What is the Tax System in Hong Kong?
When expats are trying to understand what the tax system is like in Hong Kong, it is important to note a few things. For example, if you have acquired along-term Hong Kong visa, you have to pay Hong Kong income tax, just like every other fiscal resident. Another thing to keep in mind, especially for frequent travelers, is that your income is taxed according to the territorial principle. This means that only what you earn or accrue in Hong Kong is subject to Hong Kong income tax.
The Hong Kong Tax System
Tax rates in Hong Kong deserve their reputation of being competitively low. They rise progressively with higher salaries. Nevertheless, the maximum rate, even for the top tax bracket, is only 17%.
To avoid double taxation, Hong Kong has concluded negotiations witha number of countries regarding double taxation relief. These agreements come into play if a fiscal resident has to pay taxes on their income in other countries and thus would have to pay for the same income twice.
Keep in mind that the following information does not constitute any legal advice. For more detailed questions on taxation in Hong Kong,contact the Inland Revenue Department (IRD). We would also recommend you talk to a trustworthy tax advisor for advice on your individual situation.
Types of Taxes in Hong Kong
Salaries, Property, and Profits taxes constitute the direct tax you or your employer will have to file at the end of the fiscal year. Stamp, Betting, and Estate duties are indirect taxes of Hong Kong. The tax year starts on 1 April and continues until 31 March next year.
Salaries Tax
Salaries tax will probably be the biggest tax burden for you when living in Hong Kong. All wages, salaries, and director’s fees are subject to this tax. Additionally, the large majority of all other benefits you might receive from your company are also taxable. Such taxable benefits include bonuses, commission and rebates, leave pay, end-of-contract gratuities, and others. Any shares or options that are part of your remuneration are also taxed, as is accommodation provided by your employer. Furthermore, it does not matter when these payments are made or whether they exceed your terms of employment.
If you travel to Hong Kong for work irregularly, and spend less than 60 days there doing so, you should be exempt from these taxes.
How to Calculate Salaries Tax
Salaries Tax can be calculated either at progressive rates on your net chargeable income or standard rates on your net income—whichever one is lower. Follow the formulas to calculate them both:
- Total Income – Deductions = Net Income
- Total Income – Deductions – Allowances = Net Chargeable Income
The deductions constitute:
- Self-education expenses
- Charitable donations
- Mandatory retirement scheme and provident fund contributions
- Depreciation
- Loss
- Home loan interest
- Elderly care
You are not required to provide evidence about your deductions. However, you will be required to provide proof of the deductions if your tax files are being reviewed. That is why it is advisable to keep payment receipts and other documents for six years after you file the forms.
Claimable allowances include:
- Basic allowance (every tax payer’s allowance)
- Spouse allowance (doubles the basic allowance for the household)
- Child allowance
- Single parent allowance
- Dependent allowance (sibling, parent, grandparent, or a disabled person)
- Personal disability allowance
You can claim your allowances when filing your tax return either online or by mail. Just like with deductions, you are not required to provide evidence for your allowances; however, you should keep the appropriate receipts.
The Tax Brackets in Hong Kong
These are the progressive tax rates in Hong Kong. The standard (fixed) tax rate here is 15%.
Income HKDIncome USDProgressive Rate (%)< 50,000< 6,400250,001–100,0006,400–12,8006100,001–150,00012,800–19,20010150,001–200,00019,200–25,60014200,000 <25,600 <17
For example: if your net chargeable income is 125,000 HKD (16,000 USD) per year, this is how you would calculate your taxes:
First Bracket: 50,000 – 2% = 1,000 HKD (130 USD)Second Bracket: 50,000 – 6% = 3,000 HKD (380 USD)Third Bracket: 25,000 – 10% = 2,500 HKD (320 USD)Payable Taxes: 1,000 + 3,000 + 2,500 = 6,500 HKD (830 USD)
To find out how much salaries tax you will approximately have to pay in Hong Kong, check out theonline tax calculator for your relevant assessment year under the section “Tax Computation.”
Once you make the calculations, you can file your tax returns online or by post.
Property Tax in Hong Kong
If you own property in Hong Kong and have income from renting said property, you need to tax the rental income. To learn more about your tax obligations as a property owner in Hong Kong, check the government’ssite on Property Tax.
Self-Employment Tax in Hong Kong
Self-employment is taxable, too, and, as you can only be self-employed if you set up your own business, it is treated as Profit Tax. Self-employment is defined as “buying and selling of goods” or “providing professional or personal services”. In this case, you are charged profits tax based on the assessable profits of your proprietorship or partnership. Furthermore, there are some other obligations concerning, for example, accounting standards. Profit taxes are also applied to corporations and trustees.
Things to Remember about Tax System in Hong Kong
Hong Kong’s income tax does not include any taxes on interests, dividends, or royalties. There is_no_capital gains tax in Hong Kong. The only case in which you have to pay taxes on capital gains is if shares or options are part of your regular remuneration. These are subject to the same Hong Kong income tax as normal salaries.
What is Personal Assessment?
If you are subject to more than just the salary tax, you can file a tax relief called Personal Assessment. If you wish to do so together with your partner, you can opt for Joint Assessment or Personal Assessment for Married Couples.
In order to be eligible to apply for Personal Assessment, you have to “ordinarily reside in Hong Kong”. Whether or not you get that status depends on:
- How long you are staying in Hong Kong.
- Whether you have permanent dwelling in Hong Kong.
- Whether your relatives are residing in Hong Kong.
- Whether you are working in Hong Kong.
- Whether you own property outside of Hong Kong.
Note that owning a Hong Kong ID card does not mean that you are considered to be a tax paying resident.
