Hong Kong Salaries Tax
Hong Kong has a low taxation scheme for personal income tax.
Hong Kong not only offers an attractive tax regime for companies and corporations, but also has a low taxation scheme for personal income tax on Hong Kong salaries tax. Personal income tax, referred to as Salary Tax in Hong Kong, follows a progressive tax rate system with some of the lowest rates in the world.
The personal taxation rate in Hong Kong is on 15% on average for personal tax, but people are also given an allowance on non-taxable income and taxes paid in arrears. Only your total income above the salary allowances and deductions will be subject to the taxation rates in Hong Kong. Therefore, if you earn a personal income of less than the allotted allowance less deductions, you may end up paying very little or no tax in Hong Kong!
Some general facts regarding salary tax in Hong Kong
- Individuals are taxed on their net chargeable income (income after deductions and allowances) at progressive rates of 2%, 7%, 12%, and 17%, or an average rate of 15%, whichever is lower.
- Individual’s personal income also adheres to the territory principle in Hong Kong, with income only arising in or derived from Hong Kong being taxed.
- There is no capital gains tax, no estate and inheritance tax, no withholding tax and no sales/VAT tax.
- Personal taxes are collected at the end of the fiscal year, after all allowances and deductions are calculated into assessable profits.
- The year of assessment for personal salary tax is from April 1st to March 31st of the following year.
- The personal tax forms are normally issued in April or May of each year, and due 1 month after the issuance date of the form.
Personal Income Tax Rates
The personal income for individuals is used to calculate the net chargeable taxation (income after deductions and allowances) over the fiscal year. Only the income over this allowance and less deductions would be used to calculate the taxable income using the progressive rates.
For example, if you qualified for the basic allowance in the YA of 2016/17 (April 1st 2016 to March 31st 2017), then all income over the basic allowance of HKD 132,000 would be subject to the progressive rates of the salary tax. Any personal income under this would not be taxed.
Here is a list of the allowances you can take during the year:
| Year of Assessment | 2015/16 $ | 2016/17 $ | 2017/18 $ | 2018/19 $ | 2019/20 $ | 2020/21 onwards $ |
|---|---|---|---|---|---|---|
| Basic Allowance | 120,000 | 132,000 | 132,000 | 132,000 | 132,000 | 132,000 |
| Married Person Allowance | 240,000 | 264,000 | 264,000 | 264,000 | 264,000 | 264,000 |
| Child Allowance | 100,000 | 100,000 | 100,000 | 120,000 | 120,000 | 120,000 |
| Child born during the year | 100,000 | 100,000 | 100,000 | 120,000 | 120,000 | 120,000 |
| Dependent Brother/Sister | 33,000 | 33,000 | 37,500 | 37,500 | 37,500 | 37,500 |
| Dependent Parent and Grandparent 60 or above | 40,000 | 46,000 | 46,000 | 50,000 | 50,000 | 50,000 |
| Dependent Parent and Grandparent between 55 to 60 | 20,000 | 23,000 | 23,000 | 25,000 | 25,000 | 25,000 |
| Additional Dependent Parent and Grandparent 60 or above | 40,000 | 46,000 | 46,000 | 50,000 | 50,000 | 50,000 |
| Additional Dependent Parent and Grandparent between 55 to 60 | 20,000 | 23,000 | 23,000 | 25,000 | 25,000 | 25,000 |
| Single Parent | 120,000 | 132,000 | 132,000 | 132,000 | 132,000 | 132,000 |
| Personal Disability Allowance | - | - | - | 75,000 | 75,000 | 75,000 |
| Diabled Dependent Allowance | 66,000 | 66,000 | 75,000 | 75,000 | 75,000 | 75,000 |
For reference, in general the exchange rate for Hong Kong dollars is 1 USD = 7.8 HKD. Below is a guide for the progressive rate on taxable income for salary tax:
Year of Assessment – 2011/12 to 2016/17
- 0 to 40,000 HKD – Rate is 2%
- 40,001 to 80,000 HKD – Rate is 7%
- 80,001 to 120,000 HKD – Rate is 12%
- Above 120,001 HKD – Rate is 17%
Year of Assessment – 2017/18
- 0 to 45,000 HKD – Rate is 2%
- 45,001 to 90,000 HKD – Rate is 7%
- 90,001 to 135,000 HKD – Rate is 12%
- Above 135,001 HKD – Rate is 17%
Year of Assessment – 2018/19 onwards
- 0 to 50,000 HKD – Rate is 2%
- 50,001 to 100,000 HKD – Rate is 6%
- 100,001 to 150,000 HKD – Rate is 10%
- 150,001 to 200,000 HKD – Rate is 14%
- Above 200,001 HKD – Rate us 17%
These amounts would be the total income over the allowance less deductions, not the total income made over the year. Thus if you made HKD 132,000 up to HKD 172,000 (The first 0 to 40,000 HKD bracket) you would only be taxed for 2% of your income over the allowance, or 2% on the HKD 40,000. Thus if you made the maximum for the first tax brackets for HKD 172,000, your total tax payable would be HKD 800 (HKD 40,000 * 2%) for the year 2016/17, thats it. In other words, you would only be paying 0.47% tax on the total income you made during the year. You may also claim further deductions, such as self education and donations, to lower the taxable income during the year. Because of this attractive tax scheme and straightforward tax regulations, many people are interested to live and work in this financial business hub in Asia.
You may also refer to the IRD online tax calculator to better estimate your taxes in Hong Kong.
What Income is Considered “Earned in Hong Kong”?
Income and salaries tax are assessed on the employment income arising in or derived from Hong Kong. Therefore if your employment is from a Hong Kong company to work in Hong Kong, then your full income would be chargeable to any salary tax over the year. You can however claim exemptions to this income tax under the following circumstances:
If all the services rendered during the year are outside of Hong Kong (except in certain occupations such as civil servants or crew members of an airline) you would be exempt from salaries tax under that year of assessment. Further, income from services less than 60 days in Hong Kong would also be exempt from Hong Kong taxes. The nature of your trip, being for “visit” or business, would be assessed by the IRD based on the documentation provided.
If you have been already taxed for parts of your income in another territory during the year of assessment, you may claim partial exemption from Hong Kong salaries tax. In this case, the IRD would request documentation of taxation payments in this territory with other information provided.
Here are some of the categories for income under the personal tax in Hong Kong
- Salary, employment wages and director’s remunerations
- Bonuses, commission income and leave paid from company
- Employment termination payments and retirement benefits such as MPF
- Pensions
- Company stock awards or stock options from the company
- Rental compensation from property provided by the employer
There may be other forms of income in addition to this which may apply for individuals if receiving a form of compensation or payment. Check out the IRD website for further information regarding all forms of income.
Employer’s Return (ER) from your company
For most individuals, the salary payments from their employers will constitute the majority of the total income generated over the year. As like any country around the world, the businesses in Hong Kong would have to file the total annual salary for each individual and retirement payments as MPF for each employee. This income is recorded in the Employer’s Return (ER) for each company, as must be filed for each company shortly after the fiscal year end in April or May.
Once the Employer’s Return has been submitted by the company to the IRD, a copy would also be provided to the employer, in which the figures would be used to file their own personal tax form. It is important for people working in Hong Kong to refer to their Employer’s Return when filing their personal salary tax figure, as the IRD will also refer to this submitted form when reviewing the total taxes payable for each individual.
Tax Treatment of Employer Benefits
Most employer benefits and gains are taxable under Hong Kong regulations. This includes your benefits which were paid to you, or granted to you in respect to your employment.
Below are some examples of benefits:
- Education benefits
- Meal allowance
- Share awards and share options
- Accommodation and housing allowance
- Company gifts
Note: Particular non-cash benefits may be taxed using special rates and formulas. Please refer to the IRD website for further details on these benefits.
Deductions for taxable income
- These are some allowable deductions that you may claim as expenses throughout the year:
- Self education expenses
- Payments to a Mandatory Provident Fund Scheme (MPF) or recognized retirement scheme.
- Charitable donations to approved organizations
- Expenses as qualified to your employment as in certain business travel expenses, entertainment expenses or other fees to professional organizations and associations.
- Elderly residential care expenses.
- Home loan interest
Here are the maximum limits you can take for these deductions during the year:
| Year of Assessment | 2015/16 $ | 2016/17 $ | 2017/18 $ | 2018/19 $ | 2019/20 $ | 2020/21 onwards $ |
|---|---|---|---|---|---|---|
| Self education expenses | 80,000 | 80,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Elderly Residential Care expenses | 80,000 | 92,000 | 92,000 | 100,000 | 100,000 | 100,000 |
| Home Loan interest | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| MPF contributions | 18,000 | 18,000 | 18,000 | 18,000 | 18,000 | 18,000 |
| Qualifying premiums under VHIS policy | - | - | - | - | 8,000 | 8,000 |
| Qualifying annuity premium for tax deductible MPF contributions | - | - | - | - | 60,000 | 60,000 |
| Approved charitable donations | 35% | 35% | 35% | 35% | 35% | 35% |
These expenses would reduce your overall taxable income, and would need to be included if applicable when filing your personal tax returns.
Filing Personal Tax Return
Taxpayers in Hong Kong must file an annual tax return to the Inland Revenue Department (IRD). In Hong Kong, the year of assessment is from April 1st until the proceeding March 31st of the near year. The IRD will normally issue the individual tax returns by May 1st for taxpayers, which needs to be filed and submitted within one month from the date of issuance. Even if there was no income earned during the year, the tax form still need to be declared as zero income for the taxpayer.
After the tax form is completed and submitted to the IRD, the IRD will assess if there are any taxes to be paid, and send a tax demand note to the taxpayer. If the taxpayer disagrees with the calculation of taxes payable, they may send an objection letter within 30 days to the IRD, stating the reasons for the objection. In cases where taxes payable are settled after the due date, the IRD may impose penalties for the individual.
A married couple may elect to file their tax return under joint assessment, which may be beneficial under the higher joint tax allowance and could lower tax liabilities. For sole-proprietors of a business, any assessable profits must be filed within the individual return, and filing can be extended up to 3 months from the issuance date.
Contact Startupr if you have any questions regarding your Hong Kong salary tax or personal tax forms. We offer assistance and consultation for taxation matters and other information in regards to corporate taxation, personal taxation and company formation. Feel free to get in touch with us for further information.