Salaries tax in Hong Kong is charged on employment income arising in or derived from Hong Kong. What surprises most employers arriving from other systems is not the rate. It is that Hong Kong calculates the tax two different ways and the employee pays whichever is lower.
The second surprise is that you do not withhold it. There is no employer payroll tax on wages in Hong Kong and no monthly deduction of salaries tax from regular pay. Your obligations are to classify remuneration correctly, keep records, file the IR56 forms, and hold back final payments in one specific situation: when an employee is leaving Hong Kong for more than a month.
This guide covers the rates and allowances for 2026/27, how the two calculations compare, which payments and benefits are chargeable, and what your payroll function has to produce for the Inland Revenue Department.
Salaries tax rates and allowances for 2026/27
Progressive rates apply to net chargeable income in five bands. These have been unchanged since 2020/21.
| Band of net chargeable income | Rate | Tax on the band |
|---|---|---|
| First HKD 50,000 | 2% | HKD 1,000 |
| Next HKD 50,000 | 6% | HKD 3,000 |
| Next HKD 50,000 | 10% | HKD 5,000 |
| Next HKD 50,000 | 14% | HKD 7,000 |
| Remainder | 17% | Applied to the balance |
The standard rate has been two-tiered since 2024/25: 15% on the first HKD 5,000,000 of net income and 16% on the remainder. Note the different base. Progressive rates apply to net chargeable income, which is after deductions and allowances. The standard rate applies to net income, which is after deductions only.
Personal allowances for 2026/27 rose in the February 2026 Budget. Most published guidance still shows the older figures, so it is worth checking any number you have inherited.
| Allowance | 2023/24 to 2025/26 | 2026/27 onwards |
|---|---|---|
| Basic allowance | HKD 132,000 | HKD 145,000 |
| Married person’s allowance | HKD 264,000 | HKD 290,000 |
| Child allowance, each of the 1st to 9th child | HKD 130,000 | HKD 140,000 |
| Dependent parent or grandparent aged 60 or above | HKD 50,000 | HKD 55,000 |
| Dependent parent or grandparent aged 55 to 59 | HKD 25,000 | HKD 27,500 |
From 2026/27 a taxpayer may also claim twice the child allowance, HKD 280,000, for a child in the year of birth and the following year. The measure covers children under two at the end of the year of assessment, meaning those born on or after 1 April 2025. The full list of allowances, including disability and single-parent allowances, is on the GovHK allowance table.
One further item affects what employees actually pay for the current cycle. The 2026-27 Budget granted a one-off reduction of 100% of the final tax for the year of assessment 2025/26, capped at HKD 3,000 per case. This is now enacted rather than proposed: the amending legislation passed on 13 May 2026 and was gazetted on 22 May 2026. Under salaries tax a married couple are separately assessed, so each spouse can qualify for a reduction of up to HKD 3,000. The single HKD 3,000 ceiling applies where a couple elect personal assessment jointly, which is worth knowing before anyone in your team tells an employee the household is capped at HKD 3,000.
Do not process a one-off reduction through payroll. It reduces the employee’s final assessed tax after the IRD issues a notice of assessment. It has no effect on monthly salary, and applying it in payroll would understate reported remuneration.
Why there are two calculations, and which one applies
Hong Kong runs both calculations and the employee pays the lower result. That single rule explains most of what looks strange about the system.
| Calculation method | How it works | Why it matters to you |
|---|---|---|
| Progressive rates | Net chargeable income taxed in five bands, after deductions and personal allowances. | Explains why two employees on the same salary can owe very different amounts. |
| Standard rate | Net income taxed at 15% then 16%, with no personal allowances given. | May become the lower, and therefore operative, calculation for high earners, depending on their deductions and allowances. |
| The comparison | Both are computed; the lower figure is charged. | Do not quote a candidate an exact take-home figure unless you have modelled both. |
The practical consequence for hiring: for a high earner whose standard-rate result comes out lower, personal allowances drop out of the answer entirely, because the standard rate is applied before them. A recruiter explaining a senior package in terms of allowances may be describing a calculation that will not be the one used. Whether that happens depends on the individual’s deductions and allowances, so it is worth checking rather than assuming. The rate tables are published on GovHK.
What income you have to report
Most employment-related cash and non-cash income has to be considered. Reporting base salary alone is the most common payroll failure in Hong Kong, because variable pay, benefits and termination payments all sit outside the basic salary field in most systems.
| Payment or benefit | Common treatment | What payroll should do |
|---|---|---|
| Salary and wages | Chargeable. | Report gross, before MPF or retirement scheme deductions. |
| Commission and bonus | Chargeable as employment income. | Track payment timing and the year of assessment the payment relates to. |
| Cash allowance | Usually chargeable in full. | Do not treat allowances as reimbursements; classify by nature and documentation. |
| Business expense reimbursement | May be non-taxable if it is a genuine reimbursement. | Keep receipts, approvals and a written reimbursement policy. |
| Employer-provided accommodation | Taxed on rental value, not on cost. See the next section. | Record the accommodation type, the period, rent paid by the employer and any rent paid by the employee. |
| Share awards and options | Depends on grant, vesting, exercise and the employment facts. | Coordinate with advisers on cross-border awards and leaver cases. |
| Payment in lieu of notice | Generally taxable if accrued on or after 1 April 2012. | Report on the relevant cessation or departure form. |
| Statutory severance or long service payment | Generally not assessable to the extent strictly payable under the Employment Ordinance. | Separate the statutory entitlement from any contractual top-up. |
The GovHK guidance on chargeable and non-chargeable income confirms that salaries, wages and directors’ fees are chargeable, and that commissions, bonuses, leave pay, end-of-contract gratuities and payments in lieu of notice accrued on or after 1 April 2012 are generally assessable.
The lesson from that table is about payroll setup rather than tax. If bonuses, housing, relocation support or remote-work stipends are added informally after onboarding, nobody can classify them correctly at year end. Decide the treatment of each pay item before it is first used.
Housing and benefits in kind
This is the part of Hong Kong salaries tax that behaves least like people expect, and it is worth real attention because it changes what an expatriate package costs.
If you give an employee a cash housing allowance, it is chargeable in full, like any other cash. If you instead provide accommodation, or reimburse rent under a properly operated scheme, the employee is not taxed on what you spent. They are taxed on a notional figure called rental value, calculated as a percentage of their income from you or an associated corporation, after deducting outgoings and expenses.
| Type of accommodation provided | Rental value |
|---|---|
| A residential unit or serviced apartment | 10% of net income |
| Two rooms in a hotel, hostel or boarding house | 8% of net income |
| One room in a hotel, hostel or boarding house | 4% of net income |
Work an example. An employee earns HKD 900,000 and you rent them a flat costing HKD 480,000 a year. Pay it as a cash allowance and HKD 480,000 is added to their chargeable income. Provide the flat instead and the amount added is the rental value, 10% of HKD 900,000, which is HKD 90,000. The cost to you is identical. The employee’s assessable income differs by HKD 390,000.
Two further points make the rules workable in practice. If the employee pays rent to you, that “rent suffered” is deducted in arriving at the rental value. And the employee may elect to substitute the property’s rateable value for the computed rental value where doing so produces a lower result.
The reporting is where this goes wrong. Rental value only applies if you report the benefit as accommodation. That means telling the IRD the type of accommodation and the exact period it was provided, in item 12 of the IR56B or the equivalent field on IR56E, IR56F or IR56G.
A housing benefit recorded in payroll as a cash allowance will be assessed as cash. The employee then pays tax on the full rent rather than on the rental value, and by the time anyone notices, the return has been filed. The IRD publishes worked examples in its guidance on housing benefits.
Deductions, allowances and MPF
Personal allowances and most deductions are the employee’s business, claimed through their own return. You do not compute them and should not offer to, unless tax support is a service you have actually agreed to provide. What you owe the employee is a payroll record complete and accurate enough for them to file from.
MPF is the exception that touches payroll directly. An employee’s mandatory contributions are deductible against their assessable income, capped at HKD 18,000 a year. That ceiling has applied from 2020/21 onwards and is unchanged for 2026/27. It also aligns with the contribution rules: mandatory contributions run at 5% of relevant income with a monthly income ceiling of HKD 30,000, which produces HKD 1,500 a month and HKD 18,000 a year at the cap.
Three consequences follow for payroll. An employee contributing to two schemes across two employments still deducts only HKD 18,000 in total. Ordinary voluntary contributions running through payroll are not deductible under this provision, so they have to be recorded separately from mandatory ones. And a director paid fees as an office holder, rather than salary under a contract of employment, is not required to join an MPF scheme at all.
One qualification on voluntary contributions, because the blanket version of that statement is wrong. Tax-deductible voluntary contributions, or TVCs, paid into a designated TVC account are deductible under a separate regime, sharing a combined annual ceiling of HKD 60,000 with qualifying deferred annuity premiums. That is a personal arrangement the employee makes directly with a trustee rather than something you run through payroll, so it does not change your reporting. It does change the answer if an employee asks whether voluntary contributions are deductible. Worked examples are in the GovHK guidance on MPF deductions and on TVCs and deferred annuity premiums. Contribution mechanics are covered separately in our guide to MPF in Hong Kong.
What employers file with the IRD
Your reporting role is separate from the employee’s filing. It runs on an annual return plus event-based notifications, using the IR56 family of forms: BIR56A and IR56B for the annual cycle, IR56E when someone joins, IR56F when someone leaves, and IR56G when someone leaves Hong Kong. The year of assessment runs 1 April to 31 March.
The form-by-form deadlines and the full annual calendar are set out in our guide to payroll management in Hong Kong. What belongs here is the rule that catches employers out, because it is the one place where Hong Kong does require you to hold money back.
Where an employee chargeable to salaries tax is about to leave Hong Kong for a period exceeding one month, you must file IR56G at least one month before the expected departure date. From the date you file it, you must withhold all money and money’s worth payable to that employee for one month, or until the IRD issues a letter of release, whichever comes first. Final salary, accrued leave pay and any termination payment are all caught.
That “whichever comes first” matters, and it is widely misread. The withholding is not open-ended. If the month passes without a release letter, you may generally pay the employee, unless the IRD has issued a recovery or garnishee notice. Where the employee has not settled their tax, the IRD issues a garnishee notice on form IR113 requiring you to pay the withheld money to the Commissioner instead, and complying with it is a defence against any later claim by the employee for unpaid wages.
Two qualifications keep this proportionate. The notification and withholding requirements do not apply to employees who have to leave Hong Kong at frequent intervals in the course of their employment, so a regional role with constant travel does not trigger the process. And if you pay further remuneration after departure, you file an additional IR56G and a fresh one-month withholding period runs from that filing. Failure to comply is an offence carrying a fine at level 3, as set out in the IRD leaflet on tax clearance for departing employees.
The IRD guidance on employer obligations also requires payroll records to be kept for at least seven years, and requires that you give the employee a copy of each IR56 form you file for them.
Payroll records are not Employment Ordinance records
Tax records and labour-law wage records overlap heavily, which is why they get conflated, but they answer different questions and a system built for one will not satisfy the other.
For salaries tax, your records need to support remuneration reporting: salary, bonus, commission, housing benefit and its type, allowances, share-based benefits, retirement scheme contributions, reimbursements and termination payments. For employment law, wage and employment records need to support statutory holiday pay, annual leave pay, sickness allowance, maternity and paternity leave pay, end-of-year payment and payment in lieu of notice. Several of those depend on a rolling average of wages over preceding months, which a tax-oriented record will not have been designed to produce.
The Labour Department publishes guidance on proper keeping of wage and employment records. Treat payroll data as evidence for statutory entitlement calculations and employee disputes, not only as an input to the annual return.
Foreign employees, secondees and cross-border payroll
Foreign employees in Hong Kong are not automatically exempt. Liability turns on the facts: the source of the employment, where the services are performed, whether the person is on assignment, whether income is paid by a Hong Kong employer or an overseas entity, and whether they entered or left during the year.
For employers, the difficulty is almost always data quality rather than the law. Cross-border employees tend to have salary paid in several currencies, costs recharged between group companies, equity awards from a parent, travel days in and out of Hong Kong, tax equalisation arrangements, and housing support. Each of those affects reporting, and none of them is visible in a standard payroll extract.
Where a Hong Kong employer has employees paid by an overseas affiliate and the reporting conditions apply, the IRD guidance is that the Hong Kong employer should report the aggregate remuneration, including the amounts paid by the non-Hong Kong company, and supply the required details of that company. Reported remuneration must be expressed in Hong Kong dollars. Neither of those reconciliations should wait until year end.
Immigration and tax are connected but separate workstreams. A foreign hire may need work authorisation, employment documentation, payroll setup and IRD reporting, and getting the visa right says nothing about whether the tax reporting is right. Employers who need help with the employment and work-authorisation side can review Hong Kong expat employment support before confirming a start date.
Remote work and project-based arrangements
Remote work complicates salaries tax because payroll location, employer location and actual work location stop matching. Someone may be paid by a Hong Kong company while spending most of the year elsewhere, or paid by an overseas entity while working in Hong Kong. Neither the bank account nor the place the contract was signed decides the answer.
The controls that keep this manageable are unglamorous:
- Track work location and travel days for anyone crossing borders.
- Identify which entity pays each element of remuneration.
- Keep salary, reimbursed expenses, allowances and benefits in separate fields.
- Retain secondment agreements, recharge documents and assignment letters.
- Start tax clearance before a foreign employee leaves, not after.
- Decide whether a project worker is an employee or a contractor on the facts of the arrangement.
For genuinely short or specialist work, Hong Kong on-demand talent may fit better than creating a permanent employment relationship. The engagement still has to be structured on its substance. Calling someone a contractor removes no reporting or employment-law risk if the working arrangement looks like employment.
Payroll outsourcing, EOR or direct employment
Which model fits depends mostly on whether you already have a Hong Kong employer entity. Salaries tax compliance is only one input, but it tends to be the thing that exposes whether the employment setup was ever finished.
| Your situation | Model that fits | What it means for tax reporting |
|---|---|---|
| You have a Hong Kong entity but no local payroll team. | Payroll outsourcing | A Hong Kong payroll service handles calculation, records, MPF coordination and the IR56 workflow. Your entity stays the legal employer and keeps the obligation. |
| You are hiring in Hong Kong without an entity. | Employer of Record | A Hong Kong Employer of Record provides the local employment structure and carries the reporting obligation itself. |
| You hire in several countries and have entities in some. | Global payroll | Global payroll outsourcing standardises operations while each country keeps its own reporting rules. |
| Your first Hong Kong hire is a foreign professional. | Expat employment support with payroll or EOR | Immigration, employment structure and tax reporting should be settled together, before the offer is signed. |
| The need is temporary, specialist or project-based. | On-demand talent | The engagement model has to match the real working arrangement, or misclassification follows. |
If you are weighing whether to run payroll in-house or hand it over, the scope and cost questions are covered in our guide to payroll outsourcing services in Hong Kong.
Employer checklist
The aim is not to compute anyone’s personal tax position. It is to make sure the records can support the employee’s filing and your own return.
- Confirm who the legal employer is: your Hong Kong entity, an EOR, or another structure.
- Collect identity, address and payroll details at onboarding, and file IR56E where the employee is likely to be chargeable.
- Map every pay item before first use: salary, commission, bonus, allowance, benefit, reimbursement, housing, equity.
- Record accommodation type and period wherever housing is provided, so rental value can be applied.
- Keep mandatory and voluntary MPF contributions in separate fields.
- Track cross-border workdays, secondments and split payroll.
- Convert and report all remuneration in Hong Kong dollars.
- Retain payroll records for at least seven years, and keep Employment Ordinance wage records alongside them.
- Ask every leaver whether they are leaving Hong Kong for more than a month, and use IR56F or IR56G accordingly.
- In IR56G cases, withhold final payments for one month from filing or until the release letter arrives, whichever comes first, and watch for a garnishee notice.
- Give the employee a copy of every IR56 form you file for them.
Common mistakes
Treating salaries tax as monthly withholding.
Hong Kong relies on employee filing and assessment. Do not deduct salaries tax from monthly pay. Departure tax clearance is the exception and needs its own handling.
Reporting base salary only.
Commissions, bonuses, cash allowances, housing, leave pay, gratuities, back pay and payments in lieu of notice may all need reporting. A payroll system that captures only basic salary guarantees a year-end problem.
Recording a housing benefit as a cash allowance.
This is the expensive one. It forfeits rental value treatment and can leave the employee assessed on the full rent instead of a percentage of income.
Confusing reimbursement with allowance.
A genuine business reimbursement needs receipts, approvals and a policy behind it. A recurring cash payment is treated on its substance, whatever it is called.
Forgetting currency conversion.
Regional and secondment roles are often paid in USD, EUR or RMB. Employer reporting has to be in Hong Kong dollars on a defensible basis.
Missing leaver deadlines.
Offboarding carries the most risk. HR needs to know whether the person is leaving Hong Kong for more than a month, which form applies, what final payments are due, and whether withholding is required, before the last working day rather than after it. IR56G has to be filed a month ahead of departure, so finding out during the exit interview is already late.
What this means for your payroll setup
Hong Kong gets described as a simple tax system, and on rates it is. The rates are low, published, and have not moved in years. The work sits somewhere else: in classifying pay items correctly before they are used, in structuring benefits so the right treatment applies, in reporting through the IR56 forms on time, and in handling leavers who are departing Hong Kong.
Two decisions carry most of the value. Structuring accommodation as a provided benefit rather than a cash allowance changes the employee’s assessable income substantially at no extra cost to you. And knowing in advance which departing employees trigger IR56G withholding avoids the one situation where paying someone on time is the wrong thing to do.
Both come down to the same thing: treating payroll, tax reporting and employment records as one process rather than three.
How NNRoad supports Hong Kong payroll
NNRoad runs payroll administration for companies employing in Hong Kong, whether through their own entity or through our Employer of Record structure. That covers salary calculation, payroll records, MPF coordination, IR56 preparation and filing, and the departure process for leavers requiring tax clearance.
We administer payroll and reporting. We do not provide tax advice, and employees remain responsible for their own returns, allowances and personal assessment elections. Where a package needs tax planning or gross-up modelling, that belongs with a tax adviser and we will say so.
Setting up payroll in Hong Kong?
Tell us whether you have a Hong Kong entity, how many people you are hiring, and whether any of them are relocating. We will tell you which model fits and what the reporting calendar looks like from your first payroll cycle.
Quick FAQs
What is the tax rate in Hong Kong?
Salaries tax is charged either at progressive rates of 2%, 6%, 10%, 14% and 17% across bands of HKD 50,000 of net chargeable income, or at the standard rate of 15% on the first HKD 5,000,000 of net income and 16% above that. Both are computed and the employee pays the lower amount.
Is salaries tax deducted from monthly payroll in Hong Kong?
No. Employees file their own returns and pay after assessment. Employers report and keep records. The one exception is departure: where an employee is leaving Hong Kong for more than a month and IR56G has been filed, you withhold final payments for one month from filing or until the IRD issues a letter of release, whichever comes first.
Does Hong Kong have an employer payroll tax?
No. There is no employer-side tax on wages. Employers do have MPF contribution obligations, which are separate from salaries tax.
How is employer-provided housing taxed in Hong Kong?
On rental value rather than cost. That is 10% of the employee’s net income for a residential unit or serviced apartment, 8% for two rooms in a hotel, hostel or boarding house, and 4% for one room. Any rent the employee pays to the employer reduces the figure. A cash housing allowance, by contrast, is chargeable in full.
Are bonuses and commissions taxable in Hong Kong?
Yes, both are generally chargeable as employment income. Record the amount, the timing and the year of assessment the payment relates to.
Are severance payments taxable?
Statutory severance payments and long service payments are generally not assessable to the extent they are strictly within the Employment Ordinance entitlement. Contractual top-ups above that may need reporting.
How much MPF can an employee deduct against salaries tax?
Mandatory contributions up to HKD 18,000 a year. The cap applies per person, so an employee contributing through two employments still deducts a maximum of HKD 18,000. Ordinary voluntary contributions are not deductible under this provision, but tax-deductible voluntary contributions paid into a designated TVC account are deductible under a separate regime, subject to a combined HKD 60,000 annual ceiling shared with qualifying deferred annuity premiums.
Can a foreign employee be taxed in Hong Kong?
Yes, where the income arises in or is derived from Hong Kong employment or services. Immigration status, work location, employer structure and assignment facts all need reviewing together, and a valid visa says nothing about the tax position.