Personal income tax in Hong Kong.

Personal income tax in Hong Kong is often referred to as salary tax, and the rate in Hong Kong is considered to be one of the lowest rates in the world. There are certain factors that permit tax exemption, and the article below will guide you through what you should know about personal income tax in Hong Kong.

Personal income tax in Hong Kong

Taxable income

Individuals are taxed on their income from employment in Hong Kong. The tax scale is a progressive one, starting at 2% with the maximum at 17% (income after deductions and allowances), and 15% of net income after deductions only. Taxable income includes allowances, awards, bonuses, commissions, gratuities, salaries and other benefits from the company.

Educational benefits for children of employees and benefits convertible to cash are also taxable, as are some pensions. Director’s fees received by directors of Hong Kong companies are taxed in Hong Kong regardless of where the director is residing. Hong Kong does not impose tax on dividends, interest or capital gains earned by individuals.

The Inland Revenue Department (IRD) will issue individual tax returns on 1 May, and individuals must file the tax returns within one month.

Personal income tax rate

Net chargeable income

Rate

0 – 50,000 HKD

2%

50,001 – 100,000 HKD

6%

100,001 – 150,000 HKD

10%

150,001 – 200,000 HKD

14%

Above 200,001 HKD

17%

Net total income (no allowances)

15%

Deductions and allowances

Employees can claim tax deductions for expenses that are wholly and necessarily incurred in gaining income.

In addition to deductions that are available for expenses incurred directly in earning income, there are other deductions allowed that are not directly related to employment. These include:

  • Self-education expenses
  • Home loan interest
  • Elderly residential care
  • Mandatory provident fund
  • Donations

Allowances employees can claim include:

  • Basic allowance
  • Married person’s allowance
  • Dependent brother or sister allowance
  • Dependent parent or grandparent allowance
  • Single parent allowance
  • Disabled dependent allowance
  • Personal disability allowance

Chargeable and non-chargeable income

Employee income that is chargeable according to the GovHK includes:

  • Salary, wages and director’s fees
  • Commissions, bonuses, leave pay and end-of-contract gratuities and payments in lieu of notice accrued on or after 1 April 2012
  • Allowances, perquisites and fringe benefits
  • Tips
  • Salary tax paid by the employer
  • Value of place of residence
  • Stock awards and share options
  • Back pay, gratuities, deferred pay and pay in arrears
  • Termination payments and retirement benefits
  • Pensions

Income that is non-chargeable are:

  • Severance payments and long service payments
  • Jury fees

Personal tax exemption

You may be able to claim full or partial exemption on income tax if:

  • The services are provided outside of Hong Kong during the year of assessment. Income produced from services that are conducted in Hong Kong during visits of not more than 60 days in a year is also not subjected to tax.
  • Income has already been imposed on tax in other jurisdictions during the year of assessment, you can claim partial exemption, but you must be able to show proof of the foreign tax payment.

Employer benefits tax

Gains and profits, both cash and non-cash you obtained throughout your employment are taxable. Some of the taxable benefits are:

  • Accommodation and housing allowance
  • Company gifted car
  • Education benefits on your children
  • Holiday journey allowances
  • Meal allowance
  • Share awards and share options

Filing personal tax return

A personal tax return is to be filed with the IRD annually. In Hong Kong, the year of assessment is 1 April to 31 March the following year. The IRD will send out tax returns by 1 May, and you will have to submit the tax return within one month from the date it was issued. Even if you do not have any income to report, you will still need to declare zero income in the tax return form.

If you disagree with the tax assessment, you can lodge a notice of objection in writing within the time limit. You should complete the Form IR831 for objection and submit it to the IRD. The notice must be submitted to the IRD within 30 days from the issue date of the tax assessment. If you file the notice late, you must specify the reason of being late.

Tax clearance certificate

If the employee is to leave Hong Kong, there is a list of requirements the employee and employer should complete.

Employee

Not later than one month before the date of departure

  • Notify the department of the date you intend to leave. You will have to state your name, Hong Kong identity card or passport number and file number. Additionally, you should provide your Hong Kong postal address, overseas postal address and telephone number.
  • Submit tax return (BIR60). The department will issue a tax return to you when they have received your notice.
  • Call in person. To accelerate the process of tax clearance, you may bring along the IR56G from your employer, payroll slips and supporting documents for deductions and allowances claimed.

Before leaving Hong Kong

  • Tax payment
  • After paying all taxes, hand the payment receipts to the Collection Section at 7/F of the Revenue Tower to get a copy of the Letter of Release.
  • Set out below is the time taken to issue the Letter of Release if payment is made by:
    • Cash, electronic payment services (EPS), ATM or at the cashier – same day
    • PPS or internet – approximately two working days
    • Personal cheque or mixed payments – about ten days

After tax clearance

  • If you receive additional remuneration, inform the department in writing.
  • If you still receive income from Hong Kong, file tax return as normal or notify the department in writing.
  • If you exercise share options after the tax clearance, you need to inform the department in writing, unless you have elected for a notional exercise of the share options.

Employer

Not later than one month before the date of departure

  • File IR56G and give a copy of the form to the employee.
  • Remind the employee of the requirements for the tax clearance.
  • Withhold any payment of money to the employee for a period of one month from the date the IR56G form was submitted or until the Letter of Release is issued.

Before leaving Hong Kong

  • Give all payments to the employee after the expiry of the money-withholding period.

After tax clearance

  • Submit additional or revised IR56G form if further remuneration is paid, or any share awards are vested to the employee
  • Withhold all payment to the employee
  • Submit IR56B if the employee exercised share options previously granted after the tax clearance unless the employee has elected for a notional exercise of the share options

Conclusion

With the rate of personal income tax in Hong Kong, it has continuously been a destination for local and foreign businesspersons. Not only does Hong Kong have an attractive personal income tax rate, but Hong Kong also does not impose tax on VAT, GST or capital gains tax. Please contact us here at Acclime if you need any assistance in filing your personal tax return

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