Hong Kong Salaries Tax – All You Need to Know
Hong Kong is not only famous among entrepreneurs and investors for being the perfect platform to enter into the Asian market, it is also famous for being an attractive tax regime. The city establishes a low-income tax on Hong Kong salaries tax.
In Hong Kong, personal income tax is generally referred to as salary tax. Both personal and corporate taxes are considered as one of the lowest rates in the world because of the progressive tax rate system put in place. And even though in Hong Kong the personal tax rate is on average 15%, people are also given an allowance on non-taxable income and taxes paid in arrears. There are also no tax on capital gains or dividends as well.
In fact, only the total income above the salary allowance and deductions would be subjected to taxation in Hong Kong. So, if you are earning a personal income of less than the allotted allowance, less deductions, then you might end up paying very little or no tax in Hong Kong!
Some Key Features of Hong Kong Salaries Tax
Before diving into this article, there are some critical features of salaries tax in Hong Kong that you need to know.
- In Hong Kong, individuals are taxed based on their net chargeable income, (i.e., the income after allowances and deductions) at the progressive rates of approximately 2%, 7%, 12%, and 17%, or an average rate of 15%, whichever is lower.
- In Hong Kong, there is no estate and inheritance tax, no withholding tax, no sales/VAT as well as no capital gains tax.
- At the end of the fiscal year, the personal taxes are collected, and all the deductions and allowances are calculated into assessable profits.
- For personal salary tax, the assessment year in Hong Kong is from April 1st to March 31st of the following year.
- Hong Kong follows a territorial principle of taxation. Therefore, individuals are taxed only on income that has been “earned in Hong Kong.”
- For every year, the personal tax forms are issued in the month of April or May, and due one month after the issuance date of the form.
Salaries Tax Rate in Hong Kong
The Inland Revenue Department (IRD) has given the provision to the Inland Revenue Ordinance for salaries tax assessment and collection, so before starting any job, you need to make sure that you are abiding by the rules and regulations of salaries tax in Hong Kong.
Let’s discuss the concept of salaries tax in the mathematical form so that you can come up with the calculations in order to avoid any problem.
As per the definition-
Net Total Income (NTI) = Total Income – Deductions
Net Chargeable Income (NCI) = Total Income – Deductions – Allowances
By examining the formula, we can conclude that the computation of NTI is before that of NCI in the procedure of assessments. Therefore, it will be better for taxpayers to utilize as many deductions during the year as they can, for gaining the maximum benefits.
In order to get more information about this aspect, here is the year of assessments for 2018/2019 by taking into account the progressive and standard tax rates-
When allowances are deducted from an individual’s income- i.e., when tax is charged on NCI :
- 2% on the first $40,000
- 7% on the following $40,000
- 12% on the succeeding $40,000
- 17% on the amounts thereafter
If all of these rates are taken into account (generally for high salary workers), the standard rate is 15% on all income.
As a matter of fact, taxpayers gain more benefits when they take the NCI approach.
The allowances can offset a considerable amount of income, so that it can leave a relatively small amount of remainder NCI to be charged on a flat rate.
Is a Self-Employed Person Chargeable to Salaries Tax?
The above section was all about the salaries tax rate in Hong Kong. The next section of this article will let you know whether a self-employed person in Hong Kong is chargeable to salaries tax.
It is a common question among all taxpayers that if they are getting income from their own business, are they liable to pay the taxes in the form of salary tax in Hong Kong? The answer to this common question is generally no.
The income received from self-employed is chargeable to Profits Tax, with a special rate for sole-proprietorships. The taxpayer can elect to combine their profits and salary tax to them self, as these are often one in the same.
In fact, this person has to complete all the forms of tax return form for his income for both salaries and profits tax purposes, so that you can keep the respective records and pay taxes.
What Income is Considered as “Earned in Hong Kong”?
The next question of this article covers what kind of income is considered as earned income in Hong Kong.
The salaries and income taxes are basically assessed on the employment income that is derived from Hong Kong. Thus, if are earning income from a company in Hong Kong, then your full income would be chargeable to salary tax over the year. However, you can still claim for the exemptions to this income tax under the following circumstances:
If you are getting all the services during the whole year outside of Hong Kong (except in certain occupations such as crew members of an airline or civil servants) you can claim for the exemption from salaries tax under that period’s assessment.
If you have earned income by working in Hong Kong for less than 60 days, then you would also be exempt from Hong Kong taxes. The nature of your trip in Hong Kong, whether it is for business or exploring the city, your documentation would be assessed by the IRD in case of dispute.
During the year of assessment, if you have been already taxed for some parts of your income derived from another territory, then you may also claim for partial exemption from Hong Kong salaries tax. For this scenario, the IRD would request for the documentation of taxation payments in this territory with other information provided.
As per the personal tax in Hong Kong, below are some of the categories for income, that you need to know–
- Rental compensation from property provided by the employer
- Bonuses, commission income and leave paid from company
- Salary, employment wages and director’s remunerations
- Company stock awards or stock options from the company
- Employment termination payments and retirement benefits such as MPF
In addition to the income mentioned above, there may be other forms of income 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
Filing of Personal Tax Return
In Hong Kong, every taxpayer has to file annual returns with the Inland Revenue Department (IRD). The year of assessment runs from April 1 until the proceeding March 31st of next year.
Since the IRD issues individual tax returns by May 1st, individuals are required to submit their returns within one month from the date of issuance. Even if you haven’t earned any income in Hong Kong during that year, you still need to declare zero income in your tax form.
Once you are done with the completion and submission of the tax forms to the IRD, they will assess whether there are any taxes left to be paid, and after that, they will send a tax demand note to the taxpayer.
And if a taxpayer disagrees with the estimate or calculation of the payable taxes, then they may also send an objective letter to the IRD within the 30 days, mentioning the reasons for the objection.
If you are a sole-proprietor of a business, then you need to file your assessable profits within the individual return. Once you filed your returns, the Inland Revenue Department will issue the Notice of Assessment’ or tax bill from. The tax bill will notify the amount of tax that you need to pay for the given year of assessment. It will also indicate the provisional salaries tax payable for the succeeding year of assessment.
How can Startupr help you?
A low personal income tax rat and a well-regulated yet simple tax system have improved the competitiveness of Hong Kong in the Asian region. Hong Kong has become one of the best and attractive relocation destinations for foreign professionals.
And now you may have a better idea of the salaries tax in Hong Kong, and what kind of taxes are payable in this bustling city. But if you have any questions regarding the personal tax forms or salary tax in Hong Kong, then hop over to Startupr.
Whether you are looking for assistance and consultation for tax matters or any other information related to the corporate taxation, personal taxation, and company formation, we will help you to deal with every aspect of your business. Contact Startupr today!