively low, ‘token’ salary that covers their basic living expenses, leaving more funds in the company for development. Once the company achieves stable profitability, the salary can be increased to the market level. Another option is a ‘low basic salary plus high performance-based dividends’ structure, closely linking personal returns to company performance. This can also demonstrate your commitment and confidence when raising funds from external investors.

📕 Risk notice

Insisting on paying yourself a high salary despite the company’s cash-flow constraints is extremely damaging to team morale and investor confidence. It sends a dangerous signal to the outside world that you are putting personal interests ahead of the company’s interests. In addition, an unreasonably high remuneration arrangement is a common ‘red flag’ in tax audits and can trigger unnecessary tax disputes.

Plan Your Hong Kong Pharmaceutical Licensing Project with Drew Tang

Business Manager Tang Shangyong (Drew Tang) will review your products, operating model, licence type and preparation requirements with you one-to-one. The precise service scope is confirmed in writing; pharmaceutical duties are carried out by legally qualified personnel, and approvals are determined by the competent authorities.

As a founder of a pharmaceutical company, how much salary should I pay myself? What are the financial and tax considerations?

Plan Your Hong Kong Pharmaceutical Licensing Project with Drew Tang