Foreigners’ Guide To Taxes For Expats In Hong Kong

Hong Kong is one of the most attractive places in Asia for expatriates and foreign companies thanks to its simple and competitive tax system. Unlike many jurisdictions that impose tax on worldwide income, Hong Kong follows a territorial principle of taxation — only income sourced in Hong Kong is subject to tax. This means no tax on overseas income, no capital gains tax, no value-added tax (VAT), and no inheritance or estate tax.

For expats, this provides a refreshingly straightforward environment: salaries tax applies only to Hong Kong-sourced employment income, while profits tax applies to businesses operating in the city, and property tax applies to rental income. With low progressive rates, generous allowances, and a clear compliance framework, Hong Kong is often regarded as a tax-efficient hub for professionals, entrepreneurs, and companies.

Disclaimer: This guide is for informational purposes only. Tax rules can change, and expats may also face obligations in their home country. Always consult a qualified tax professional before making financial decisions.

Overview of Hong Kong’s Expat Tax System

Hong Kong’s tax system is territorial, which means individuals are taxed only on income arising in or derived from Hong Kong. Income earned outside of the city is not subject to Hong Kong tax, regardless of the taxpayer’s residency status. This principle makes Hong Kong an attractive location for expatriates and international businesses, as it eliminates the complexity of worldwide taxation found in many other countries.

Key Features of the System

• Tax Authority: Inland Revenue Department (IRD).
  
• Tax Year: Runs from 1 April to 31 March.
  
• Tax Filing Deadline: Generally within 1 month of the date the tax return is issued. Extensions may apply for sole proprietors.
  
• Separate Taxes: Hong Kong does not have a unified income tax. Instead, it levies three main direct taxes:
  
  1. Salaries Tax – on employment income.
     
  2. Profits Tax – on business profits.
     
  3. Property Tax – on rental income.
     

Taxpayers may also elect for Personal Assessment, which aggregates income across these categories if it results in a lower tax liability.

Why It Appeals to Expats

• No tax on foreign-sourced income.
  
• No VAT or GST.
  
• No capital gains or inheritance tax.
  
• Low, simple tax rates compared to most developed economies.
  

This streamlined framework reduces compliance burdens for expats and companies, while maintaining a predictable tax environment.

Who Pays Tax in Hong Kong?

Hong Kong’s territorial system applies to any individual or entity earning income sourced in Hong Kong, whether resident or non-resident. Tax liability depends on the nature of income and the duration of presence in the city.

Residents and Non-Residents

• Both residents and non-residents are subject to salaries tax if their income arises from Hong Kong employment or from services rendered in Hong Kong.
  
• Residency status does not generally determine tax obligations, unlike in many countries. What matters is where the income is sourced.
  

The 60-Day Rule

• Individuals visiting Hong Kong for 60 days or fewer in a tax year are generally exempt from salaries tax on employment income.
  
• If the stay exceeds 60 days, salaries tax applies on the portion of services rendered in Hong Kong.
  
• Directors’ fees are an exception — they are taxable if the company is centrally managed and controlled in Hong Kong, even if the director spends fewer than 60 days in the city.
  

Expat Tax Residency

While tax residency is less critical in Hong Kong, it is sometimes relevant under double taxation agreements (DTAs):

• An individual is considered a Hong Kong tax resident if they spend more than 180 days in a year, or more than 300 days across two consecutive years in Hong Kong.
  
• Non-residents may still have obligations if they derive income from Hong Kong sources, even if they live abroad.
  

Who Must Pay

You must file and pay Hong Kong tax if you are:

• An employee earning income from a Hong Kong office or from services performed locally (beyond the 60-day exemption).
  
• A self-employed person or business owner carrying on trade, profession, or business in Hong Kong.
  
• A property owner receiving rental income from Hong Kong property.

Types of Taxes in Hong Kong

Hong Kong does not levy a single unified income tax. Instead, it imposes three separate direct taxes. Each applies independently, although individuals can choose to combine their income under personal assessment if it results in a lower tax burden.

1. Salaries Tax

• Levied on employment income, director’s fees, and certain benefits.
  
• Applies at progressive rates (2%–17%) on net chargeable income, or at the standard rate (15% up to HK$5 million, 16% above) on net income, whichever results in lower tax liability.
  
• Common deductions and allowances (e.g. basic, married, child) reduce taxable income.
  

2. Profits Tax

• Applies to businesses, freelancers, and self-employed persons carrying on trade, profession, or business in Hong Kong.
  
• Corporations: 8.25% on first HK$2 million, 16.5% on remainder.
  
• Unincorporated businesses: 7.5% on first HK$2 million, 15% on remainder.
  
• Business losses can be carried forward indefinitely.
  

3. Property Tax

• Levied on rental income from Hong Kong properties.
  
• Flat rate of 15% on net assessable value (after 20% notional deduction and other adjustments).
  
• Corporate landlords pay profits tax instead of property tax.
  

4. Personal Assessment (Optional)

• Available to permanent or temporary residents.
  
• Aggregates an individual’s salaries, business, and property income into one calculation, applying allowances and progressive tax rates.
  
• Beneficial when taxpayers have multiple sources of income or deductible losses.
  

Quick Comparison Table

Tax Rates & Allowances (2025/26)

Hong Kong applies progressive tax rates to employment income, with a cap under the standard rate system. Taxpayers are taxed at whichever method results in a lower liability.

Progressive Salaries Tax Rates (2025/26)

Related Article: 2025 Tax Filing Season: Tax Deadline in Hong Kong You Need To Know About

Standard Rate of Tax

• 15% on the first HK$5 million of net income.
  
• 16% on any amount exceeding HK$5 million.
  

This “two-tier” system ensures that most individuals pay low effective tax rates, while high-income earners face capped liability compared to many global jurisdictions.

Key Personal Allowances (2025/26)

Allowances reduce taxable income before applying rates:

Deductions

In addition to allowances, taxpayers may deduct approved charitable donations (up to 35% of assessable profits), self-education expenses, and contributions to retirement schemes such as the MPF.

Employment & Expat Tax Rules

Employment Income

All cash emoluments such as salary, bonuses, and gratuities are subject to salaries tax if sourced in Hong Kong.

• Benefits in kind are generally not taxable unless they can be converted into cash, or specifically relate to housing, holiday travel, or education benefits.
  
• Employer-provided housing is treated as a taxable benefit, usually calculated as a percentage (4%–10%) of other taxable income depending on the accommodation type.
  
• Rental reimbursement schemes can reduce taxable income if structured properly.
  

60-Day Rule

Individuals working in Hong Kong for 60 days or fewer in a tax year are exempt from salaries tax. If an expat exceeds 60 days, they are taxable on the proportion of services performed in Hong Kong.

Directors’ Fees

Director’s fees are subject to Hong Kong salaries tax if the company is centrally managed and controlled in Hong Kong, regardless of the director’s physical presence.

Share Options & Share Awards

• Share Options: Gains are taxable under salaries tax. The taxable amount is the difference between the option exercise price and the market price at exercise.
  
• Employment-related Share Awards: Taxed as perquisites once the employee becomes entitled to the economic benefit of the shares.
  
• Non-residents with non-Hong Kong employment may claim pro-rata exemptions based on days worked outside Hong Kong.
  

Expat Considerations

• Territorial scope: Only Hong Kong-sourced income is taxable. Overseas income, even if remitted to Hong Kong, is not taxed.
  
• Short visits: Income earned locally during stays under 60 days is exempt.
  
• US and other expats: While Hong Kong does not impose extra expat taxes, home country rules may apply (e.g., U.S. FEIE, FTC, FATCA/FBAR reporting).

Self-Employed & Freelancers

Individuals who conduct business in Hong Kong — whether as a sole proprietor, freelancer, or in a partnership — are subject to profits tax on income derived from or arising in Hong Kong.

Registration & Compliance

• Business Registration: All self-employed persons must register with the Inland Revenue Department (IRD) if operating an unincorporated business.
  
• Record-Keeping: Adequate business and accounting records must be maintained for at least 7 years.
  
• Financial Statements: Accounts must be prepared from these records for reporting purposes.
  
• Tax Return Filing: Self-employed individuals must complete and submit a tax return to report profits or losses annually.
  
• Notifications: The IRD must be notified of:
  
  • New tax liability (if not yet issued a return),
    
  • Any change of business address,
    
  • Cessation of business operations.
    

Tax Rates for Self-Employed

• Unincorporated Businesses: Taxed under profits tax at 7.5% on the first HK$2 million of assessable profits and 15% on the remainder.
  
• Losses: Business losses can be carried forward indefinitely to offset future profits.
  

Obligations Summary for Freelancers

• Register with IRD as a business.
• Keep sufficient records for 7 years.
• Submit annual tax returns.
• Pay profits tax according to IRD assessments.
• Inform IRD of cessation or changes.

For many expatriates running independent consultancies or freelancing, understanding these requirements is critical to avoid penalties and maintain compliance.

Other Income & Exemptions

Hong Kong offers a range of exemptions and simplified rules that benefit both residents and expatriates.

Investment Income

• Dividends: Not taxable.
  
• Interest Income: Generally exempt, unless arising from business funds or certain financial institutions.
  
• Bank Deposit Exemption: Interest earned from deposits with licensed banks or financial institutions in Hong Kong is not taxable (except where deposits secure deductible borrowings).
  

Royalties

• Royalties paid to non-residents for intellectual property used in Hong Kong are subject to withholding tax.
  
• Standard rate: Effective 4.95%.
  
• Related-party transactions: Withholding may increase to 15% if IP was previously owned by a Hong Kong entity.
  

Capital Gains

• Hong Kong does not impose any capital gains tax.
  
• Sale of shares or property (not constituting a trade) is not taxable.
  

Inheritance & Estate Tax

• Hong Kong abolished estate duty in 2006.
  
• Assets passed upon death are not subject to inheritance or estate tax.
  
• Expats may still face inheritance tax obligations in their home countries.
  

Social Security & MPF

• No social security taxes in Hong Kong.
  
• Employers must enrol employees (aged 18–65) in the Mandatory Provident Fund (MPF), unless exempt (e.g., short-term expats on contracts under 13 months or those covered by overseas retirement schemes).
  
• Both employer and employee typically contribute 5% of monthly relevant income, capped at HK$1,500 each.

Filing & Compliance

Every individual earning taxable income in Hong Kong must file an annual tax return with the Inland Revenue Department (IRD). The process is straightforward but comes with key deadlines and responsibilities.

Tax Returns

• Issue: Tax returns are generally issued in May following the end of the tax year (31 March).
  
• Deadline: Returns must usually be submitted within 1 month of issue. Extensions may be granted for sole proprietors or under special conditions.
  
• Joint Filing: Married couples are assessed separately by default, but can elect joint assessment or personal assessment if it lowers their liability.
  

Provisional Tax System

Hong Kong operates on a “pay-as-you-go” provisional tax system:

• Provisional tax is based on the prior year’s liability.
  
• 75% is payable in the last quarter of the tax year.
  
• The remaining 25% is payable three months later.
  
• Once actual income is assessed, provisional tax is adjusted against the final liability.
  

Employer’s Reporting Duty

• Employers are not required to withhold salaries tax during employment.
  
• Exception: If an employee is leaving Hong Kong for more than one month (other than for business travel), the employer must notify IRD and temporarily withhold all payments until a Letter of Release is issued.

Read: Exploring the IR56G Form for Employee Departure from Hong Kong

Filing Timeline (Typical Year)

This system means that taxpayers often pay tax for the current and next year simultaneously, but credits ensure no double taxation.

Double Tax Relief & Treaties

For expatriates, one of the biggest concerns when working abroad is the risk of being taxed twice on the same income. Hong Kong addresses this through its double taxation agreements (DTAs) and unilateral relief provisions.

How Relief Works

• Territorial Tax Principle: Since Hong Kong only taxes income sourced within its borders, double taxation is already minimized.
  
• Tax Credits vs Exemptions:
  
  • Under most DTAs, income taxed abroad may receive a foreign tax credit against Hong Kong tax liability.
    
  • In some cases, income earned overseas is exempt from Hong Kong salaries tax if equivalent tax is paid in the other jurisdiction.
    
• Self-Reporting: Taxpayers must disclose overseas tax payments and notify the IRD if relief claimed is excessive.
  

Treaty Network

Hong Kong has signed over 50 double tax agreements, including with:

• China
• United Kingdom
• France
• Singapore
• Japan
• Malaysia

These treaties provide clarity on which jurisdiction has primary taxing rights and often reduce withholding taxes on dividends, royalties, or service fees.

Learn more about Double Taxation Agreements (DTAs)

Expat Example

A UK expatriate working in Hong Kong but taxed on worldwide income in the UK can use the Hong Kong–UK DTA to avoid paying full tax in both jurisdictions. The tax paid in Hong Kong is credited against UK liability, ensuring the individual is not doubly taxed.

Special Considerations for U.S. Expats

While Hong Kong’s tax system is straightforward, U.S. citizens and green card holders face unique challenges because the United States taxes on worldwide income, regardless of residence.

Key U.S. Rules to Consider

• Foreign Earned Income Exclusion (FEIE): Eligible U.S. expats can exclude up to a set annual limit of foreign income from U.S. federal tax if they meet the residence or physical presence test.
  
• Foreign Tax Credit (FTC): U.S. taxpayers may offset U.S. tax liability with tax paid in Hong Kong, reducing the chance of double taxation.
  
• FATCA & FBAR Reporting: U.S. citizens must disclose foreign bank accounts and assets. Failing to file FATCA or FBAR reports can lead to severe penalties.
  

Why Hong Kong is Attractive for Americans

• No estate or death tax: Assets passed on at death are not taxed in Hong Kong.
  
• No capital gains tax: U.S. taxpayers still need to report gains to the IRS, but no additional Hong Kong liability applies.
  
• Territorial system: Only Hong Kong-sourced income is taxed locally, which means many expats pay low Hong Kong salaries tax and rely on FTC to minimize U.S. exposure.
  

Practical Tip

Most U.S. expats in Hong Kong end up filing both Hong Kong and U.S. returns. Coordinated planning with a tax advisor familiar with both systems is essential to avoid double taxation and to remain compliant with U.S. reporting obligations.

Tips & Common Mistakes Expats Should Avoid

Hong Kong’s tax framework is simple compared to most jurisdictions, but expatriates often make errors that result in unnecessary liabilities or penalties.

Common Mistakes

• Missing deadlines: Hong Kong’s tax year runs from 1 April to 31 March. Late filings or payments can lead to penalties.
  
• Overlooking home-country obligations: Some countries, such as the United States, continue to tax worldwide income. Failing to file in the home country can trigger penalties.
  
• Misunderstanding the 60-day rule: Short-term visits are exempt, but once the 60-day threshold is exceeded, salaries tax applies on income sourced in Hong Kong.
  
• Failing to report foreign accounts: U.S. taxpayers in particular must comply with FATCA and FBAR reporting.
  
• Confusing residency with tax liability: In Hong Kong, income source determines tax liability. Non-residents can still be taxed if they earn Hong Kong-sourced income.
  
• Poor record-keeping: Freelancers and business owners must keep adequate records for at least seven years.
  

Best Practices

• Maintain complete records of income, contracts, deductions, and bank statements.
  
• Track travel days carefully to substantiate claims under the 60-day rule or residency rules.
  
• Seek professional advice, especially if you are subject to dual reporting requirements.
  
• Notify the IRD if you plan to leave Hong Kong for more than a month, and ensure employers comply with the “Letter of Release” process.
  
• Stay updated on changes to tax allowances and government incentives to optimize tax positions.

Foreign Companies & Incentives

Hong Kong’s tax regime is designed to encourage foreign investment and corporate activity. Beyond low standard rates, there are specific incentives that make the city a strategic base for multinational companies and entrepreneurs.

Corporate Tax Rates

• Corporations pay 8.25% on the first HK$2 million of assessable profits and 16.5% on profits above HK$2 million.
  
• Offshore profits that are not sourced in Hong Kong are generally exempt.
  

Targeted Incentives

• Offshore Funds: Profits derived by qualifying offshore funds are exempt from profits tax.
  
• Shipping Industry: Profits from international shipping operations are exempt from Hong Kong tax.
  
• Corporate Treasury Centres: Qualifying centres benefit from a reduced tax rate of 8.25% on specified treasury activities.
  
• Reinsurance of Offshore Risks: Professional reinsurers may also enjoy a half-rate concession of 8.25%.
  

Broader Benefits for Foreign Businesses

• Hong Kong has expanded deductible allowances and introduced sector-specific concessions to attract international capital.
  
• Companies may benefit from government grants and support through chambers of commerce, particularly when engaging in cross-border trade or setting up regional headquarters.
  
• No withholding tax on dividends and interest provides additional certainty for multinational profit repatriation.

How FastLane Group Can Help?

FastLane Group, we specialise in Hong Kong tax, accounting, and advisory services tailored to the needs of expatriates and international businesses. Our team of professionals provides practical guidance on tax planning, compliance, and reporting—ensuring you meet your obligations while optimising your tax position.If you are moving to Hong Kong, already working here, or managing business operations across borders, our tax specialists are ready to assist. Contact us today to discuss your situation and receive tailored advice for your personal and business tax matters.