HK income tax return is a form submitted to a taxing body that describes income, expenses, and any other significant tax information. Tax returns help taxpayers to calculate the tax liability, schedule tax payments, and get refunds by overpaying taxes.
Generally, the tax authorities in the majority of countries expect taxpayers to file their returns every year.
In an actual situation, however, how does this apply to Hong Kong? Knowing that the tax system in Hong Kong is different from the one in Mainland China, people who do business in Hong Kong should become familiar with it. Hong Kong shares sincere favor with foreigners in terms of taxes as well.
Content Outline
Does Hong Kong Have Income Tax?
Yes, Hong Kong does have income tax. As per Hong Kong tax rules, every citizen of Hong Kong is subject to personal income tax. Even foreigners also have to pay taxes.
There are profits tax, income tax and property tax, all of them are unique to each and have different requirements. Nonetheless, the fact is that among the first-world countries, Hong Kong has one of the most attractive income tax rates. Taking into account Hong Kong as a tax haven, you will find out that the foreigners’ income tax rates as well as the corporate tax rates in the region helps create a great working environment.
Expats who are employed in a professional field, or running their own business can be confident that their tax burden will come down to one of the lowest in Europe and Asia, thereby saving them a significant amount of their income. Remuneration for non-resident entertainers or sportsmen for their participation in Hong Kong entertainment or sports events is subjected to withholding tax on their assessable profits. There are no withholding tax levied on dividends and interest.
Under the Comprehensive Arrangement, a Hong Kong resident working in the Mainland may be exempted from taxation in the Mainland on the basis that all 3 of the following conditions:
- The resident is present in the Mainland for a period or periods of 183 days or fewer in any 12-month period with its commencement or ending are both within the taxable year.
- The remuneration is paid by or on behalf of an employer who is not a Mainland resident.
- The salary is not from the permanent establishment which the employer has in Mainland.
In addition, Hong Kong has no capital gains taxes and its tax laws also provide for different deductions and allowances. Furthermore, income generated outside the region is also completely exempted from taxation.
This is one of the factors why foreigners find Hong Kong appealing to start a business.
Related Article: 2024 Tax Filing Season: Tax Deadline 2024 in Hong Kong You Need To Know About
What Does Provisional Tax Mean in Hong Kong?
A provisional tax, which is charged by using the amount of a taxpayer’s net chargeable income for the prior year of assessment as a reference. On the other hand, provisional salaries tax in Hong Kong is not for a prepayment purpose. This is also a common misconception whereby people automatically assume that they will pay the HK income tax on future employment income.
Provisional tax is due in two instalments:
- 75% is paid in the last quarter of the year of assessment, with
- the remaining 25% due shortly after the end of the year of assessment.
Is Bank Interest Taxed in Hong Kong?
The profits tax will be applied on the interest income sourced from Hong Kong if it is received by a company that is engaged in a business in the region.
An exemption would be on interest income from deposits of Hong Kong banks where it does not secure a borrowing for which there is a deductible interest expense.
Contrary to this, such an exclusion does not relate to interests accrued by financial institutions.
Interest accruing to a bank or financial institution will be taxable if it arises as a result of the business conducted in Hong Kong by the bank or financial institution.
Interest income gained from or of the intra-group financing business within Hong Kong by a corporation will be deemed to be sourced and taxed in Hong Kong.
Who is Required to Pay Taxes in Hong Kong?
Apart from the residents in Hong Kong, people include those who earn income from the Hong Kong office or Hong Kong employment, and those that provide services in Hong Kong for a period of more than 60 days in any tax year, are subjected to salary tax. Hong Kong applies the territorial taxation rule – the concept of tax residency does not influence the tax liability (except for some narrow cases).
A tax rate imposed on individuals is progressive and starts from 2% on net chargeable income (i.e. assessable income after deductions and allowances) and is capped at 17% or 15% of net income (i.e. income after deductions).
| Net Chargeable Income (in HKD currency) | Tax rate |
|---|---|
| 1 – 50,000 HKD | 2% |
| 50,001 – 100,000 HKD | 6% |
| 100,001 – 150,000 HKD | 10% |
| 150,001 – 200,000 HKD | 14% |
| Above 200,000 HKD | 17% |
Employers & Employees
Employers are not bound by law to withhold tax from employees, even if the employees are Hong Kong residents. If it is termination or employee are about to leave Hong Kong within 1 month after employment ceases, the employer will then have to fill a form and to send it to the Inland Revenue Department (IRD) for the letter of release and temporarily withhold ALL payment (including salary) due to the employees until “Letter of Release” is issued.
Please get more info on the issue of leaving the job in Hong Kong through this link.
Expats
The Hong Kong legal system generally operates under a territoriality principle. Therefore, only the income derived in Hong Kong is taxable in Hong Kong. While this on the one hand could be seen as a certain benefit, since income that has been taxed once before could be rewarded with an exemption from the salary tax in Hong Kong, but on the other hand, income earned for work done outside of Hong Kong can only be regarded as outside the jurisdiction.
Furthermore, the income obtained locally by the visitors who stay for less than 60 days is also excluded from payment of Hong Kong salaries tax.
In general, there is no specific Hong Kong expatriation tax, so the tax calculation methods still apply the same to everyone. Generally, most of the expatriates are employed in Hong Kong and pay taxes on salaries in Hong Kong.
Freelancer/Self-Employed
If you are taking goods or you are providing professional or personal services, you fall within the category of self-employed people engaged in business.
The self-employed may be either a sole proprietor or a partner of a partnership business. On the other hand, it must be registered with the Inland Revenue Department (IRD) if you are an unincorporated company.
Every sole proprietor or partnership business owner is liable to profit tax on the assessable profits of the business.
All self-employed individuals must adhere to the following obligations:
- Maintain adequate business records for a minimum of seven years.
- Generate financial statements using your accounting records.
- File a tax return to report business earnings or losses.
- Inform the Inland Revenue Department in writing about your tax liability unless you have already received a tax return from the department.
- Also, inform the Inland Revenue Department about the possible cessation of your business and any change of address.
- Additionally, ensure timely payment of taxes.
Taxes For Unemployed Individuals
Hong Kong does not have unemployment taxes. So, if you are currently unemployed, don’t stress about paying taxes because you aren’t obligated to.
Bonus Tips For Foreign Companies
The Hong Kong government has extended the deductibles and reimbursements by recent policy. Consequently, these types of incentives for the further investment are initiated.
Hong Kong’s tax system is still one of the most competitive and advantageous systems both for the locals and for the expats. Even a foreign company can resort to different financial aids from the chambers of commerce, apply for international grants or loans, and so on.
Note that the corporate tax rate is 16.5% for the assessable profits of a corporate entity. A variety of tax concessions are given to particular business operations such as tax exemption for fund profits made offshore and profits from operating ships in Hong Kong.
The profits made from the business of reinsurance of offshore risks and the profits of a qualified Corporate Treasury Centre will be refunded at half of the corporate tax rate.
How FastLane Group can Help?
FastLane Group specializes in HK income tax, accounting, and advisory services, which address specific individual needs. We, a team of tax experts, give the necessary advice on tax planning, compliance, and reporting. We provide our services for all of your financial objectives to ensure that you have the assistance you need to prosper in the dynamic business scene of Hong Kong. Contact us now.