About The Income Tax In Hong Kong

The income tax in Hong Kong is mandatory for anyone who earn a living in the region. Most of the time, you get your first tax bill around 18 months after you started working. This does not mean you will not pay taxes on the first few months. It will most likely be a big amount upfront.

The taxes imposed on salaries in Hong Kong is not taken at the source. It is the responsibility of employees to complete their own tax declaration and remit the appropriate taxes at the end of the fiscal year. The Hong Kong fiscal year usually ends every March 31. This declaration is provided by the employer but filling it up is the responsibility of the employee. The employer is required to provide the Inland Revenue Department (IRD) with details of new employees within three months after recruitment. This will allow the IRD to send out tax returns. However, it is the responsibility of the employee to send a notification if they do not get their tax returns.

Since it is not something that is done automatically, you need to set aside some money to pay for your taxes. Do this saving habit each month so you will not be surprised by your tax obligations at the end of the fiscal year. Ideally, you should open a new account specifically for your taxes. That way, when the assessment notice arrives from the IRD, you will not have a problem paying the amount you owe on your taxes.

How is the income tax calculated in Hong Kong

Of course, the main challenge is to know how to calculate your income tax in Hong Kong.

Here are the important Salary rate details we found from the website of the Hong Kong government.

• The rates that determine your income tax is progressive.

That means the higher you earn, the higher the rate of your taxes. You can base your income on the net total amount – which is the assessable income after the deductions. Take note that this net amount will include any allowance that you will get from your employer.

• The progressive rates are as follows:

  • First HK$40,000 = 2% (HK$800)
  • Second HK$40,000 = 7% (HK$2,800)
  • Next HK$40,000 = 12% (HK$4,800)

This means the total income tax that you will pay for a salary of HK$120,000 is HK$8,400 – which is actually 7% of your net income. To illustrate, if you earn HK$100,000, your income tax will be HK$6,000.

• The computation will be as follows:

  • First HK$40,000 = 2% (HK$800)
  • Second HK$40,000 = 7% (HK$2,800)
  • Next HK$20,000 = 12% (HK$2,400)

• Although the progressive rate is provided, the maximum tax for the 2016/2017 will now be limited to 15% – which is considered to be the standard rate.

This is applied to the net income after deductions. These deductions can also add charitable donations and any concessionary deductions.

• You are entitled to tax reductions that vary depending on the year of assessment.

For the 2015 to 2016 assessment, you can get a 75% tax reduction of up to HK$20,000. This is applicable to income that is already taxed (e.g. profit tax or property tax), etc.

• Your status will also determine the tax reductions you will be qualified to apply to your income tax in Hong Kong.

If you are single, married (jointly filing and elected a personal assessment), single parents, married with dependent children or with elderly dependents – all of these have varying tax reductions. Usually, the more dependents you have, the higher tax reduction you can qualify for.

In case there are changes to your information like a change of name, status, employment or address, you have to make sure that the IRD is duly notified of the changes. This will ensure that you will receive notifications accordingly. Any delay in your tax payments will cost you 5% of your income tax requirement.

What salaries can be charged with income tax?

Of course, not all salaries can be considered taxable in Hong Kong. The income tax in Hong Kong is only imposed on those that are sourced in Hong Kong through an office, employment or pension. The definition of these three are as follows:

• This refers to those who earn an income as a director or owner of an office or business in Hong Kong. As a director, you will be fully taxed – regardless if some services are done in Hong Kong or not.
• This refers to those who earn an income as part of a workforce. If you are only visiting Hong Kong for 60 days, even if you work here or earn an income, you will not be taxed as long as you satisfy the “sixty-day rule.” This does not apply to seamen and aircrew. Employment overseas will also be charged an income tax but it will be on a “time-in-time-out” basis. That means it will only be during their stay in Hong Kong.
• This is the retirement income that is given to the elderly after they stop working. It is only taxable if the pension is both managed and controlled within the Hong Kong jurisdiction.

If you wish to get more information about the income tax in Hong Kong, you should visit the website of the Inland Revenue Department. The site offers an income computation service that will help you determine how much you will pay on your annual tax.