A Guide to Filing Individual Tax Return

A Guide to Filing Individual Tax Return

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Taxation

In May/June, the Hong Kong Inland Revenue Department (IRD) will issue the individual (salaries) tax returns for the tax year 2023/24 which is commonly referred to as the green envelope. The notices should be responded within one month upon receipt of such returns, and if filed online, another one month extension is granted automatically. There are some tax tips to guide you through your individual tax return filing 2023/24, which will be discussed below.

Tax Filing & Notification Requirements

Filing and submission of the 2023/24 individual tax returns is due around June 2024. With the submission being automated or through a tax representative, an additional 30 days is automatically granted for such individuals. Unincorporated sole proprietors of the business should submit their returns around 15 August 2024, in addition, the one-month extension for the electronic filing of the returns is also valid.

The Hong Kong IRD requires everyone, regardless of their income, residency, or being a Hong Kong taxpayers, to file tax returns by the designated time. If the deadline is not met, penalties may be imposed, estimated tax may be assessed or even prosecution.

Precision is an important indicator for the tax return completion, as it is considered a trigger for IRD enquiries or court actions if any false or incomplete information is provided. New taxpayers should report their tax liability to the IRD and they should also request for tax return forms if they haven’t received their tax returns to avoid being penalized.

In Hong Kong, all earnings in employment which include wages, commissions, bonuses, and accommodations provided by employers fall under the category of salaries tax, while pensions for retired persons are also included. Taxable income is ascertained after the deduction of certain deductions and allowances, hence ensuring that only the net income is taxed.

Related Article: 2024 Tax Filing Season: Tax Deadline 2024 in Hong Kong You Need To Know About

Most employees are subject to progressive tax rates

The salaries tax payable is calculated through progressive rates based on total income (after deductions and allowances) or based on a standard rate on your income earned during the taxable period from 1 April to 31 March of the following year, whichever is lower out of the two.

For the most of the working class, the tax rate calculated according to the progressive tax rates are less than the standard rate. To conclude this, employees are taxed at the progressive rate. The standard rate is mostly applied for those on a high income level.

Claims for Tax Exemption on Individual Tax Returns

Individuals are required by law to report the income recorded under their names in their respective tax returns. If a taxpayer is eligible to make a claim for tax exemption in case of other conditional claims such as time apportionment claim, 60-days tax exemption claim, they should lodge the tax claim as part of their tax returns and include the relevant information in there.

For example, a foreign-based expatriate employed by a company and posted to Hong Kong for work may potentially benefit from the time apportionment claim as the income related to his/her employment service time rendered from out of Hong Kong shall be taxable under Hong Kong salaries tax. Normally, the employment must meet the requirement of the employment sourced outside Hong Kong in order to be qualified for a time apportionment claim, which shall be determined by considering all the facts and circumstances.

Moreover, an individual who stays in Hong Kong for not more than 60 days in a tax year may file an exemption claim in Hong Kong and enjoy full exemption if he/she qualifies as a visitor to Hong Kong.

Similarly, irrespective of whether someone is a pilot or a seafarer, his/her employment income can possibly be fully tax-exempt in Hong Kong if he/she is present in Hong Kong for not more than 60 days in a tax year and a total of 120 days for two consecutive tax years, one of which is the tax year concerned. The transit days in Hong Kong are also accounted for as days present in Hong Kong.

What expenses can be deducted?

Expenditure on self-education, approved charitable donations, obligatory contributions to recognised retirement schemes, home loan interest, elderly residential care expenses, premiums under Voluntary Health Insurance Scheme Policy, Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contributions, Domestic Rents Deduction etc. are deductible. You can still claim the deductions even if you do not enclose the documents with your tax return; however, you must keep them for at least six years in case the IRD asks you to produce them.

Allowance for Claims

Each year of tax, there is a certain amount (an amount that does not require to claim) that is provided for you as a basic allowance. Furthermore, as well, you are allowed to declare the family and dependent allowances. These comprise Married person’s allowance, Child allowance, Dependent brother or sister allowance, Dependent parent and grandparent allowance, Single parent allowance, and Disabled dependant allowance. This claim does not need to be accompanied with any proof when the return is filed. Nevertheless, you should keep the evidence to be able to clarify at any time.

Tax Return

Tax reduction

Tax reduction is not the only measure which is adopted by the government, but it is a measure which the government has been offering for the past few years.

On the other hand, to know more about the deductions, allowances and reduction, the IRD published IRD allowances, deductions and tax rate table.

What is personal assessment?

On the other hand, personal assessment method is also a calculation process for the tax, which may decrease the tax liability for some individual taxpayers.

This might be interesting to taxpayers who are covered by the Profits Tax and/or the Property Tax and/or the Salaries Tax.

However, it may be no difference in choosing personal assessment if you are only subject to Salaries Tax.

What is Tax Planning?

It is also possible to minimize your tax liabilities through a properly laid-out tax plan at the early stages Here we can see that the most common opportunity of tax planning is to give tax-effective benefits in the form of fringe benefits to the directors and employees such as provision of housing benefits.

Other than that, different tax deductions and allowances are available under the two tax regimes of Hong Kong, and the availability of them depends on the fact and circumstances of the taxpayers. There is a chance that early tax planning will avail you of this opportunity whereby you will be able to claim your tax deductions and allowance in your next tax filing.

Apart from these tips, our company, FastLane Group will gladly assist you with your individual taxes filing and tax planning by providing you with the tax review or filing the tax return for you.

How to prepare for tax payment

  1. You can use the IRD’s Tax Calculator to find out exactly how much you’ll need to pay up.
  2. IRD typically issues the Notice for Salaries Tax Tax at the end of the year. Tax payments can be paid in two instalments: the first payment usually due in January; the second payment is usually due in April.

You can allocate some money each month especially to meet the tax payment, and also can utilize IFEC Savings Goal Calculator to make your saving plan. You have another option, the tax reserve certificates provided by the government, which you can use to save up for the tax payments.

How FastLane Group can help?

FastLane Group provides tax advisory service that saves you from Hong Kong’s tax complexities and ensures you file your returns on time and right. We offer tax planning consultancy based on personalized requirements, optimization of deductions and allowances, and support in compliance and submission processes to ensure your tax liabilities are minimized, and no penalties are accrued. Contact us now.