Hong Kong is famous for its simplified tax regime and good business practices that make the city an attractive market for international companies and an ideal spot for entrepreneurs and skilled expatriates searching for the big next step in their careers.
A crucial aspect for them is to understand the Hong Kong Salaries Tax and take advantage of the low rates while knowing their responsibilities.
But what about if you receive a job offer in Hong Kong? Many questions can pass through your mind before accepting the offer.
One of the most common issues for expatriates and entrepreneurs is how their income will be taxed, especially considering if they have to relocate or if working remotely is on the table.
Additionally, individuals with more than one source of income could worry about how their total income can be affected.
An Overview — How the income is taxed in Hong Kong
As the principle of taxation followed in Hong Kong is the territorial basis, all income generated within the jurisdiction is subject to be taxed. Additionally, being a Hong Kong permanent resident does not mean that an individual will be subject to being taxed in Hong Kong.
The Hong Kong Inland Revenue Department recognizes three main types of income or profit that an individual generates through activities conducted in Hong Kong. These 3 are
- Profit tax: business activities that generate profit.
- Salaries tax: income from employed or receiving a pension in Hong Kong.
- Property tax: income from renting a property in Hong Kong.
In Hong Kong, there is no Capital Gains Tax. However, if there is a gain on the sale or disposal of assets, this transaction can be deemed as being income subject to profits tax.
As we have explained some of the basic aspects of the tax system and Hong Kong tax rates, let us go into more detail on the Salaries tax.
Hong Kong Salaries Tax
Commonly known as the Salaries Tax or the Personal Income tax, the amount of salaries received by each individual is calculated according to a progressive rate principle, contrary to the profit tax rate, which is flat.
In a simpler way to understand it, the more you earn in Hong Kong, the more tax you pay. However, there is a cap on the minimum and maximum tax rates for individuals in Hong Kong.
This section will explore what counts as income from employment, which period is calculated for the tax declaration, and the tax rates and allowances.
Sources of Employment Income
The following activities are considered to be income from employment in Hong Kong:
- Employment: the remuneration from being hired by a Hong Kong company or entity to perform a job according to the specifications of a contract or a mutual agreement.
- Office: the income paid by occupying the role or performing the responsibilities of being the director of a Hong Kong company, which is commonly known as the director’s fee.
- Pension: when an individual receives a pension different from a government-funded program that is managed and operated inside of Hong Kong, it is subject to income tax.
Period of assessment
In Hong Kong, an individual may be subject to tax liability based on the income generated during a year of assessment. The year of assessment starts counting from April 1st of the current year to March 31st of the following year, covering 12 months.
Individuals who are married during the year of the assessment, fully or partially, have the option to do a joint assessment with their spouses. For the joint assessment, the spouse must sign the BIR60 form as well.
Calculating the Tax Rates
As previously mentioned, Hong Kong has a progressive rate for taxable income. The net income is the remaining amount after deductions and allowances. The income subject to tax has the following rates for the period 2021/22:
Less than HKD$50,000
More than HKD$50,000 but less than HKD$100,000
More than HKD$100,000 but less than HKD$150,000
More than HKD$150,000 but less than HKD$200,000
More than HKD$200,000
It is important to note that the tax rates or brackets might be reviewed by the authorities from time to time and can change from one fiscal period to another one.
To get an approximate idea of how the taxes will be calculated for the period 2022/23, the Hong Kong Inland Revenue Department has the following calculator.
Allowances and deductions for Individuals
Individuals are granted allowances and deductions that can be included when declaring their income in Hong Kong. Here, we will discuss each item that forms the net chargeable income in more detail.
The items that are classified as allowances for individuals are the following:
- Basic allowance.
- Allowance for a married person.
- Allowance for children (only for the first child).
- Dependant allowance (for close relatives like a brother, a sister, a parent, a grandparent, or a disabled person).
- Allowance for single parents.
- Allowance for personal disability.
By law, all taxpayers in Hong Kong have an applicable basic allowance amount of HKD132,000 in the year of assessment, which is deducted from the salary calculation.
If you wish to have a general idea of how a tax calculation can be done, you can visit the Salaries Tax Calculator from the Inland Revenue Department.
For more details on the specific allowances, please consult the Hong Kong government page.
Although there are deductions in Hong Kong, in reality, very few are applicable since the taxes rates are already low compared to other jurisdictions. The following list of items is included in the deduction category:
- Expenses related to self-education.
- Donations for selected charities.
- Contributions to retirement funds (such as the Mandatory Provided Fund Scheme or other approved schemes).
- Expenses for the care of older residents.
- Interest on Home loans (for specific cases).
Filing an Individual Tax Declaration
After receiving the Tax Return BIR60, the individual normally has a month from the stated date to file the declaration to the Hong Kong Inland Revenue Department.
Although there is no income to declare, the individuals must submit the return during the allowed period and fill it as nil. An individual might also be subject to paying the provisional salaries tax should be paid according to the base of the previous year’s amount.
It is always advisable to request guidance from an expert in tax matters, especially if the return is being filled in for the first time. Additionally, extensions to submit the return can be applied, although usually, these are done by the tax specialist since some communication with the tax authority is involved.
As an alternative to submitting the hard copy of the return, it is possible to fill in the tax declaration online using the Hong Kong E-tax platform.
For first-time users, there is a process to register on the Hong Kong government web page.
Location of the Individual
As the taxation principle in Hong Kong is the concept of territoriality, if an individual is not located in Hong Kong by the time a service is provided, he or she might not be subject to paying taxes in Hong Kong for a specific fiscal period.
Moreover, there are two rules to see if an individual’s income should pay taxes:
- For the case of Hong Kong employment, if the individual has spent less than 60 days during the assessment period will not be taxed.
- For the case of non-Hong Kong employment, if the service rendered in Hong Kong is less than 60 days during the assessment period will not be taxed.
With a simple tax regime, Hong Kong is a preferred choice for its stable and well-established tax system for companies and individuals.
The Salaries tax rate in Hong Kong can be beneficial for both local employees who are based in the city most of the time and individuals who have to divide their time traveling around the world.
It's no wonder why this city attracts international talent and entrepreneurs looking for the perfect environment to make their projects move forward.