Understanding Hong Kong's Salaries Tax System

Hong Kong's salaries tax system is fairly straightforward and transparent, so there’s no need to feel daunted when the tax form comes around this this May. Here’s a quick overview of how the tax system works and what you’ll need to watch out for when filing taxes in Hong Kong.

man filling out tax form with pen and calculator

What you need to know about Hong Kong’s Salaries Tax System

Hong Kong adopts a territorial basis of taxation, meaning only income sourced from Hong Kong is subject to tax. The tax year runs from April 1st to March 31st the following year. The salaries tax applies to employment income, office income, and pensions.

Tax Rates

The tax rates in Hong Kong are progressive:

2% on the first HKD 50,000
6% on the next HKD 50,000
10% on the next HKD 50,000
14% on the next HKD 50,000
17% on any remaining income

However, the maximum rate is capped at 15% of your total income, so the method chosen to calculate your tax for the year will be whichever yields the lower sum.

Deductions and Allowances

Taxpayers in Hong Kong can benefit from multiple deductions and allowances, which reduce their overall taxable income. These include allowances for personal expenses and dependents.

Here are some common examples of deductions and allowances you can claim under Hong Kong's personal income tax system:

Deductions:

Voluntary Health Insurance Scheme (VHIS) Premiums: You can deduct up to HKD 8,000 per insured person per tax year.
Charitable Donations: Donations made to approved charities can be deducted, up to 35% of your assessable income.
Elderly Residential Care Expenses: Expenses for residential care for a parent or grandparent can be deducted up to HKD 100,000 per tax year.
Self-Education Expenses: Employment-related course fees can be deducted up to HKD 100,000 per tax year.
Mandatory Provident Fund (MPF) Contributions: Mandatory contributions to an MPF scheme are deductible up to HKD 18,000 per tax year.
Voluntary Contributions to MPF and Annuity Premiums: These can be deducted up to HKD 60,000 per tax year.

Allowances:

Basic Allowance: Each taxpayer is entitled to a basic allowance of HKD 132,000.
Married Person's Allowance: If you're married, you can claim an additional allowance of HKD 264,000.
Child Allowance: You can claim HKD 120,000 for each child.
Dependent Parent and Grandparent Allowance: Allowances vary based on the age of the dependent and whether they reside with you.

Filing and Payment

Tax returns are generally due within one month of issuance. The tax return will include an assessment of tax you owe for the previous year and provisional tax for the coming year. The final amount is usually payable in two instalments – the first by January and the second by April (not everyone will follow the same schedule).

What is Provisional Tax in Hong Kong?

Provisional tax in Hong Kong is essentially an advance payment of tax for the current year based on your income from the previous year. Here's how it's typically calculated:

Based on Previous Year's Income: The Inland Revenue Department (IRD) uses your income from the previous year as a basis. If your income was significantly higher or lower last year, it will affect your provisional tax for the current year.
Allowances and Deductions: They also consider the allowances and deductions you claimed in the previous year. This ensures the current year's provisional tax reflects your expected final tax liability.
Final Assessment: When your actual income for the current year is determined, it will be compared with the provisional tax paid. If there’s a shortfall, you’ll need to pay more; if there’s an overpayment, it will be refunded or offset against the next year's tax.

If your income situation changes drastically, you can apply for a revision, which is known as a "Holdover of Provisional Tax". This allows adjustments if your actual income or circumstances differ from the previous year.

Some final tips on navigating Hong Kong’s Salaries Tax System

If you’re still unsure how the system works, or if you want to test it out for yourself, the Inland Revenue Department provides a helpful Tax Calculator that estimates tax liability based on the progressive rates or the standard rate.

We recommend that you set up your eTAX account as soon as possible to to access a wide range of tax-related services, such as filing tax returns, viewing tax positions, and managing tax payments online!