Whether you’re a fresh-faced newcomer or a seasoned worker in Hong Kong, figuring out how to pay taxes in Hong Kong can be a daunting task. Questions abound: How will your income be taxed? What do you need to fill out when changing jobs? How should you report commissions and bonuses? Take it easy; here’s a beginner’s guide to answering all of your tax-related queries.
Table of contents: Salary Tax in Hong Kong
- An overview—The basics of local salary tax in Hong Kong
- More about the salary tax payment procedure
- How is the salary tax calculated?
- More salary tax questions for expats
- Final note: salary tax in Hong Kong
- Frequently asked questions: Salary tax in Hong Kong
An overview—The basics of local salary tax in Hong Kong
Before we start, let’s get to the essential question: do you need to pay taxes in Hong Kong? Here’re a few criteria to consider before claiming yourself as a Hong Kong tax resident:
What is salary tax?
Salaries tax is levied on all income from employment, office, or any pension that arises in or is derived from Hong Kong. This means that individuals earning income from a Hong Kong office, Hong Kong employment, or services rendered in Hong Kong for more than 60 days in any given tax year are subject to salary tax.
It is worth noting that individuals who are self-employed and not classified as employees can be charged profit tax instead.
Hong Kong taxation runs on a territorial basis
Another thing about Hong Kong taxation is that taxes are determined based on territoriality rather than tax residency, meaning that tax liability is generally determined by the location of the income source rather than the taxpayer’s residence, except in certain limited situations.
In other words, being a Hong Kong permanent resident does not necessarily mean you are subject to taxation in Hong Kong.
|Earning Income From Hong Kong?
|Working In Hong Kong?
|A Taxable Hong Kong Resident?
|Earning income from a Hong Kong office
|Working in the Hong Kong office
|If you earn income from a Hong Kong office and work in a Hong Kong office, you are considered a taxable Hong Kong resident.
|Earning income from Hong Kong employment
|Working remotely outside Hong Kong
|If you earn income from Hong Kong employment and work remotely outside of Hong Kong, you are still considered a taxable Hong Kong resident.
|Earning income from Hong Kong employment
|For more than 60 days in any given tax year
|If you earn income from Hong Kong employment and work in Hong Kong for more than 60 days in any given tax year, you are considered a taxable Hong Kong resident.
|Earning income from Hong Kong employment
|For less than 60 days in any given tax year
|If you earn income from Hong Kong employment and work in Hong Kong for less than 60 days in any given tax year, you are not considered a taxable Hong Kong resident.
|Earning income from a foreign company
|Working in Hong Kong
|If you earn income from a foreign company and work in Hong Kong, you are not considered a taxable Hong Kong resident.
What is the minimum annual salary required to be subject to salary tax in Hong Kong?
If you’re a Hong Kong taxable resident, you may not need to pay salary tax due to the basic salary allowance. Hong Kong offers a basic salary allowance of HK$132,000 for those in the workforce. Individuals earning less than HK$132,000 per year (or HK$11,000 per month) are exempt from paying taxes.
More about the salary tax payment procedure
Once you’ve got the basics down, it’s time to dive into the salary tax timeline.
What is the period of a tax year?
The first thing to know is the period of a tax year. This is when the government records your income to calculate your salary tax. It begins on April 1 of a year and ends on March 31 of the following year. As for the 2022/2023 tax year, that will be from April 1, 2022, to March 31, 2023.
When do we need to pay taxes for the years 2022/2023?
The following is the timeline for paying taxes in Hong Kong:
|What To Expect?
|Individuals Tax Returns for 2022/2023 issued on May 2, 2023
|Return the Tax Return within 1 month from the date of issue, on or before June 2, 2023.
|Notice of assessment issued
|1st tax payment
|2nd tax payment
What is a tax return?
In the midst of a year, if you’re required to pay tax in Hong Kong, You will receive a tax return, which is an official document submitted to a tax authority that provides details on an individual’s income, expenses, and other significant financial information.
The paper form serves as a comprehensive record of a taxpayer’s financial transactions, and it is a crucial tool for calculating and reconciling tax obligations.
What to do if you receive a tax return?
If you receive a tax return from the Inland Revenue Department, you must complete the form and submit it by the due date (usually within 1 month after the issuance date; an extra 1 month will be given automatically if the return is filed electronically). Do note that even if you have no income that can be charged to salary tax, you should also submit the tax return.
How is the salary tax calculated?
In Hong Kong, your salary tax (also known as personal income tax) is calculated using a progressive rate system, which means that the more you earn, the higher the percentage of tax you have to pay.
After deducting allowances and other expenses, the remaining income is considered the net chargeable income, which is used to calculate tax. And here are the tax rates based on different income brackets for the 2022/2023 period:
|Net Chargeable Income
|Tax Amount To Be Paid
|On the First
|On the Next
|On the Next
|On the Next
Example: A teacher in Hong Kong earns HK$732,000 per year
Mr. Lawrence is a biology teacher at an international school in Hong Kong, earning an annual income of HK$732,000. His tax liability can be calculated as follows:
Since he is single, Mr. Lawrence is eligible for a basic allowance of HK$132,000. After deducting this allowance, his chargeable income is HK$600,000.
As his income falls within the highest tax bracket, he is required to pay HK$16,000 for the first HK$200,000 of income and an additional 17% tax on the remaining HK$400,000 of income, which amounts to HK$68,000.
Therefore, the total tax that Mr. Lawrence needs to pay is HK$84,000 (HK$16,000 + HK$68,000).
To find out how much tax you owe in Hong Kong, you can use the official tax calculator. By inputting your financial information, the calculator will generate a draft salary tax amount that you need to pay.
What can I do if I do not have enough money to pay taxes?
If you’re strapped for cash when it comes time to pay your taxes, don’t panic! You have options, such as applying for a tax loan or seeking tax relief. Tax loans are offered by banks and other lending companies to help taxpayers pay their taxes, and there are no restrictions on how you can use the borrowed funds. Some people even use tax loans to fund their weddings or home renovations.
For more information, check out the comparison of tax loans.
More salary tax questions for expats
Will you get taxed if you’re in a remote working setting?
If you’re working remotely from Hong Kong as a foreign individual, you may still be subject to Hong Kong salary tax under the territorial tax principle as long as your employment income is derived from Hong Kong. However, this is subject to any applicable double taxation avoidance agreement between Hong Kong and your country of residence.
On the other hand, if your employer is based overseas and you’re working remotely from Hong Kong, you may not be considered a Hong Kong employee and would only need to pay salary tax on income directly earned from services provided in Hong Kong.
Will you get double-taxed if you also work in Mainland China?
If you’re wondering whether you’ll be taxed twice while working in Mainland China, the answer is: it depends.
According to the Comprehensive Double Taxation Agreements, a Hong Kong resident working in Mainland China may be exempt from their taxes if 3 conditions are met:
- they are present on the Mainland for a period or periods not exceeding 183 days in any 12-month period starting or ending in the taxable year concerned;
- their remuneration is paid by/on behalf of an employer who is not a Mainland resident;
- and their remuneration is not borne by a permanent establishment that the employer has on the Mainland.
Final note: salary tax in Hong Kong
While there’s certainly a lot to absorb when it comes to navigating salary tax in Hong Kong, we haven’t quite covered the ins and outs of filling out the tax return just yet. Check out our next blog posts for all the details on how to tackle this crucial step in the process. But don’t let procrastination lead to financial trouble; file your tax return on time and save yourself some hassle!
Frequently asked questions: Salary tax in Hong Kong
How is income taxed in Hong Kong?
In Hong Kong, the rule of taxation is simple: income generated within the jurisdiction is subject to taxation, regardless of an individual’s permanent residency status. This means that even if you’re not a permanent resident, any income you earn in Hong Kong is taxable.
The Hong Kong Inland Revenue Department recognises three main types of income: Profit Tax, salary Tax, and Property Tax. So whether you’re a business owner, employee, or property owner, you’ll have to fulfil your tax obligations in Hong Kong.
Which department is responsible for tax collection?
Inland Revenue Department (IRD) is the official department responsible for tax collection in Hong Kong. You can find the tax information for Hong Kong on the website.
What will happen if you do not fill out your tax return on time?
Failing to file your tax return on time can lead to penalties or prosecution. Moreover, the tax assessor may issue an estimated assessment and demand tax without granting your entitled allowances and deductions, which could result in the need to pay more taxes.
Is there a capital gains tax in Hong Kong?
No, Hong Kong does not impose a Capital Gains Tax. However, any profits from the sale or disposal of assets may be regarded as income and thus subject to Profits Tax.
Do unemployed individuals need to pay taxes?
Hong Kong residents who are currently unemployed have one less thing to worry about: there are no unemployment taxes in Hong Kong! So if you’re currently between jobs or taking a much-needed break, you can rest easy knowing that you won’t be hit with any unexpected tax bills.
If you’re currently out of work in Hong Kong, you can breathe a sigh of relief; there’s no need to worry about unemployment taxes as there are none in Hong Kong.
Looking to learn more about VHIS, an insurance scheme that can help you save on taxes? Check out MoneySmart’s blog post for all the juicy details! You’ll find everything you need to know about this scheme that deducts your tax.
As expected, tax season is upon us! Want to learn more about tax loans in Hong Kong? Check out the tax loan strategic guide to get the lowdown!
Wanna stay ahead of the herd? Let’s check out the MoneySmart blog for more financial tips!
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