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Salaries Tax in Hong Kong: An Overview

Individuals in Hong Kong are subject to salaries tax on their earnings, with rates varying from two percent to a maximum of 17 percent after deductions and allowances or 15 percent on net income after deductions. Taxable income encompasses various forms of compensation, including allowances, bonuses, commissions, salaries, and company benefits. However, dividends, interest, and capital gains are not taxed for individuals. The tax system in Hong Kong comprises profits tax for business profits, salaries tax for employment income, and property tax for rental income from property.

Employment Income Taxation

Employment income taxation in Hong Kong is straightforward, following a territorial system where only income earned within Hong Kong is taxed. Salaries tax primarily applies to individuals in an employment relationship, covering both local and expatriate employees. The Hong Kong Inland Revenue Department (HKIRD) determines whether employment is considered non-Hong Kong employment based on specific conditions related to the employment contract, employer's residency, and payment location.

Chargeable Income and Deductions

Chargeable income includes various components such as salaries, wages, director's fees, commissions, bonuses, allowances, perquisites, and fringe benefits. Deductions under salaries tax are limited to expenses directly related to income generation, excluding domestic, personal, or capital expenses. Deductions for expenses like self-education, elderly residential care, home loan interest, and contributions to recognized retirement schemes are subject to maximum limits set for each year of assessment.

Expense

Maximum Limit

Expenses of self-education

HK$100,000

Elderly residential care expense

HK$100,000

Home loan interest

HK$100,000

Mandatory contribution to recognized retirement schemes

HK$18,000

Approved charitable donations (35% of income - allowable expenses - depreciation allowance)

35% of (income - allowable expenses - depreciation allowance)

Qualifying premiums paid under VHIS policy (per insured person)

HK$8,000

Qualifying annuity premiums and tax-deductible MPF voluntary contributions

HK$60,000

Domestic rent deduction*

HK$100,000

*Legislative amendments are required for implementing the tax measures as proposed by the Financial Secretary in the 2023-24 Budget.

Tax Rates and Calculations

Tax payable under salaries tax is calculated based on either a progressive rate on the net chargeable income or a standard rate on the net income, whichever is lower. The tax rates vary according to income brackets, with allowances provided for basic, married persons, children, dependents, and disabled individuals. Chart 1: Progressive Tax Rates

Net Chargeable Income (HK$)

Rate

Tax (HK$)

Up to 50,000

2%

1000

50,001 - 100,000

6%

3,000

100,001 - 150,000

10%

5,000

150,001 - 200,000

14%

7,000

Over 200,000

17%


Chart 2: Allowances (Year of Assessment 2023/24 Onwards)

Allowance

Amount (HK$)

Basic Allowance

132,000

Married Person’s Allowance

264,000

Child Allowance (for each of the 1st to 9th child)

130,000

Increase for each child born during the year

120,000

Dependent Brother or Sister Allowance

37,500

Dependent Parent and Dependent Grandparent Allowance


- Aged 60 or above or eligible under Disability Allowance Scheme

50,000

- Between the ages of 55 to 60

25,000

Additional Dependent and Dependent Grandparent Allowance


- Aged 60 or above or eligible under Disability Allowance Scheme

50,000

- Between the ages of 55 and 60

25,000

Single Parent Allowance

132,000

Disabled Dependent Allowance (for each dependent)

75,000

Personal Disability Allowance

75,000

These charts provide a clear representation of the progressive tax rates and allowances applicable for the year of assessment 2023/24 onwards.

Provisional Salaries Tax

Provisional tax is raised based on an estimate of assessable income for the year of assessment and is used to offset the tax liability under the final assessment. Taxpayers can apply for holding over provisional tax payment under certain conditions, such as eligibility for additional allowances or expected reduction in income.

One-off Tax Reductions and Proposed Measures

One-off tax reductions have been introduced for specific assessment years to alleviate tax burdens. Additionally, proposed measures include tax reductions for domestic rental expenses, subject to certain eligibility criteria and deduction ceilings. Legislative amendments are required for implementing these proposed tax measures.

Capital Gains Tax and Inheritance Tax

Hong Kong does not impose capital gains tax; however, profits from trading gains are subject to taxation under profits tax. Inheritance tax has been eliminated, and estate duty is charged on the total value of property located in Hong Kong transferred in connection with a person's death, with exemptions for certain assets and properties.


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