A Brief Introduction To Hong Kong Tax Rate

If you are a foreigner who is considering Hong Kong for permanent settlement or a resident of Hong Kong who plans to move abroad, you should first know the Hong Kong tax rate on the FastLane. This complete guide will help you with the tax implications associated with the move by providing you with the required information and insights to combat the tax effects of the move.

Local tax guide

Tax authority: Inland Revenue Department (IRD)

Website: www.ird.gov.hk 

Tax year: 1 April to 31 March

Tax return due date: Within 1 month of the date of issue

Joint filing: Joint filing is possible (you may choose to be assessed on a joint basis if more beneficial)Tax return extensions: Extensions are possible, depending on accounting dates for sole proprietors of unincorporated businesses.

2023/24: Hong Kong tax rate for residents

In Hong Kong, there are three distinct income taxes in place of one combined income tax: 

• Salaries tax – Charged on net chargeable income (assessable income less personal expense deductions and allowances) in progressive rates varying from 2% to 17%, at maximum rate (maximum rate) of 15% on net chargeable income less personal expense deductions, whichever calculation produce the lower tax liability.
• Profits tax – By adopting two-tiered profits tax rates regime, a Hong Kong tax rate of 7.5% is imposed for the first HKD2 million of profits from unincorporated businesses (the current rate is 15%). The rest of earnings will be taxed at a standard 15% rate again.
• Property taxation – Will be levied on the gross rental income at a fixed Hong Kong tax rate of 15% after a standard deduction of 20%.

Income tax or profits tax, salaries tax, and property tax are different from each other. If the person is a Hong Kong resident, they may choose to be assessed temporarily under personal assessment providing that their income or losses comes from various sources.

A basic allowance of HKS132,000 or a married person’s allowance of HKD264,000 (if the spouse’s income is zero or co-assessed) also can be applied.

In the fiscal year 2021-2022, there is a one-time non-repayable personal tax allowance.  The reimbursement is 100% of the final liability of the income tax with respect to salaries tax and tax under personal assessment, however, the reimbursed amount cannot exceed the sum of HKD10,000 in each case.

Who Has To Pay Tax and at What Hong Kong tax rate?

Any individual who earns salaries or fees for services rendered in Hong Kong during a visit of more than 60 days in any tax year is subject to the salaries tax.

However, Hong Kong follows a territorial basis of taxation. So, tax residency is irrelevant for determining the tax liability, except in limited situations.

Which Incomes Are Taxable and What Hong Kong tax rate?

Employment income

Eligible income for taxation includes all cash rewards, commissions, bonuses, incentive payments, etc. Benefits in cash are mostly tax-free if they do not represent cash or they are used for specific purposes such as holiday travel and education. Depending on the type of accommodation, an employer’s provision of it generates a taxable advantage equal to 4% to 10% of the employee’s other taxable income. 

An employee is included within the Hong Kong tax net if his remuneration comes from Hong Kong regardless of him not being a resident of the jurisdiction. Though, in addition to the office directors’ fees, the statutory exemption stipulates that if the employee fulfills all duties and services outside Hong Kong or makes a visit to Hong Kong on a non-permanent basis within one financial year and does not exceed 60 days, he/she will not get any liability to pay the tax. Similarly, if a non-permanent resident engaged in non-Hong Kong employment and offered services in Hong Kong during visits that went beyond 60 days or more within a single year of the assessment period, will also be charged on a pro-rata basis.

Self-employment and business income

In the context of anyone doing a profession, trade, or business in Hong Kong is subject to the imposition of profits tax on the income generated in or from Hong Kong provided with that profession, trade, or business. Taxable income is based on accounting principles, amended by the tax code and rules of practice set down in tax court.

The calculation of individual business losses has the same process followed for the calculation of individual business profits. These losses can be carried forward indefinitely against future income in the same business or another under personal assessment. In both situations, no carry-back loss can be allowed.

In the case that the person receives rental income but the rental activities are not considered as a business, the revenue will be taxed at the property tax rate as opposed to the income tax rate. Property tax is imposed at a flat Hong Kong tax rate of 15% on rents, accepting the standard deduction of 20%.

Investment Income 

All dividend income and interest income not obtained from the company capital investments are tax-free. 

There is no withholding tax raised in Hong Kong for payment of dividends or interest of non-residents. Nevertheless, royalties designated to non-residents for the use of intellectual property rights in Hong Kong are to derive from Hong Kong business and will be subject to an enabling withholding Hong Kong tax rate of 2.25% (for the first HKD2 million of royalty income) and then 4.5% (for the remaining royalty income) for those who obtain the two-tiered profits. Withholding tax rates are amended to 7.5% and 15% in the case that the recipient is related to the payer, and the intellectual property right for which royalties are paid was previously owned by the person with the profession, trade, or business in Hong Kong (who is subject to the two-tiered profits tax scheme).

Directors’ fees

Directors’ fees of a company with its head office, and management control based in Hong Kong are subject to salaries tax in Hong Kong. Other than that, the directors’ fee isn’t taxable as per the tax code.

Employer-provided stock options

These options are more commonly taxed when an individual stock option exercise is performed. Nevertheless, a person who has non-Hong Kong employment and or is taxed on a pro-rata basis that consists of the actual days of his/her services only may opt to exclude partly or even the entire amount of the gains from extra taxable income. The excluded amount may depend on many issues such as the type of grant given (which is given freely or subject to certain conditions) and the number of days on which the beneficiary performed Hong Kong services during the vesting period if the option was subject to conditions. 

Employment-related share awards and their taxation

Employment-related share awards are often taxable as part of the compensation because they are seen as benefits from employment. When an employee is entitled to the entire economic benefit of the shares given, they often become taxable. For the case that the employee happens to have employment from outside of Hong Kong, a proration of his salary by reference to the number of days of his services in Hong Kong, which is similar to the proration applicable to stock option benefits, may also be entailed.

Other Types Of Tax

Capital gains tax

Capital gains in Hong Kong are not taxed.

Estate tax

Estate duty was abolished on 11 February 2006. Estates of persons who die from that day onwards are not liable to estate duty.

Social security tax

Hong Kong has no social security tax. Employer and employee must contribute their lower salaries’ of 5% (HK$1,500) every month to the approved mandatory provident funds scheme unless employees are under other retirement plans of their occupation that are recognized by the retirement scheme.

How To Pay Tax In Hong Kong

Typically, composite tax returns are sent to individual taxpayers, who must include all income from all sources that could be liable to property tax, salary tax, or profits tax. For married couples, the salaries tax is calculated and assigned to the two spouses independently and each is paid by the spouse. Married couples who do not wish to be assessed separately, may choose to have a joint assessment of their salaries or if helpful, they can have their total combined income from all sources examined under personal assessment. 

There is no payroll or withholding tax requirement for salaries tax except when the person will be leaving Hong Kong for more than a month excluding the period in between (other than in the course of his employment). 

Profits, taxes paid, and salary tax are the common forms of prepaid taxes, known as provisional tax. The provisional assessment for a tax year is an estimate, normally based on the preceding year’s assessment, and is payable in two installments: one is over 75% of the 12-month tax liabilities are staged towards the first quarter of the current tax year’s first quarter’s tax return with the remaining 25% due after three months. The final tax output may take place once the actual income is calculated for the tax year to adjust any tax paid on a provisional basis. The last tax assessment will be mixed with a preliminary assessment of the next year, which will be similar tax assessment. The last tax can be paid together with the other half of the provisional tax which is 75% and it is due at the same time as the following year’s tax.

Double Tax Relief Along With Tax Treaties

The employment income that is generated from a place outside Hong Kong shall be exempt from the salary tax if the person has been charged and has paid something equivalent to the salary tax for that income.

For fiscal year 2018/19, any Hong Kong tax paid by someone residing outside Hong Kong or at the territory that has signed a double tax agreement with Hong Kong, such relief will be in the form of a tax credit instead of an income exemption.

The relief would be granted if the taxpayer had taken reasonable measures to minimize the amount of foreign tax payable which cannot be greater than the income exemption or tax credit that is permitted. If the relief is overly compensated, the taxpayer is meant to notify the Hong Kong tax authority to make sure that the Hong Kong salaries tax will be duly distorted.

Currently, Hong Kong has established double tax agreements (DTA) with 45 countries.

Read Explore Double Taxation Agreement Hong Kong Tax Treaties

How FastLane Group Can Help?

Fastlane Group can help you navigate Hong Kong tax rate with ease. Whether you are a resident, expat, or business owner, our experts are dedicated to providing you with personalized assistance for your tax compliance process. Contact us now to get started on the path to financial success for you and your business.