Hong Kong has the lowest tax rate in Asia which also boasts one of the lowest tax rates in the entire globe. The territory has a simple and understandable tax system, and it is one of the most well-liked investment destinations in the world due to its status as a tax haven.
For both people and corporations, Hong Kong offers low tax rates. Also, there are no estate duties, sales taxes, value-added taxes, dividend and interest withholding taxes, or capital gains taxes. The low tax burden in Hong Kong is a major factor in the city’s appeal to foreigners.
Introduction to Hong Kong’s Tax System
Hong Kong exclusively levies taxes on revenue generated within or originating in Hong Kong. For salary, this includes commissions, allowances, bonuses, and additional benefits such as housing paid for by the firm, employer-paid taxes, stock options, and retirement benefits. Severance pay and long service incentives, on the other hand, are not subject to taxation because they are not payments for services.
Tax Rates for Individuals and Deductions
A sliding scale with rates between 2% and 17% or a standard rate of 15% on net income (income less deductions), whichever is lower, is used to calculate the tax on salaries.
Among the things that can be deducted are allowances for old individuals who live with the taxpayer as well as allowances for married couples, single parents, and children. Deductions are also allowed for self-educational costs, authorized charitable contributions, and contributions to the Mandatory Provident Fund plan, which is the territory’s social security program.
The territorial principle is the foundation of the tax system in Hong Kong. This means that if a person owns a business in Hong Kong but receives income from another location, they are not required to pay tax in Hong Kong on that income. Even if they are sent to Hong Kong, profits produced elsewhere are not subject to taxation. Yet, this needs to be explained in great detail and is not at all clear.
You can utilize an automated tax computation system on the Inland Revenue Department’s website to determine how much you owe in estimated taxes. Also, you have the option of filing your taxes online.
Tax Rates and Calculation
Tax rates for individuals range from 2% to 17%, or 15% (as of 2013/14#) on their net income, whichever is smaller. Net chargeable income is the amount of money that is taxable after deductions and exemptions. Capital gains, dividends, and inheritance are all exempt from taxation in Hong Kong.
People in Hong Kong pay taxes based on where they reside. Just the income “acquired in Hong Kong” is subject to taxation for individuals.
Residents of Hong Kong who pay taxes as individuals may be able to pay less in taxes by opting for personal assessment. A person’s total income from all sources is combined under personal assessment and taxed at a rate that increases over time. You may read more about this later in this article about the income tax and tax rates in Hong Kong. One evaluation year runs from April 1 to March 31 of the following year.
Understanding the Two-Tier Standard Rate under the Hong Kong Salary Tax Rate
How the Standard Rate Works
Under the Hong Kong Salary Tax Rate regime, taxpayers may be assessed using a standard rate system, which can be beneficial depending on their financial circumstances. The standard rate follows a two-tier structure: for the 2025/26 assessment year, the first HK$5 million of net income is taxed at 15%, while any income exceeding that amount is taxed at 16%.
What Counts as Net Income
Net income refers to a taxpayer’s total assessable income after deducting allowable expenses and outgoings but before personal allowances are applied. It differs from net chargeable income used in the progressive rate calculation.
Automatic Assessment by IRD
Taxpayers do not need to choose which tax method to apply. The Inland Revenue Department (IRD) automatically calculates tax if elected for Personal Assessment (PA) under both the progressive and standard rate structures, applying whichever results in a lower tax liability. This ensures fairness and flexibility within the Hong Kong salary tax rate system.
How the Salary Tax Rates in Hong Kong Operate
There is no flat salary tax rate in Hong Kong. Instead, the salary tax rates rise with time. With rates of 2%, 6%, 10%, 14%, and 17% at the top, there are five tax brackets.
Filing Salary Tax Returns
Annual tax returns must be submitted by every taxpayer to the Inland Revenue Department (IRD).
From April 1 through March 31 of the following year is the assessment year. Tax returns for individuals are due by May 1. Normally, tax returns are due one month from the date of issuance.
It’s vital to remember that you must still claim zero income on your tax form even if you have no income to report.
Filing Process and Deadlines
A married couple might opt to get a joint assessment if the single assessment based on their combined income results in a lesser tax liability.
Three Tax Return supplemental forms, which are a part of the return, must be filed with the return beginning on April 1, 2019.
You have three months from the date of issuance, if you’re a sole owner, to file the returns. You have the option of filing your taxes online or by mail. After you have submitted your forms, the Inland Revenue Department will give you a “Notice of Assessment” or tax bill. The amount of tax you owe for the current assessment year will be displayed on your tax bill. Moreover, it will include the provisional salary tax due for the subsequent assessment year.
Within 30 days of the tax bill’s release, you must inform the tax department that you oppose it and provide justification. Tax must be paid on or before the due date noted in the notice of assessment, whether or not you submit a notice of objection.
The Commissioner of Inland Revenue may levy fines or give an anticipated assessment if the return is not submitted on time.
Personal Allowances in Hong Kong
If the necessary requirements are satisfied, allowances are paid to each taxpayer under salaries tax and personal assessment (if chosen).
Key Allowances and Deductions that Influence the Hong Kong Salary Tax Rate
Impact of personal allowances
Personal allowances play a significant role in lowering the tax burden under the Hong Kong Salary Tax Rate. These allowances reduce the net chargeable income subject to progressive rates. Common allowances include the basic allowance for all individuals, the married person’s allowance, and allowances for dependent children, parents, and grandparents. Some allowances are enhanced if the dependent resides with the taxpayer.
Claimable deductions
In addition to allowances, taxpayers can claim various deductions that reduce their total assessable income. Deductible expenses include contributions to the Mandatory Provident Fund (MPF), home loan interest, charitable donations to approved organizations, self-education expenses, and rental payments for a principal residence.
Why these matter
These allowances and deductions can significantly affect which tax structure, progressive or standard, results in the lower tax payable. Taxpayers who are eligible for multiple deductions and allowances typically benefit more under the progressive rate.
When the Standard Rate May Be More Suitable Under the Hong Kong Salary Tax Rate
High-Income Scenarios
While the progressive rates are advantageous for most individual taxpayers, high earners may reach a point where the standard rate becomes more favorable. This usually occurs when income is substantial and allowances or deductions are limited.
Minimal Allowances or Non-Resident Status
Taxpayers who do not qualify for many personal allowances, such as those without dependents or those classified as non-residents, may also find the standard rate more beneficial under the Hong Kong salary tax rate framework.
Ensuring Optimal Taxation
Fortunately, there is no need for manual selection. The IRD will automatically determine and apply the more favorable method of taxation. Understanding when the standard rate applies provides clarity for financial planning, especially for those with complex or high-value income structures.
What can We Do to Help You?
Hong Kong has traditionally been a favorite location for both domestic and foreign businessmen due to its low personal income tax rate. Hong Kong does not impose capital gains tax, VAT, GST, or even a high personal income tax rate.
We offer thorough tax and business advising services in relation to the Hong Kong tax system. If you need any extra information, don’t hesitate to get in touch with us.
How is Salary Tax determined?
It is crucial to comprehend how Hong Kong Salary Tax is computed before submitting your Individual Tax Return (Form BIR60).
In accordance with Hong Kong tax regulations, persons are subject to a salary tax on all income earned in or derived from Hong Kong in connection with any office, employment, pension, or payments for services done in Hong Kong. Depending on which is smaller, the tax due is determined using either the progressive tax rates on net chargeable income or the standard tax rate of 15% on net income.
If I'm self-employed or only work part-time, do I still need to file a tax return?
Regardless of whether you are a self-employed individual or a part-time employee, you are required to complete and submit an Individual Tax Return (Form BIR60) on time if you got one from the IRD.
If you work for yourself (operate a sole proprietorship or partnership business), Profits Tax may apply if your business receives net assessable earnings from Hong Kong.
In general, you must submit your Individual Tax Return (Form BIR60), the supporting tax computation, and a set of financial statements once a year if you are a sole proprietor. A set of the partnership's financial statements and a tax computation must be included with the yearly Profits Tax Return - Persons Other Than Companies (Form BIR52) that must be filed by partnership enterprises.
Is it accurate to say that I do not have to file a tax return or make a payment if the IRD does not send me my individual tax return?
No, you might be subject to taxation if your employment income, rental income, or company earnings come from Hong Kong. You must notify the IRD in writing by July 31 of your tax chargeability if you received income subject to Salary Tax year 2021/22 but have not yet received your 2021/22 Individual Tax Return (Form BIR60), which is typically issued by the IRD in early June 2022.
If I'm married, should I select Joint Assessment on my Individual Tax Return (Form BIR60)?
If both the husband and wife are subject to salary tax and their combined income exceeds the Basic Allowance (HK$132,000 in 2021/22 and 2022/23), a separate assessment is typically advantageous.
Married people are entitled to Married Person's Allowance (HK$264,000 for 2021/22 and 2022/23) and do not need to choose Joint Assessment in their Individual Tax Return if they are married and their spouse does not have Salary Tax assessable income (Form BIR60).
You and your spouse may choose to be jointly assessed (i.e. under Joint Assessment) if doing so lowers your overall tax bill if you and your spouse have income that is assessable under the Salary Tax. In general, if one spouse's net income is lower than the whole amount of Personal Allowances to which he or she is entitled, Joint Assessment may be advantageous to the married pair.
If I have rental income or business profits in addition to my pay when I file my Individual Tax Return (Form BIR60), should I choose Personal Assessment?
You can select Personal Assessment if you must pay Profits Tax and/or Property Tax in addition to Salary Tax. The Personal Assessment option may or may not lower your tax obligation, depending on your specific situation.
