Salaries Tax in Hong Kong

Salaries Tax is a key component of Hong Kong's tax system, levied on individuals' income earned from employment, office or pension. In deciding whether income “arises in or is derived from Hong Kong”, it is necessary to establish where the employment, i.e. the source of income, is located. “Income arising in or derived from Hong Kong from any employment” includes all income derived from services rendered in Hong Kong, without in any way limiting the meaning of the expression.

Taxable Income

Taxable income under Salaries Tax includes:

Employment Income: includes all forms of income and perquisites from an employer and others. Salary, wages, bonuses, commissions, allowances, and other forms of remuneration.
Pensions and Annuities: Payments received as retirement income or annuities.
Housing Benefits: Value of housing benefits provided by employers. If the place of residence provided is a flat or a serviced apartment, the “rental value” to be included in the assessment is 10% of the total income (after deducting outgoings (except expenses of self-education), depreciation, etc.) from the employer and the associated corporation of the employer. Taxpayer may elect to substitute the rental value at 10% with the rateable value. If the place of residence is in a hotel, hostel or boarding house, the rental value is 8% (accommodation with no more than 2 rooms) or 4% (accommodation with no more than one room) of the total income after appropriate deductions. If the employer provided a flat and specified that it was to be shared by more than one employee, the computation of the rental value is the same as that for a hotel, hostel or boarding house.
Perquisites: Non-cash benefits or perks received as part of employment.
Share Option Gains: Gains from exercising share options provided by employers.

Tax Calculation

Liability to Salaries Tax is based on the chargeable income of the year of assessment, but the total amount of income for the year cannot be ascertained until the year is past. Hence, the IRD will first demand for payment of Provisional Salaries Tax during the year of assessment and then make adjustments in the following year.

Salaries Tax is calculated using progressive tax rates, where the tax rate increases as income rises. The current tax rates range from 2% to 17%.

	Net chargeable Income	Rate	Tax
	$		$
On the First	50,000	2%	1,000
On the Next	50,000	6%	3,000
	100,000		4,000
On the Next	50,000	10%	5,000
	150,000		9,000
On the Next	50,000	14%	7,000
	200,000		16,000
Remainder		17%

The Standard Rate is at 15%. The Inland Revenue Department will charge the taxpayer based on the lower amount of tax to be paid, after calculating them with the progressive and standard rate.

Deductions Allowed

The following deductions are allowable:

Expenses wholly, exclusively and necessarily incurred in the production of assessable income, not being expenses of a private or domestic nature and capital expenditure.
Approved charitable donations paid to charities if the amount is not less than $100 and with the limitation that such allowance shall not exceed 35% of the income after allowable expenses and depreciation allowances.
Expenses of self-education paid on fees (including tuition and examination fees) in connection with a “prescribed course of education”, or on fees in respect of an examination set by the specified education providers or trade, professional or business associations.
Elderly residential care expenses paid by the person or his/her spouse to a residential care home in respect of the person’s or his/her spouse’s parent or grandparent.
A taxpayer can claim deductions for “home loan interest” paid on a home loan for the acquisition of property unit. From the year of assessment 2017/18, whether consecutively or not. That property must be situated in Hong Kong and must be used as his place of residence during the year of assessment. In addition, a taxpayer can claim deductions for “home loan interest” paid for the acquisition of car parking space.
For mandatory contributions paid to a mandatory provident fund scheme (MPFS) by a taxpayer as an employee, the maximum deductible amount shall not exceed the amount prescribed in the IRO.
Qualifying premiums paid under Voluntary Health Insurance Scheme (VHIS) policy.
Qualifying annuity premiums and tax deductible MPF voluntary contributions (TVC) paid

Personal Allowances

Hong Kong provides various personal allowances to reduce the tax burden:

Basic Allowance: A fixed amount of income that's exempt from tax.
Child Allowance: Child Allowances are granted to taxpayers in respect of their unmarried child(ren) maintained by them. The child must be under the age of 18 during the year of assessment or if 18 and over but under 25 during the year of assessment and receiving full-time education at a university, college, school or other similar educational establishment. In addition, Child Allowance is granted for a child of or over the age of 18 who is incapacitated for work by reason of physical or mental disability.
Married Allowance: A taxpayer can claim Married Person’s Allowance if he/she was, at any time during the year:
1. married and not living apart from his/her spouse; or living apart but had not divorced from his/her spouse and was maintaining or supporting him/her during 19 the relevant year of assessment, and
2. his/her spouse did not derive any income chargeable to Salaries Tax and has not elected for Personal Assessment separately for the year; or
3. the couple has elected for Joint Assessment under Salaries Tax and/or the couple has elected for Personal Assessment jointly
Single Parent Allowance: granted if an individual had at any time during the year of assessment the sole or predominant care of a child in respect of whom the individual was entitled during the year of assessment to claim a Child Allowance.
Dependant Brother/Sister allowance: A Dependent Brother or Dependent Sister Allowance is granted if an individual or his/her spouse maintains an unmarried brother/sister of his/her own or of his/her spouse and the person so maintained at any time in the year of assessment was:
1. under the age of 18 years;
2. of or over the age of 18 years but under the age of 25 years and was receiving full time education at a university, college, school or other similar educational establishment; or
3. of or over the age of 18 years and was, by reason of physical or mental disability, incapacitated for work. A Dependent Brother/Sister Allowance may be granted for each brother/sister maintained.
Dependent Parent / Grandparent Allowance: For supporting dependent parents or grandparents that:
1. is ordinarily resident in Hong Kong.
2. is aged 55 years or more or eligible to claim an allowance under the Government’s Disability Allowance Scheme; and
3. has either resided with the taxpayer, otherwise than for full valuable consideration, for a continuous period of 6 months or has received from him/her or his/her spouse not less than $12,000 in money towards his/her maintenance
Personal Disability Allowance: granted if an individual is eligible to claim an allowance under the Government’s Disability Allowance Scheme during the year.
Disabled Dependant Allowance: granted if an individual is maintaining a dependant who is eligible to claim an allowance under the Government’s Disability Allowance Scheme. This allowance is granted in addition to the other allowances.

Filing Process

Individuals must complete and submit a tax return (Form BIR60) to the Inland Revenue Department (IRD). The process involves:

Gathering Information: Collect relevant documents such as salary slips, employment contracts, and any supporting records.
Completing the Form: Fill out the tax return form, indicating the various sources of income and applicable deductions.
Submission: File the tax return either online or through paper submission to the IRD.

Deadlines

The tax return should be filed:

On or before April 30 for individuals who receive a notice of assessment.
Within one month of receiving the tax return if not issued a notice of assessment.

Conclusion

Navigating the complexities of Salaries Tax in Hong Kong requires a clear understanding of taxable income, allowances, tax rates, and filing procedures.

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