Global expansion is a great way to grow your business and Hong Kong offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in Hong Kong.
Hong Kong is a special administrative territory in China, which has a separate political and economic system to the rest of the country. An investment-friendly climate with low levels of state intervention and an attractive tax system has made Hong Kong become the world’s seventh-largest trading entity as well one of the world’s most prominent financial hubs.
Dealing with tax matters is a major issue for companies seeking to develop an international presence, particularly as disciplinary measures can apply for non-compliance. We have made it our goal to keep track of the latest changes in the tax policies of Hong Kong to always ensure complete compliance.
In this guide we include the basic facts regarding tax regulations and we hope to provide you with a flying start in Greece to make your business thrive.
Overview of Hong Kong Tax:
- Individual Income Tax - 2% - 17% (Progressive)
- VAT - 0%
- Corporate Income Tax - 16.5%
- Social Security Contributions (Mandatory Provident Fund) - 5% (employee), 5% (employer)
Individual Tax Hong Kong - Single, Married
Any individual earning an income from Hong Kong must pay local taxes, regardless of their residential status. Income tax is not imposed on an individual’s total income. Instead, there are 3 types of income tax an individual can contribute to:
- Salaries Tax – income from employment, office, or pensions
- Profits Tax – income from business or trading profits
- Property Tax – rental income from immovable property
All individuals are subject to pay Income Tax, the most common being salaries tax. Income tax is to be paid by the individual in an annual tax return. Hong Kong's income tax rates are progressive, depending on one’s annual income. It starts at 2%, with a maximum of 17%:
- HK$ 0 - 50,000 - 2%
- HK$50,000 - 100,000 - 6%
- HK$100,001 - 150,000 - 10%
- HK$150,000 - 200,000 - 14%
- Over HK$200,000 - 17%
Besides income tax, individuals in Hong Kong are also subject to pay for social security, which amounts to about 5% of their monthly income. Any earnings from capital interests are not taxed.
Individual tax returns are issued on the first working day of May of the following year and must be filed within a month of the issue date. Income Tax can be done separately according to the type of income earned or done as a “personal assessment” – where income chargeable to all three types of income tax are aggregated in a single assessment.
If an individual is married, they may choose to be taxed separately, or jointly with their spouse.
Filing tax returns can be done online with the Inland Revenue Department’s website via eTax, or in person. For tax-filling in Hong Kong, it is mandatory for a taxpayer to have an identity number – this could be with a Hong Kong ID Card, or in some cases (especially non-residents), your national identity number, to use for local tax services.
Hong Kong Individual Tax Rules
Eligibility for Hong Kong Income Tax, as well as other taxes, depends on residency classification. The residency of an individual is regarded as the permanent home of an individual, or where the person resides for most of the year.
In Hong Kong, the tax year is between 1 April and 31 of March. An individual is eligible to pay taxes if they are registered as a local employee and is taxed on their income. If you are a non-resident in Hong Kong, you are subject to only paying taxes on your income derived in Hong Kong, as it benefits from a double taxation treaty.
Taxation in Hong Kong is territorial. The residence status of an employee is not generally determinative when considering liability to salaries tax – it is the location of the office/place of employment that matters.
Salaries Tax in Hong Kong is charged according to the location of the place of employment. To determine the location of the taxpayer’s employment, the Inland Revenue Department must take these factors into account:
- Whether the contract was negotiated, entered, and is enforceable in Hong Kong (SAR) or outside of it.
- Whether the employer is a resident in Hong Kong (SAR) or outside of it.
- Where the employee’s salary is paid to them, whether in Hong Kong (SAR) or outside of it.
However, there are several exemptions from salaries tax available to employees. If all services other than employment are rendered outside of Hong Kong, regardless of status of employment, income will be fully exempt from tax.
Also, if duties are provided in Hong Kong during visits of 60 days or less in a tax year, no liability arises. However, this does not apply if the individual has a place of residence or is based in Hong Kong. This exemption is only available for employment, so director’s fees do not apply.
If full exemptions do not apply, then partial exemptions are available through double taxation treaties.
VAT & Excise Duty, and others
Hong Kong does not charge VAT on products or services.
Custom duties are levied on certain categories of commodities (tobacco, liquor, methyl alcohol, hydrocarbons) and is included in the sale of these commodities by the retailers.
A stamp duty is also charged on the transfer by the way of sale and purchase at 0.2% of the consideration or market value per transaction.
Employers Social Security and statutory contributions
Hong Kong has only one statutory fund, The Mandatory Provident Fund (MPF) – a compulsory saving scheme for pensions. It is mandatory for all employees in Hong Kong who have an employment contract of 60 days or more, as well as the self-employed, between the ages of 18 and 65.
The choice of the MPF provider is the employer’s responsibility. Employee benefits are fully manageable by the employees, so any benefits previously accumulated under a former employer’s fund may be transferred to the new employer’s fund.
Fund providers have strict guidelines concerning the asset types to be made in investment funds, but they can also offer more than one investment option. Employees can allocate their assets among different funds available from their providers for their part of the contributions. Both employees and employers may also make additional voluntary contributions.
Employees join the employer’s MPF scheme after completing 60 working days. Both employers and employees are required to make monthly mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, which are subject to minimum and maximum levels.
Contributor & Fund Percentage Payments
- Employee - 5%
- Employer - 5%
Relevant income includes all monetary payments paid or payable by an employee including their salary, leave pay, fees, commissions, bonuses, gratuities, and allowances. However, this does not include severance or long service payments.
For a monthly-paid employee, current minimum and maximum relevant income levels are HK$ 7,100 and HK$30,000, respectively. If the monthly relevant income falls under the minimum income level, the employee’s monthly contributions are not required but the employer’s contributions remain.
Mandatory contributions should be remitted to the MPF trustee on or before contribution day – for monthly-paid employees, the contribution day is the 10th of each month.
Foreign citizens who are working in Hong Kong for less than 13 months, or who are covered by another country’s retirement system, may be exempted.
Hong Kong Corporation Tax
Companies in Hong Kong, whether domestic or foreign, are eligible for corporate income tax, or profits tax. This tax also adopted on a territorial basis. Profits tax must be paid by every person carrying on a trade/business located in Hong Kong SAR on their profits arising in or derived from that trade, business, or profession in Hong Kong SAR.
From the year of assessment 2018/2019, a two-tiered profits tax regime was introduced in Hong Kong SAR. The applicable tax rates apply:
Tiers (Companies) & Rates of Tax
- The first HK$ 2 million in profits - 8.25%
- After HK$ 2 million in profits - 16.5%
Unincorporated businesses (sole proprietorship and partnerships) also benefit from this two-tier tax regime, like so:
Tiers (Unincorporated Businesses) & Rates of Tax
- The first HK$ 2 million in profits - 7.50%
- After HK$ 2 million in profits - 15.0%
In cases where the two-tier system does not apply, the profits tax is 16.5% for companies and 15% for unincorporated businesses.
The tax year for businesses is April 1st to 31st March.
Corporate income is subject to an annual tax return, a tax calculation of profits or losses, and an annual audit.
Returns must be submitted within a month of receiving the forms (usually on the first working day of April). Payments can be done in two instalments, with the dates falling between November of the year in which the return was issued, and April of the following year. They are determined by the rates and specified in an assessment notice.
Capital Gains & Withholding Tax
Capital gains and receipts are not subject to profits tax, and dividends from overseas companies are not subject to tax in Hong Kong SAR. There is also no withholding tax on dividends and interests.
However, a withholding tax is required for royalties payments made from Hong Kong payers to non-treaty and treaty corporate recipients.
Tax deductions can be made for bad debt, charitable contributions over HK$100, pension expenses, as well as special deductions for expenditures on:
- Refurbishment of a building or structure
- Environmental protection installation and machinery
- Environmentally friendly vehicles
- On machinery used specifically and directly for the manufacturing process, computer hardware, computer software, and computer systems
- Registering trademarks, designs or patents used in the production of taxable profits
- On the purchase of a patent and specified intellectual property rights (provided certain specified conditions are met)
Learn more about Tax in Hong Kong
Interested in learning more about how we can help with your Hong Kong payroll and tax issues? Contact us today!