When it comes to living in Hong Kong, income tax is a topic that expats will not be able to avoid. There may be rumors that there is no Hong Kong income tax at all, but unfortunately, we have to tell you that this is not true: Contrary to other popular expat destinations, especially in the Middle East, there is indeed such as a thing as taxing your income in Hong Kong. Nevertheless, rates for the Hong Kong income tax are fairly low and concepts such as sales, capital gains, and value-added tax are (mostly) unheard of.
The local salaries tax, which applies to foreign and local residents alike, has rates rising progressively for higher incomes. Most expats, however, may shake their head in disbelief once they see the modest maximum rate. Rental incomes and profits from self-employment are also subject to taxation. But there are still a number of allowances and deductions you can claim.
It is no surprise then, that Hong Kong is a popular place for expats wishing to escape their tax burden. In this article, we’ll give you a brief run-through concerning Hong Kong income tax, allowances, and tax returns.
As an expat with a long-term Hong Kong visa, you are required to pay Hong Kong income tax, just like every other fiscal resident. We are now going to briefly explain how the tax system works. By no means, however, does the following information constitute any legal advice. For more detailed questions on taxation in Hong Kong, contact the Inland Revenue Department (IRD). We’d also recommend you talk to a trustworthy tax advisor for advice on your individual situation.
First of all, your income is taxed according to the territorial principle: Only what you earn or what accrues in Hong Kong is subject to Hong Kong income tax as well. Tax rates in Hong Kong deserve their reputation of being competitively low. They rise progressively with higher salaries. Nevertheless, the maximum rate, even for the top tax bracket, is only 17%.
To avoid double taxation, Hong Kong has concluded negotiations with a number of countries regarding double taxation relief. These agreements come into play if a fiscal resident has to pay taxes on his or her income in other countries and thus would have to tax the same income twice.
The largest chunk of your Hong Kong income tax burden will probably be your salaries tax. All wages, salaries, and director’s fees are subject to this tax. Additionally, the large majority of all other benefits you might receive from your company are also taxable. Such taxable benefits include bonuses, commission and rebates, leave pay, and end-of-contract gratuities. Any shares or options that are part of your remuneration are also taxed, as is accommodation provided by your employer. Furthermore, it does not matter when these payments are made or whether they exceed your terms of employment.
To find out how much salaries tax you will approximately have to pay in Hong Kong, check out the online tax calculator for your relevant assessment year under the section “Tax Computation”. If you fill in your details, the calculator gives you your taxes based on the actual Hong Kong rates of your selected year of assessment.
In addition to your salaries tax, there are two more kinds of Hong Kong income tax which might add to your tax burden. First, if you own property in Hong Kong and have income from renting said property, you need to tax the rental income. To learn more about your tax obligations as a property owner in Hong Kong, check the government's site on property tax.
Second, any income from self-employment is taxable, too. Self-employment is defined as “buying and selling of goods” or “providing professional or personal services”. In this case, you are charged profits tax based on the assessable profits of your proprietorship or partnership. Furthermore, there are some other obligations concerning, for example, accounting standards. For details, please refer to this government website on self-employment and taxation.
Hong Kong’s income tax does not include any taxes on interests, dividends, or royalties. There is no capital gains tax in Hong Kong, either. The only case in which you have to pay taxes on capital gains is, as mentioned above, if shares or options are part of your regular remuneration. These are subject to the same Hong Kong income tax as normal salaries.
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