In Hong Kong, employees are subject to a progressive salary tax system. The tax rate varies depending on the employee's income, with rates ranging from 2% to 17%. The tax system is designed to ensure that higher earners contribute a larger percentage of their income compared to those on lower incomes.
Hong Kong Individual Income Tax Rates
The table below outlines the salary tax rates for 2023 based on different income brackets:
Taxable Income (HKD) | Tax Calculation | Effective Tax Rate |
0 – 50,000 | 2% | 2% |
50,001 – 100,000 | 1,000 + 6% of income above 50,000 | 2% - 6% |
100,001 – 150,000 | 4,000 + 10% of income above 100,000 | 6% - 10% |
150,001 – 200,000 | 9,000 + 14% of income above 150,000 | 10% - 14% |
Above 200,000 | 16,000 + 17% of income above 200,000 | 15% - 17% |
Note: The maximum tax payable is capped at 15% of net income, after all deductions.
Examples of Tax Calculation
To better understand how the progressive tax system works, consider the following examples:
For an income of HKD 80,000:
Tax payable = HKD 1,000 + 6% of (80,000 - 50,000) = HKD 1,000 + HKD 1,800 = HKD 2,800
Effective tax rate = 2,800 / 80,000 = 3.5%
For an income of HKD 180,000:
Tax payable = HKD 9,000 + 14% of (180,000 - 150,000) = HKD 9,000 + HKD 4,200 = HKD 13,200
Effective tax rate = 13,200 / 180,000 = 7.3%
Components Included in Salary for Tax Calculation
When calculating taxable income, several benefits and allowances are included:
Education Allowance: Any education-related allowances provided by the employer.
Food, Fuel, Water, Light, or Medical Care: Benefits covering essential living expenses.
Housing Benefits: Includes employer-provided housing or housing allowances.
Travelling Allowance: Any allowance provided for travel purposes.
Retirement Contributions: Employer and employee contributions to retirement schemes like the Mandatory Provident Fund (MPF).
Convertible Benefits: Any non-monetary benefits that can be converted into cash.
Mandatory Provident Fund (MPF) Contributions
In addition to salary tax, employees in Hong Kong are required to contribute to the Mandatory Provident Fund (MPF), which is a retirement savings scheme. The contribution rates are as follows:
Contribution Item | Contribution Rate |
Mandatory Provident Fund | Voluntary for earnings up to HKD 7,100. From HKD 7,100 - HKD 30,000 per month, 5% |
Employee Contributions
For employees earning between HKD 7,100 and HKD 30,000 per month, a mandatory 5% of their income is contributed to the MPF, with an equal contribution from the employer. Contributions are voluntary for those earning below HKD 7,100 per month.
The taxation system in Hong Kong is designed to be progressive, ensuring that individuals with higher incomes pay a greater proportion of their earnings in taxes. Employees also benefit from mandatory contributions to retirement savings through the MPF, which helps secure their financial future.
Understanding these tax rates and contributions is crucial for employees in managing their financial planning.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
Talk to an expert
Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.
Topics we can advise on include:
Company Registration
Cloud Accounting & Financial Reporting
Cloud Payroll Services
Tax & Audit Services
Recruitment
Employer-of-Record
Visa Application
Trademark Registration
Switch to Woodburn
Partner with Woodburn (cross referral)
Our calls are automatically scheduled via Zoom - or via Teams, WeChat or WhatsApp upon direct request.
Our advisory calls are available from Monday-Friday from 8am to 5pm CEST and Wednesday until 9pm CEST.
Comentarios