When working in Hong Kong, it is vital to know the necessary taxes you must pay from your salary to avoid penalty. Read on to learn more about Hong Kong Salary Tax, and how to file properly.
For those working in Hong Kong, Salary Tax is the name given to the tax that individuals must pay each year on their income. Paying the accurate amount each year will help ensure that you are up to date with the IRD and avoid penalty. Ensuring that you understand Hong Kong Salary Tax will help you avoid unexpected costs and headache at tax assessment time.
In this article, we will break down the Hong Kong Salary Tax, the specifics of taxable salary and deductions available, and how to file properly.
In This Article:
- What Is Hong Kong Salary Tax?
- What Is Taxable Under Hong Kong Salary Tax?
- How Can I Calculate My Net Chargeable Income?
- What Is Deductible Under Hong Kong Salary Tax?
- How Do I File My Salary Tax?
1. What Is Hong Kong Salary Tax?
The Hong Kong Salary Tax is the tax that is applied to individuals who work in Hong Kong and receive income from an employer. While many countries require a flat tax on the total combined income of an individual, Hong Kong features a progressive tax rate that is split between different types of income.
In short, those who take an income from work under a Hong Kong-based employer are taxed at rates that progressively grow depending on what is called Net Chargeable Income. The tax rate starts at 2% and grows progressively until it maxes out at 17%.
2. What Is Taxable Under Hong Kong Salary Tax?
Knowing the exact type of income that is taxable under Hong Kong Salary Tax can help both taxpayers and employers know what to expect each year. It is important to note that in Hong Kong there is no capital gains tax, dividend tax or inheritance tax.
To know what is taxable under Hong Kong Salary Tax, it is important to know your Net Chargeable Income. This income number combines the taxable income elements that you can expect to have to pay upon assessment. Not only are there a variety of income types that go into net chargeable income, but there are also potential deductions that can be taken as well.
3. How Can I Calculate My Net Chargeable Income?
So, what is included in a Net Chargeable Income, and how can taxpayers calculate this number to prepare for tax season? According to IRD law, Net Chargeable Income can be calculated with the following formula:
Net Chargeable Income = Income – Deductions – Allowances
In general, your income includes all general income that is received through an employer, as well as commissions, bonuses, and any allowances allowed by the employer.
4. What Is Deductible Under Hong Kong Salary Tax?
Fortunately, there are a variety of items that are deductible under Hong Kong Salary Tax that can quickly reduce the amount of Net Chargeable Income that can be taxed. Among those potential deductions are the following:
- Outgoing payments and expenses (based on IRD-stated conditions)
- Depreciation on plant equipment and machinery that was utilized to generate income
- Any self-education expenses for furthering one’s career and knowledge
- Charitable donations to a list of approved schemes and funds
- Interest from a home loan based on qualifications
- Elderly care expenses
While there are several potential deductions that can reduce net chargeable income, there are many qualifications and necessary approvals that must be reached. It is important to do the proper research on any deductions you think you are owed to ensure you can take them properly when filing.
5. How Do I File My Salary Tax?
It is vital that every taxpayer file their accurate tax returns each year with the Inland Revenue Department (IRD). Assessment for Hong Kong Salary Tax runs from April 1 to the end of March of the year after salary is earned. Tax returns are then sent out by May 1, and should be filed within one month from the day they are issued to taxpayers.
One important note to remember is that even if a taxpayer doesn’t bring in any income in the taxable period, they must still file with the IRD a “0” income earned on their tax form. Those who are married can request a joint assessment or a single assessment based on their circumstances.
Business owners must file their returns within three months from the date that the return is issued from the IRD. Owners will then receive a “Notice of Assessment”, a notification of the amount that the company is liable to pay for Salary Tax.
FastLane HR is a dedicated Hong Kong based payroll and HR services specialist. Not only do we serve a broad spectrum of SMEs, we have obtained many years of experience in providing outsourced services for both local and foreign organisations. We ensure that every aspect of your business complies with current regulations and ordinances. Please contact us for enquiries!