Hong Kong Salaries Tax
In Hong Kong, personal tax is often referred to as salary tax. Both corporate and personal tax rates of Hong Kong are considered as one of the lowest in the world. Unlike flat corporate tax rate, Hong Kong’s salary tax rates follow a progressive tax rate system. There are four marginal tax brackets of 2%, 7%, 12% and 17%.
The key features of Hong Kong’s salary tax are as follows:
- Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% on net income (i.e. income after deductions), whichever is lower.
- There is no capital gains tax, no dividend tax and no inheritance tax in Hong Kong.
- Hong Kong follows a territorial principle of taxation. Individuals are taxed only on income that has been “earned in Hong Kong”.
- Hong Kong resident individual taxpayers can potentially reduce their tax burden by electing for personal assessment. Under personal assessment, tax is calculated at progressive tax rates on the aggregated income from all sources. More detailed information on this is provided later in this guide.
- A year of assessment runs from April 1st to March 31st of the following year.
Note: To estimate your Hong Kong personal income tax, please refer to Hong Kong Tax Calculator.
Personal Income Tax Rates
For guidance purposes, the approximate exchange rate for Hong Kong dollar is 1 USD = 7.8 HKD. The progressive rates of tax imposed on an individual’s net chargeable income in Hong Kong are as follows:
|Net Chargeable Income (in HKD currency)||Rate|
|0 – 40,000 HKD||2%|
|40,001 – 80,000 HKD||7%|
|80,001 – 120,000 HKD||12%|
|Above 120,001 HKD||17%|
To estimate your Hong Kong taxes and see how they stack up to your home country, you may also refer to Online Tax Calculator.
Calculating Net Chargeable Income
Net chargeable income or income subject to taxation is determined as follows:
Whereas total income includes:
- Salaries, wages and director’s fees
- Commissions, bonuses, leave pay and end-of-contract gratuities
- Allowances, perquisites and fringe benefits such as cash allowances, convertible benefits, education benefits and holiday journey benefits
- Termination payments and retirement benefits including accrued benefits received from recognized occupational retirement schemes or mandatory provident fund schemes
- Back pay, gratuities, deferred pay and pay-in-arrears
- Stock awards and share options obtained from holding an office or employment
- Tips received from your employer or any other person
- Rental value of a place of residence that has been provided by the employer
Non-assessable income includes:
- Payment received in lieu of notice from the employer in accordance with the Employment Contract terms or the Employment Ordinance Provisions. This income does not relate to a service provided by an employee and is therefore not taxable. However, if sufficient notice of termination is given and the employee works during the notice period, the salary received for the duration of notice period worked is a normal reward for service rendered and is taxable.
- Minimum severance payments and long service payments that are payable under the Employment Ordinance are not assessable income. However, any amount in excess of an employee’s entitlement under the Employment Ordinance is assessable to salaries tax.
Allowable deductions include:
- Qualified employment related expenses such as client entertainment expenses, certain business travel expenses, subscriptions to certain professional societies etc.
- Approved charitable donations
- Self-education expenses
- Home loan interest, subject to certain qualifying conditions
- Elderly residential care expenses
- Depreciation and capital allowances for plant and machinery that have been used to generate assessable income.
- Contributions to a Mandatory Provident Fund Scheme or Recognized Occupational Retirement Scheme
Personal allowances include:
- Basic allowance
- Married person s allowance
- Child allowance
- Dependent brother or dependent sister allowance
- Dependent parent or dependent grandparent allowance
- Single parent allowance
- Disabled dependant allowance
What Income is Considered “Earned in Hong Kong”?
Salaries tax is imposed on all employment income arising in or derived from Hong Kong. In other words, if your source of employment is in Hong Kong, i.e. you are employed by a Hong Kong company to work in Hong Kong; your full income is chargeable to salaries tax. However, you can claim full or partial exemption of income or tax relief, under the following circumstances:
- If all services are rendered outside Hong Kong during a year of assessment (unless you are a civil servant or a crew member of a ship or an aircraft) you are exempt from paying salaries tax for that particular year of assessment. Income from services rendered in Hong Kong during visits not exceeding a total of 60 days in the year is also exempt from tax. Whether the nature of a trip to Hong Kong is a “visit” or not is assessed by authorities on a case-by-case basis.
- If part of your income has already been charged to tax in another territory during the year of assessment, you can claim partial exemption of income from salaries tax in Hong Kong. However, you will have to furnish evidence of foreign tax payment.
If your source of employment is outside Hong Kong, i.e. you are employed by an overseas company but are assigned to work in Hong Kong for a few years by your overseas employer; you are only assessed on the income attributable to the services you render in Hong Kong.
Tax Treatment of Employer Benefits
Most gains and profits derived by you in respect of your employment are taxable. The gains or profits include benefits, whether in money or otherwise, paid or granted to you in respect of employment. Some common examples of taxable benefits include:
- Accommodation and housing allowance
- Meal allowance
- Education benefits for your children
- Company gifted car
- Holiday journey allowances
- Share awards and share options
Note that some of the non-cash benefits are taxed using special formulas. Further details on this are outside the scope of this guide.
Capital Gains Tax, Inheritance Tax or Estate Duty
Capital gains refer to investment income that arises in relation to stocks, bonds or real estate. Hong Kong does not impose any capital gains tax.
Inheritance tax or estate duty is a tax on the total market value of a person’s assets (cash and non-liquid assets) at the time of his/her death. Estate Duty in Hong Kong has been abolished since February 2006.
Filing Personal Tax Return
Every taxpayer has to file annual tax returns with the Inland Revenue Department (IRD). The year of assessment runs from April 1 through March 31 of the following year. IRD sends out individual tax returns by May 1. Tax returns normally have to be submitted within one month from the date of issue. Note that even if you do not have any income to report, you still need to declare zero income in your tax form. A married couple can elect to receive a joint assessment, if the single assessment based on their combined income results in a lesser tax liability.
If you are a sole-proprietor of a business, you can file the returns within 3 months from the date of issue.
You can choose to file your returns online or by postal mail. After you have filed your returns, you will receive your ‘Notice of Assessment’ or tax bill from the Inland Revenue Department. The tax bill will indicate the amount of tax you are liable to pay for the given year of assessment. It will also state the provisional salaries tax payable for the succeeding year of assessment.
If you disagree with the tax bill, you need to inform the tax department within 30 days from the issue date of your tax bill and state your reasons for objection. Notwithstanding any notice of objection lodged by you, tax must be paid on or before the due date specified in the notice of assessment.
The Commissioner of Inland Revenue may impose penalties or issue an estimated assessment if there is a delay in filing the return.
An Attractive Relocation Destination
A well-regulated yet simple tax system and low personal income tax rates have increased Hong Kong’s competitiveness in the region and it remains an attractive relocation destination for foreign professionals. Moreover, unlike many western nations, Hong Kong has no capital gains tax – a policy that encourages investment by citizens and foreigners alike.