In the heart of the global financial stage, Hong Kong SAR shines as a hub of economic activity. Amid its allure, comprehending the intricacies of the personal income tax system in Hong Kong holds paramount importance. This article delves into the keywords: Hong Kong personal income tax, tax rate, and tax calculator. Exploring these concepts will illuminate the unique tax framework, the progressive rate system, and the indispensable role of calculators in deciphering tax obligations. As we navigate the realms of taxation, a clearer understanding of Hong Kong’s financial landscape emerges, empowering individuals to make informed financial decisions.
Hong Kong SAR employs a unique approach to income taxation, wherein it does not levy a comprehensive income tax on an individual’s overall earnings. Instead, it employs distinct income tax categories for three primary types of personal income. Essentially, profits gained from business or trading activities are subjected to profits tax, while income stemming from employment, office work, or pensions is subject to salaries tax. Additionally, rental earnings from immovable property are liable to property tax.
The determination of an individual’s liability to salaries tax is not primarily contingent upon their residential status, except when considering tax treaties. In cases where a person possesses various income streams and resides within Hong Kong, they have the option to undergo a process known as ‘personal assessment.’ This process involves an evaluation of the person’s total income.
Taxation based on territorial principles
An individual’s liability to Hong Kong salaries tax is not influenced by their residence, domicile, or citizenship as per local regulations. The term “resident” gains its definition from the comprehensive double tax agreements (CDTAs) established between Hong Kong SAR and other entities, and this definition is applied within the context of a CDTA.
Hong Kong SAR’s taxation system operates on territorial principles. This means that all individuals, regardless of whether they are residents or non-residents of Hong Kong SAR, are subjected to Hong Kong personal income tax – salaries tax – for the following types of income: (i) income derived from employment within Hong Kong, (ii) earnings from an office held within Hong Kong SAR, and (iii) income originating from a Hong Kong pension.
Employment income
Income sourced from employment is categorized based on its connection to Hong Kong. Such categorization depends on whether the employment is within Hong Kong or not. In the instance of employment being non-Hong Kong-based, it is considered as such when the employment services are rendered by the individual within Hong Kong SAR.
The Hong Kong Inland Revenue Department (HKIRD) will typically regard employment as non-Hong Kong-related if the following three conditions are met:
- The employment contract was negotiated, established, and is legally binding outside Hong Kong SAR.
- The employer resides in a place situated outside the Hong Kong Special Administrative Region.
- The compensation for the employee is disbursed from a location outside Hong Kong SAR.
Failure to fulfill any of the above conditions will likely lead to the HKIRD classifying the employment as Hong Kong-based.
For employment within Hong Kong, personal income derived from it is exempt from taxation if all the services performed during a specific assessment year are carried out outside Hong Kong SAR. When determining whether services are executed outside Hong Kong SAR for a particular assessment year, services conducted in Hong Kong SAR during visits lasting up to 60 days within the basis period for the assessment year (referred to as the ’60-day rule’) are not taken into account.
In the case of non-Hong Kong-based employment, only the income related to services conducted within Hong Kong SAR is subjected to Hong Kong salaries tax, calculated on a ‘time apportionment basis’. Similar to Hong Kong-based employment, the ’60-day rule’ applies to evaluate whether any services were executed in Hong Kong SAR during an assessment year under a non-Hong Kong employment (i.e., services performed in Hong Kong SAR during visits lasting up to 60 days within the basis period for the assessment year will be disregarded).
In situations where an individual’s employment income is taxable both in Hong Kong SAR and in a foreign jurisdiction lacking a Comprehensive Double Taxation Agreement (CDTA) with Hong Kong SAR, the domestic tax law might provide a unilateral income exemption to prevent double taxation.
Special regulations exist for the taxation of employment income received by seafarers and aircrew members.
Effective from April 1, 2020, carried interest received by a qualifying employee from employment with a qualifying entity, providing investment management services to a certified investment fund in Hong Kong SAR, can be entirely exempted from inclusion in employment income for the purpose of salaries tax, subject to specific conditions.
Income from an office
The origin of earnings related to a position (such as directors’ fees) is ascertained based on the central management and control location of the company that disburses these fees. It’s important to note that the aforementioned ’60-day rule’ and ‘time apportionment basis’ do not have relevance when it comes to earnings derived from a position.
Pensions
In reality, pensions are generally liable to Hong Kong salaries tax if the funds used for the disbursement are overseen and governed within Hong Kong SAR, and if the pensions (excluding government pensions) are tied to services provided within Hong Kong SAR. Just like earnings from a position, the previously mentioned ’60-day rule’ and ‘time-apportionment basis’ do not pertain to pension income.
Personal income tax (salaries tax) rates
Typically, an individual’s earnings derived from employment, after deducting permissible expenses and personal allowances, are subject to Hong Kong’s progressive personal income tax rates. These rates vary from 2% to 17% and are structured as follows:
For 2022/23:
| Net taxable income (HKD) | Tax on column 1 (HKD) | Percentage on excess (%) | |
| Over (column 1) | Not over | ||
| 0 | 50,000 | – | 2 |
| 50,000 | 100,000 | 1,000 | 6 |
| 100,000 | 150,000 | 4,000 | 10 |
| 150,000 | 200,000 | 9,000 | 14 |
| 200,000 | 16,000 | 17 | |
Table 1: The personal income tax (salaries tax) rate in Hong Kong SAR for 2022/23 period.
However, for the fiscal year 2022/23, the highest personal income tax amount in Hong Kong will be capped at the standard rate (15%) applied to the net assessable income, following any eligible deductions (refer to the Deductions section). This calculation does not include the deduction of personal allowances.
In exceptional instances where the total allowable deductions surpass an individual taxpayer’s assessable income within a given assessment year, the surplus can be continuously carried forward to offset against the taxpayer’s assessable income in subsequent assessment years.
*** Note: There are no local, state, or provincial income taxes levied in Hong Kong SAR.
Personal income tax calculation sample in Hong Kong SAR
Presented is an example of how the calculation for personal income tax in Hong Kong SAR in the 2022/23 assessment year could appear, used for explanatory purposes.
Assumptions to calculate the personal income tax of a Hong Kong citizen:
- The person is married and has two children, both under 18 years old.
- The spouse of the individual is not employed, and the individual takes care of the financial needs of both children.
- The individual’s total income subject to assessment includes a salary amounting to HKD 650,000 and a year-end bonus of HKD 50,000.
- Throughout the year, the individual contributed HKD 18,000 to an MPF (Mandatory Provident Fund) scheme.
- Additionally, the individual made charitable donations totaling HKD 3,000 over the course of the year.
| Salaries tax computation | HKD | HKD |
| Salaries | 650,000 | |
| Bonus | 50,000 | |
| Total assessable income | 700,000 | |
| Less: Concessionary deductions | ||
| Charitable donations | (3,000) | |
| Retirement scheme contributions | (18,000) | (21,000) |
| Net income | 679,000 | |
| Less: Allowances | ||
| Married person’s allowance | (264,000) | |
| Child allowances (HKD 120,000 x 2) | (240,000) | (504,000) |
| Net chargeable income | 175,000 | |
| Tax at progressive rates: | ||
| First HKD 50,000 @ 2% | 1,000 | |
| Next HKD 50,000 @ 6% | 3,000 | |
| Next HKD 50,000 @ 10% | 5,000 | |
| Remainder HKD 25,000 @ 14% | 3,500 | |
| Tax payable (1) | 12,500 |
Table 2: The Hong Kong individual – sample personal income tax calculation for 2022/23 period.
Important Remark
- The computed tax using the flat rate (i.e., HKD 679,000 @15% = HKD 101,850) exceeds the amount derived from the progressive rates, making the flat rate inapplicable. Any potential tax reduction for the 2022/23 assessment year has not been disclosed as of now.
Conclusion
In the heart of global finance, Hong Kong SAR’s vibrant economy shines. Understanding its unique personal income tax system is vital. This article explores Hong Kong’s tax landscape, covering terms like personal income tax, rates, and calculators. Discovering these concepts clarifies the tax framework, progressive rates, and calculator importance in meeting tax duties. With Hong Kong’s distinct approach to income taxation—categorizing business, employment, and pension earnings—readers gain insights for informed financial choices. The article also touches on territorial principles, differing employment connections, special provisions, and progressive tax rates (2% to 17%). Navigating this complexity empowers effective financial decisions.
