Individuals in Hong Kong are taxed at a progressive rate from 2% to 17%, depending on their income bracket. After receiving the Tax Return BIR60, the individual typically has a month from the stated date to file the declaration to the Hong Kong Inland Revenue Department.
Hong Kong, with its strategic blend of Eastern tradition and Western business practices, has long been a magnet for global enterprises and ambitious professionals. Its simplified tax structure and steadfast commitment to business transparency make it a prime destination for international corporations, innovative entrepreneurs, and skilled expatriates.
As global professionals and businesses come to this city, a clear understanding of the Hong Kong salary tax becomes indispensable. It's not merely about leveraging the city's attractive tax rates; it's about ensuring full compliance and making informed decisions. If you're on the cusp of embracing an opportunity in Hong Kong, delving into the intricacies of its tax system is a crucial starting point.
How the Income Is Taxed in Hong Kong
As the principle of taxation that is followed in Hong Kong is the territorial basis, all income generated within the jurisdiction is subject to tax. 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, recognises 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.
Hong Kong does not impose a Capital Gains Tax, but when you realise a profit from selling or disposing of assets, this transaction may be considered income and 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
Often termed as Salaries Tax or Personal Income Tax, individual earnings in Hong Kong are taxed at a progressive rate, unlike the flat rate used for profits tax. This means that as your income in Hong Kong increases, so does your tax liability.
However, there are set boundaries for the minimum and maximum tax rates for individuals. This section will explore the criteria for employment income, the appropriate tax declaration timeframe, and the specific tax rates and allowances.
💡Tip: Learn more about the different tax systems in Hong Kong.
Sources of Employment Income
Income derived from the following activities is categorised as earnings 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 usually 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 assessment year starts from 1 April of the current year to 31 March of the following year, covering 12 months.
Individuals who are married during the year of the assessment, fully or partially, can 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 stated, Hong Kong employs a progressive rate system for taxable income. Net income represents the remaining amount following deductions and allowances. For the 2023/24 period, the income subject to taxation is subject to the following rate structure:
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
The authorities might review the tax rates or brackets occasionally and can change from one fiscal period to another. To get an approximate idea of how the taxes will be calculated for the period 2024/25, the Hong Kong Inland Revenue Department has a tax calculator.
Allowances and Deductions for Individuals
Individuals in Hong Kong receive various allowances and deductions that they can factor into their income declarations. This section will provide a detailed breakdown of each component contributing to the net chargeable income.
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 the taxpayers in Hong Kong have an applicable basic allowance amount of 132,000 Hong Kong dollars 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. Please consult the Hong Kong government page for more details on the specific allowances.
Although there are deductions in Hong Kong, very few are applicable in reality since the tax 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 elderly residents.
- Interest on Home loans (for specific cases).
Filing an Individual Tax Declaration
After receiving the Tax Return BIR60, the individual typically 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 normally, 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
In Hong Kong, the principle of taxation is based on territoriality. Therefore, if an individual is outside of Hong Kong when a service is rendered, they may not be liable to pay taxes in Hong Kong for that 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, it will not be taxed.
Hong Kong's tax system is renowned for its simplicity and low rates, making it a magnet for international companies, entrepreneurs, and skilled expatriates. The territorial basis of taxation ensures that only income generated within Hong Kong is taxed, with distinct categories for profits, salaries, and property income.
While the absence of a Capital Gains Tax is a boon, it's essential to understand that certain asset disposals might still be considered taxable income. The progressive nature of the Salaries Tax, coupled with various allowances and deductions, offers a balanced approach to individual taxation. However, the nuances of tax liability, especially concerning the location of service rendering and the specific number of days spent in Hong Kong, highlight the importance of thorough understanding and expert consultation.
Whether you're considering a job offer in Hong Kong or are already a resident, staying informed and proactive about your tax responsibilities is crucial to maximising benefits and ensuring compliance in this vibrant financial hub.
How is income taxed in Hong Kong?
How is the Salaries Tax calculated in Hong Kong?
Does Hong Kong have a Capital Gains Tax?
What is the period of assessment in Hong Kong?
What is the timeframe for an individual to submit their tax declaration after receiving the Tax Return BIR60?