Hong Kong has one of the most attractive income tax rates of any first world economy. As a financial hub, Hong Kong’s personal income tax rates for foreigners, as well as its corporate tax rates, help create an exceptional business environment. Expatriate professionals and entrepreneurs can feel assured that their income tax burdens are considerably less than most countries in Europe and Asia. In addition to low rates for the top income bracket and no capital gains tax, Hong Kong’s tax laws also offer various deductions and allowances and completely exempt income earned outside the region.
Basic personal income tax laws (referred to as ‘Salaries Tax’ in Hong Kong) are structured by a progressive tax rate with five brackets: 2% on the first HK$50,000 of income after deducting tax deductions and allowances, 6% on the second HK$50,000, 10% on the third HK$50,000,14% on the fourth HK$50,000 and 17% on the remainder. The tax payable of a taxpayer in the higher income brackets is calculated at a standard rate of 15% on all his net income (before deduction of allowances) instead if the tax so calculated is lower.
Salaries tax allowances include a Basic Allowance of HK$132,000 per person per year, for unmarried individuals, while married couples can claim HK$264,000 per year. In addition to this, taxpayers can claim Child Allowance of HK$120,000 for each unmarried child, including those under 18 years old; between 18 and 25 if they are pursuing full time education or older children that have a disability. Taxpayers supporting a dependent sibling can similarly claim a salaries tax allowance of HK$37,500 for each dependent per year. Individuals supporting an elderly parent or grandparent can claim an allowance of up to HK$100,000 for each dependent if the elderly person is 60 or above, or a registered disability claimant; or an allowance of up to HK$50,000 for each dependent if they are between 55 and 60 years old. An additional allowance of HK$75,000 will be granted for each disabled dependent (spouse / child / parent / grandparent / brother or sister). Single parents can claim HK$132,000 per year while personal disabilities qualify for a salaries tax allowance of HK$75,000 per year.
Taxpayers can also claim deductions for self-education expenses (HK$100,000) elderly residential care expenses (HK$100,000) home loan interest (HK$100,000) and contributions to recognized retirement schemes (HK$18,000). Deductions from approved charitable donations up to 35% of net income (before deduction of allowances) can be claimed.
A common question about Hong Kong income tax for foreigners is how the government defines what income is taxable locally. Hong Kong laws work under a territorial principle, which basically means that only income earned in Hong Kong is taxable in Hong Kong. However, income that has been taxed elsewhere could be exempt from salaries tax in Hong Kong, while income earned for work done outside of Hong Kong can also be considered outside the jurisdiction. Income earned locally by visitors staying less than 60 days is also exempt from Hong Kong salaries tax. A general rule of thumb is that there is no separate “Hong Kong expatriate tax” and tax rates and calculations methods will be identical to local residents. Most expatriates employed in Hong Kong will pay salaries tax in Hong Kong.
The tax year in Hong Kong starts on the first of April and ends on the 31st of March the following year. A Provisional Salaries Tax is payable during the year of assessment. It is usually based on the chargeable income for the preceding year of assessment. An adjustment for the amount overcharged or undercharged will be made in the following year. Permanent or temporary residents in Hong Kong (persons stay in Hong Kong for more than 180 days during the year or 300 days in two consecutive years) who are subject to profits tax or property tax can elect for a Personal Assessment, under which incomes from different sources including employment, sole proprietor/partnership business and property are aggregated for computation of tax liability and they can gain the advantages of personal allowances, certain reliefs and progressive tax rates, which are not available if assessed separately.
Hong Kong Salaries Tax returns should be filed one month from the date of issue, while sole proprietor business owners have 3 months from the date of issue to submit their tax return. Once the Inland Revenue Department receives the tax return, it will generate a tax assessment and demand note. Any disagreements with the assessment should be filed within 30 days of receiving the bill. Tax returns should always be filed without delay in order to avoid penalties.
Over the past 3 years, the government of Hong Kong has expanded the scope of deductions and allowances, providing many incentives to continue driving investment. Hong Kong’s tax system continues to be one of the most competitive and advantageous for locals and expatriates alike. Accounting and auditing services can help optimize tax filings, and comprehensive advice on company formation and incorporation ensures plans for success from the outset.
We have over 50 years of experience serving in Hong Kong. Our expertise can guide you through the ins and outs of local tax laws whether you’re considering a move or already here. Contact us for a quotation on potential services to make the most of your competitive advantage.
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