Hong Kong individual income tax does not levy income tax on an individual’s total income. Rather, individuals are taxed on their business or trading profits, income from employment, office, or pension, and rental income from property under different income taxes. The residence status of an individual is not a determinative factor in examining one’s liability to salaries tax except in a tax treaty context.
There are three types of income taxes in Hong Kong: salaries tax, profits tax, and property tax. The profits tax rate is 15% for non-corporate professionals, tradespeople, and businesses, with an election available to be taxed at a reduced rate of 7.5% on the first HKD 2 million of profits. Any profits over HKD 2 million are taxed at the normal rate of 15%. Each group of connected entities can only elect one entity in the group to benefit from the two-tiered tax regime during the year of assessment.
The tax rate for property tax is 15%, while the progressive tax rates for salaries and profits tax go from 2 to 17%. However, an individual may choose to be taxed a flat 15% on their salary if this allows for a lower total income tax.
Hong Kong Individual income Tax rates
According to the Hong Kong Inland Revenue Department (HKIRD), a person’s employment is considered to be sourced in Hong Kong if the employment is a Hong Kong employment or if the employment is a non-Hong Kong employment and the services are rendered by the person in Hong Kong SAR.
The HKIRD will generally accept that an employment is a non-Hong Kong employment if all of the following three conditions are met:
- The contract of employment was negotiated and entered into, and it is enforceable outside Hong Kong SAR
- The employer is a resident outside Hong Kong SAR
- The employee’s remuneration is paid outside Hong Kong SAR.
If any of the above conditions is negative the employment will likely be considered by the HKIRD as a Hong Kong employment. This may have implications for income tax purposes. Therefore, it is important to be aware of the requirements before entering into any employment contracts.
Employment / Salary Tax in Hong Kong
|Bracket||Tax Rate||Annual Taxable Income (HKD)||Quick Calculation (HKD)|
|1||2%||Up to 50,000||1000|
|2||6%||Between 50,000 and 100,000||3000|
|3||10%||Between 100,000 and 150,000||5000|
|4||14%||Between 150,000 and 200,000||7000|
Yearly income = 240,000 HKD
Bracket 1: 2% * 50,000 = 1000 HKD tax on for the first 50,000 HKD
Bracket 2: 6% * 50,000 = 3000 HKD tax on the next 50,000 HKD
Bracket 3: 10% * 50,000 = 5000 HKD tax on the next 50,000 HKD
Bracket 4: 14% * 50,000 = 7000 HKD tax on the next 50,000 HKD
Bracket 5: 17% * 40,000 = 6800 HKD tax on the last 40,000 HKD
Total = 1000 + 3000 + 5000 + 7000 + 6800 = 22800 HKD tax due on an annual salary of 240,000 HKD
If you are employed in Hong Kong but render all your services outside of Hong Kong SAR for a given year of assessment, your employment income will not be taxable. Services rendered in Hong Kong SAR during visits that do not exceed 60 days are not taken into account (the so-called ’60-day rule’). Therefore, if you do not exceed this 60-day limit, your employment income will not be taxable. This rule applies regardless of whether you are a resident or non-resident of Hong Kong SAR for tax purposes.
For a non-Hong Kong employment, only income for services rendered in Hong Kong is subject to Hong Kong salaries tax. This means that if you are employed outside of Hong Kong and earn income from your job, this income will not be subject to Hong Kong income tax as long as the services that generated the income were performed outside of Hong Kong. However, if you have a non-Hong Kong employment and you render services in Hong Kong during visits that exceed 60 days per year, those services will be considered taxable under Hong Kong law. Therefore, it is important to keep track of the days you spend working in Hong Kong if you are employed outside of the territory, as this may impact your tax liability.
Income from investments
Investment income refers to income from dividend and income from interest that is not derived from investing the funds of a business. Investment income received by a non-resident from sources outside Hong Kong is not subject to taxation in Hong Kong. There is no Withholding taxes in Hong Kong on dividends or interest paid to non-residents. Royalties paid to non-resident individuals for the use of intellectual property rights in Hong Kong are subject to a withholding tax rate of 2.25% for the first 2 million of royalty income, and 4.5% for royalty income over 2 million HKD. If the royalty recipient is related to the royalty payer, then the withholding taxes increases to 7.5% for the first 2 million HKD and 15% for the remaining royalty income over 2 million HKD.
Tax Residency in Hong Kong
Individuals earning income that arises from or is related to their work in Hong Kong are subject to salaries tax. This includes income from an office in Hong Kong or employment in Hong Kong, as well as income from services rendered in Hong Kong during visits of more than 60 days in any tax year.Hong Kong observes a territorial basis of taxation, which means the concept of tax residency has no significance in determining tax liability, except in limited circumstances.
Deductions & exemption
There are no tax deductions or allowances in Hong Kong.
In Hong Kong, individual tax returns are issued on the first working day of May each year. The filing deadline is typically within one month from the date of issue. Generally, those who expect to receive a tax rebate will submit their return earlier so that they can receive their rebate sooner. On the other hand, those who expect to owe taxes may file closer to the deadline in order to delay payment. Individual taxpayers have the option to file their return electronically or via paper form. Regardless of the method used, all taxpayers must ensure that their return is filed on or before the deadline in order to avoid penalties.
How NNRoad can help
NNRoad is a global Employer of Record & PEO provider with a base in Hong Kong. We are able to advise you and your Hong Kong dispatched or payroll employees on their individual income taxes. For more information on our HR and payroll related services in Hong Kong, please visit our Hong Kong services page or contact us directly.