Hong Kong: Personal Taxation
IIn Hong Kong personal income tax is known as salaries tax. Individuals are only assessed on annual employment income. Non-employment source income such as share dividends and capital gains realized on the sale of shares are not taxable in the territory. Salaries tax is governed by the provisions of the Inland Revenue Ordinance. Income received by an employee is subject to salaries tax whilst income received by a self-employed person is subject to profits tax. Salary tax rates are among the lowest in the world and remain one of the major attractions of locating to the territory.
The territorial principle governs salaries tax with the consequence that salaries tax is only levied on income "arising in or derived from a Hong Kong employment". The definition of income includes wages, salaries, bonuses, commissions, payments by the employer into a pension fund for the employee and gratuities. It does not include either a pension from a source outside Hong Kong or compensation for loss of employment.
Assessment of salaries tax is provisional and based on the previous year's income; a tax credit is given in the subsequent year if the assessment exceeds the actual income. 75% of the provisional assessment is payable in the 3rd quarter with the final 25% being payable in the final quarter.
The salaries tax rate is the lower of either:
- 15% of "assessable income" after the deduction of allowances; or
- A progressive rate levied on "assessable income" after the deduction of allowances. For the 2017-18 tax year onwards, these progressive rates are:
- Nil to HK$45,000 - 2%
- HK$45,000 to HK$90,000 – 7%
- HK$90,000 to HK$135,000 – 12%
- HK$135,000 upwards – 17%
Salaries Tax Cut 2017
In February 2017 Financial Secretary Paul Chan Mo-po annouced his plan to set up a new tax policy unit and look into reducing taxes, given the financial surplus the territory has. Salaries tax was reduced by 75% and capped at HK$20,000. In addition, the tax bands for salaries tax were widened to HK$45,000, as detailed above.
Vehicle Registration Tax
The tax on first registration of cars in Hong Kong is high relative to many other countries, and on 15 June 2011, the Legislative Council approved further increases this tax.
Under the new measures, first-registration tax rates will be 40% of the taxable value of cars for the first HK$150,000 (US$19,200), increased from 35%; 75% on the next HK$150,000, up from 65%; 100% on the next HK$200,000, increased from 85%; and 115% on the remainder, a rise of 15%.
On the other hand, tax concessions for environmentally friendly petrol cars will also rise from the current level of 30%, subject to a cap of HK$50,000 per car, to 45%, subject to a cap of HK$75,000 per car.
Tax and Residence
- Income paid in Hong Kong but which relates to services rendered outside the islands is exempt from salaries tax if the fiscal authorities are satisfied that tax has already been paid on that income in a foreign jurisdiction.
- An individual with Hong Kong source employment who works abroad but renders services in Hong Kong for less than 60 days in any tax year is exempt from salaries tax in the jurisdiction.
- An individual with Hong Kong source employment who works abroad but renders services in Hong Kong for more than 60 days in any tax year is assessed to tax on that proportion of his income as is represented by the number of days he worked in Hong Kong as a proportion of 365.
- Tax is not payable on that proportion of income earned in relation to work done outside Hong Kong by the Hong Kong based employee of a non-resident corporation on a contract governed by the laws of a foreign jurisdiction, where the employees are paid outside Hong Kong and where the employee's activities are not limited to working within the territory.
Benefits in Kind
The following benefits in kind provided by an employer are deemed taxable emoluments:
- Where the employer provides housing this is assessed as an emolument which has a value of 10% of the employee's wage for salary tax purposes;
- Capital gains on realised share options;
- Payments in connection with an employee's children;
- 'Benefits capable of being turned into money by the recipient'. Thus a medical insurance policy or an air ticket would not be taxable under this heading since they are not assignable at a price.
Allowances and Deductions
For the 2009/10 year of assessment, the following allowances are deductible from assessable income for salaries tax purposes:
- Charitable contributions representing up to 35% of an individual's income after allowable expenses and depreciation allowances or assessable profits.
- A residential care allowance in respect of a parent or grandparent of up to HK$60,000 per annum.
- Home loan interest deductions from 2003/4 of up to HK$100,000 in any one year of assessment.
- A current pension allowance of up to HK$12,000 for each year of assessment, not including contributions made by a self-employed person in respect of his employees.
- Depreciation allowances on all plant and machinery essential to the production of income subject to salaries tax.
- A single person's allowance of HK$108,000 (2009/10).
- A married persons' allowance of HK$216,500 (2009/10).
- Child allowances of HK$50,000 for each dependant on the first to the ninth child (2009/10).
- Dependent parent, grandparent, sister, brother sibling (to include more than one where necessary) - allowances HK$30,000 each (2009/10).
- Dependent disabled person's allowance of HK$60,000 (2009/10).
- Education allowance of HK$60,000 for any course which educates or assists an employee in his profession.