Hong Kong Salary Tax: A Business Owner’s Guide

You are obliged to pay salary tax if you are an employee receiving income from an office, person, or employment in Hong Kong.

Note that in Hong Kong, employees are responsible for filing their annual taxes and paying to the Inland Revenue Department. Note that the employer is not obliged to withhold the salary taxes of their employees.

This article provides you with information about the key features of Hong Kong salary tax, the tax rates, how to calculate income tax, and the tax responsibilities of employees and employers.

Table of Contents

The basis of assessing salaries tax

is that your salary tax liability arises from your chargeable income for the assessment year.

However, the IRD has yet to determine the actual amount of tax until the end of the tax year, so the department has to require payment of provisional taxes. More on provisional taxes in the coming section.

Key Features of Hong Kong Salary Tax

Hong Kong has a straightforward and efficient tax system making it an attractive place to work and do business. Below are some of the key features of the Hong Kong tax:

Taxed at Progressive Rates

As an employee in Hong Kong, you are obliged to pay income tax on your net chargeable income at a progressive tax rate presented below:

On the one hand, a progressive tax rate reduces the tax burden of taxpayers with lesser income. On the other hand, a progressive tax rate system requires taxpayers with higher sources of income to pay higher taxes.

Based on a Territorial Principle of Taxation

What makes Hong Kong an attractive destination for doing business is its territorial tax system.

Hong Kong taxes only income sourced from within its borders, regardless of the taxpayer’s residence. Therefore, only your income sourced in Hong Kong is subject to income tax.

Option for Personal Assessment

The Inland Revenue Ordinance levies direct taxes under three distinct categories: the salaries tax, profits tax, and property tax.

Qualified taxpayers in Hong Kong can select personal assessments for their profits and property tax. A personal assessment may help lessen your tax liabilities chargeable to profits and property tax.

Other features of salary tax in Hong Kong:

• does not impose capital gains tax,
• does not impose dividends tax,
• does not impose an inheritance tax
• taxes are assessed starting 1 April to 31 March of the following year
• taxpayers are liable only for income earned in Hong Kong

Inland Revenue Department’s Guide to individual tax returns

Salaries tax

as per the IRD definition refers to all types of employment income earned in Hong Kong. The definition is generally straightforward in that you are liable to pay tax if your employment income is derived from a Hong Kong source.

Income earned in Hong Kong refers to:

• income from a full-time, part-time or casual employment or pension received from a former employer
• remuneration received under an arrangement that falls under Section 9A of the Inland Revenue Ordinance.

How to compute for salaries tax/personal income tax

Take note of the following calculations to arrive at your salaries tax.

1. a) Total income – deductions – allowances = Net chargeable income

• the net chargeable income is multiplied by the applicable progressive rates ranging from 2% to 17% to determine the tax liabilities

1. b) Total income – deductions = Net income

• the net income is multiplied by the standard rate of 15% to determine the tax liabilities

The salaries tax is the lower between a and b computations.

How to file for tax returns in Hong Kong

The year of assessment for Hong Kong tax starts from 1 April to 31 March the next year. The Inland Revenue Department issues individual tax returns, and taxpayers are expected to fill up and submit these forms to the IRD within a month from the date of receipt.

Remember that as per the IRD regulation, you are required to fill out and submit your returns even if you did not earn an income for the year of assessment. You can declare a zero income in the tax form.

You are liable to pay the amount of tax assessed based on the information you provided. You have 30 days from the issue date of your tax bill to inform the Inland Revenue Department should you find any discrepancy with the amount.

Also, the IRD developed this simple tax calculator for anyone who wishes to determine their approximate tax liabilities under salaries or personal assessments.

Things to note in using the online tax calculator:

Salaries tax

One advantage of using the tax calculator is that the result will give you an idea of whether or not to elect a joint assessment with your spouse.

Personal assessments

Another advantage of using the tax calculator is that you and your spouse can decide early on whether or not to elect for a personal assessment.

Option to file under eTAX

Filing under eTAX is another option available to Hong Kong taxpayers. This option allows you to compute your tax liability for the current year’s return.

As an eTAX account holder, you can file your returns online if:

• you are not claiming any exemption with respect to your salaries income
• you are not an owner of any sole proprietorship business that earns more than 2,000,000 HKD for the year of assessment
• during the year of assessment, you do not appear to earn any assessable profits under sections 20AE, 20Af, 20AX and 20AY of the Inland Revenue Ordinance
• there are no advance rulings on any of your taxes for the year of assessment
• you are not claiming any form of relief from double taxation for the year of assessment

After lodging your tax returns electronically, taxpayers will gain access to the estimated amount of salaries tax. The resulting amount will still depend on the information provided in the tax returns.

How do I file a return through the Internet?

• One of the requirements to file a return online is to have an eTAX account.
• If you have yet to open an eTAX account, you may click this link for more information.
• If you are already an eTax account holder, you can file your return online if you satisfy the following requirements:
• The Internet filing for corporations and partnerships has different requirements. You may check this link to determine the conditions you must satisfy to use the Internet Filing Service.

Benefits of filing electronically

• 1-month auto-extension for filing
• saves you the time
• you can save a partially completed return and proceed to complete the firm within 4 months
• you can determine an estimate of your salaries tax liabilities prior to submitting

What goes into the charges to salaries tax?

Here are the types of income to be included in the computation of salaries tax payable:

• total income, including salaries and wages, commissions, bonuses, tips, leave pay, and even noncash benefits such as provision for your residence.
• if you are a director, your income for tax purposes is determined by whether the directorship is based in a Hong Kong office or a non-Hong Kong office
• if you are a regular employee, your income for tax purposes is determined by whether your employment is considered HK employment or non-HK employment
• your tax allowances
• approved deductions qualified as charitable donations, self-education and home loan interest

The Inland Revenue Department has reiterated that all taxpayers in Hong Kong are only obliged to render the correct amount of assessed tax.

What are provisional taxes in Hong Kong?

The provisional taxes in Hong Kong refers to charging an estimated amount of tax for the tax year. The objective is to give taxpayers an option to pay their income taxes in advance.

Provisional salaries tax is computed based on the preceding year’s income-less allowances. Any excess of the provisional taxes over the salaries tax payable for the year of assessment will be applied against the provisional tax liabilities in the following year.

How to apply for a holdover of the provisional tax?

Taxpayers can take advantage of the holdover of provisional tax through a written application submitted to the Inland Revenue Ordinance.

The application for eTax account holders can be made through electronic processing.

How to claim tax exemption or tax relief in Hong Kong?

If you are a taxpayer in Hong Kong. In that case, it is likely that you can claim either a full or partial exemption of your salaries tax under the following circumstances:

• You rendered services outside the jurisdiction of HK SAR for the year under the assessment (except if you are a civil servant or employed as a crew member of an aircraft or a ship)
• You have already rendered tax payments for a part of your income to another jurisdiction during the year of assessment. In this case, you can claim an exemption for the assessment year.
• Your rendered services during a visit to Hong Kong, but your period of stay does not exceed 60 days of the tax year. The IRD will assess the nature of your visit to HK, including any documentation in case of discrepancies.

What is non-assessable income?

The non-assessable income is the amount that you don’t have to include in computing your taxable income. An example of this item is the severance payment and long service payments, which are to be paid under the mandate of the Employment Ordinance.

In addition, jury fees received due to being on a jury in a court of law in Hong Kong are considered non-assessable income.

What are allowance deductions and allowances for salaries tax and personal assessment?

Allowances

• basic allowance
• married person’s allowance
• child allowance
• dependent parent’s allowance
• single parent allowance
• personal disability allowance
• government’s disability allowance scheme

Deductions

• expenses of self-education
• elderly residential care expenses
• home loan interest
• mandatory provident fund scheme or recognized occupational retirement scheme
• approved charitable donations
• depreciation and capital allowances applied to plant and machinery used to generate assessable income

When is an income considered as ‘earned in Hong kong’?

As a general rule, all salaries income is deemed to be earned in Hong Kong when you earned it as an employee within the jurisdiction of HK SAR. For example, if you work for a company based in Hong Kong, your salary is considered earned in Hong Kong without evidence to the contrary.

What tax responsibilities do I have as an Employer?

The tax obligations of employers start upon hiring their first employee. Below are employers’ tax responsibilities:

Keep payroll records

Your tax obligation as an employer begins with your first hire.

As a general rule, employers in Hong Kong are not required to withhold tax via payroll regardless of the employee’s residence.

The only exception is during instances of cessation of employment, and the employee plans to leave Hong Kong for more than one month after termination. In this case, the employer has to issue a written notification to the Inland Revenue Department of the planned departure. The employer must withhold all amounts due to the employee until the Inland Revenue Department issues a letter of release.

However, your primary tax duty as an employer includes maintaining a record of your employee, such as

• personal details
• whether the employee is hired to work full time or part-time
• nature of his responsibilities, e.g., salesman, accountant, director
• cash and non-cash remuneration and benefits
• both the employee and employer’s Mandatory Provident Fund (MPF)
• employment contract and amendments to terms of employment
• period of employment

You are to inform the IRD of the HK identity card number of the employee and any changes to the personal details of your employees and terms of employment that may arise.

Report the employee’s remuneration to the IRD

While the filing of income tax returns is the employee’s primary responsibility, the employer remains responsible for filing the employer’s return (BIR56A).

Upon receiving the Employer’s Return, the employer must complete and file it with IRD within a month. The filing of an Employer’s Return is required regardless of whether you did not hire an employee, the business has yet to start, or ceased operation.

Note that the deadline for filing an employer’s return in Hong Kong during the year is extended up to June 1, 2022. If you are an employer, the Inland Revenue Department invites you to file your employer’s return via the Employer’s Return e-Filing Services portal.

FAQs

Do ex-pats pay tax in Hong Kong?

Yes. Foreigners are liable to pay taxes in Hong Kong if you are an ex-pat who derives employment, pension, rental, and business income..

As Hong Kong taxes are based on a territorial basis of taxation, ex-pat residency does not generally affect tax liabilities except in rare circumstances.

How much tax do foreigners pay in Hong Kong?

The income tax rates in Hong Kong range from 2% to 17%. The table below shows the 2022-2023 tax rates in HK SAR:

Tax relief for ex-pats in Hong Kong

The Inland Revenue Department imposes taxes based on the territorial tax system, which means you are liable to pay taxes only on income derived in Hong Kong.

Moreover, Hong Kong concluded tax treaties and agreements with many countries to mitigate double taxation.

• Tax relief is available in the form of a tax credit on income sourced from a country that concluded a tax treaty with HK SAR
• Unilateral relief, such as an exemption from salaries tax, is provided if the source of income is from a jurisdiction that does not have a tax treaty with HK SAR.

What are my tax obligations as an employee in Hong Kong?

Yes. You are expected to pay income taxes on income derived from employment, office, or pension in Hong Kong.

You are to complete and file your tax return and pay the assessed tax at the specified time.

Also, you are to complete and submit a tax return received from the Inland Revenue Department, regardless of whether or not you received a taxable income during the tax year.

How to know if my income is chargeable or exempt from salaries tax?

If you do not receive a tax return, you are expected to notify the IRD whether your income is exempt from tax.

Generally, if you receive income from an office, employment, or pension, then your income is chargeable to salaries tax.

As a self-employed person, is my income chargeable for salaries tax?

No. As a self-employed individual with an income derived solely from your business, you are not liable to pay salaries tax.

However, the revenue office shall compute your profits tax on any income derived from your self-employment in Hong Kong. Your income is chargeable with a special rate for a sole proprietor business.

The Inland Revenue Department Tax-Smart Tips

1. Inform the department immediately of any change in correspondence address.
2. Make it a habit to check a copy of your Employer’s Return of Remuneration and Pension (form IR56/F/G). Clarify doubtful entries with your employer and inform IRD when needed.
3. Salaries tax deductions such as outgoing and expenses approved charitable donations, self0education expenses, and contributions to the mandatory provident fund scheme can go into Part 4.3 of your tax return
4. Deductions for qualifying premiums settled under Voluntary Health Insurance Scheme Policy and similar contributions can go into Parts 9 and 10 of your return
5. Remember to settle your tax payable on time. The IRD imposes penalties for late payments of taxes.
6. You can also claim a deduction of home loan interest for a self-occupied property registered under your name
7. You are not required to attach supporting documents for your claims for deductions. Still, you need to keep these documents for seven years. The IRD may call you to present them as evidence in the future.
8. If you send your tax return by post, include sufficient stamps to ensure efficient delivery.
9. Inform the IRD at the soonest possible time in instances where you have to change or commit items in your return.

How can Reachtop KSHK help you?

You now have a better understanding of the salaries tax in Hong Kong.

But if you need assistance with your salary tax or any other aspect of Hong Kong taxation, please do not hesitate to.