TAXATION

I. Salaries Tax

The charging of Salaries Tax in Hong Kong is based on the territorial concept. 

According to section 8(1) of the Inland Revenue Ordinance (Cap. 112 of the Laws of Hong Kong), Salaries Tax shall be charged for each year of assessment on every person in respect of his/her income arising in or derived from Hong Kong from any office or employment of profit or any pension. In simple words, you may be required to pay Salaries Tax if you have rendered services and received salaries/remunerations under a contract of employment in Hong Kong, irrespective of whether tax on that income has been paid in other jurisdiction. However, taxpayers can claim “deductions” and “allowances” in order to reduce their Salaries Tax burden.

Liability to Salaries Tax is based on the chargeable income of the year of assessment, but the total amount of income for the year cannot be ascertained until the year has passed. Hence, the Inland Revenue Department will first demand payment of  Provisional Salaries Tax during the year of assessment, and then make adjustments in the following year. Any Provisional Tax paid for a year of assessment is applied firstly against the Salaries Tax payable on the income for that year, and secondly, if there is any excess, it will be applied against the following year's provisional tax liability. Further illustration can be found in the questions and answers below.

Year of assessment

A year of assessment runs from 1 April to 31 March of the following year.

Tax Return

The law requires both the employee and the employer to separately report employment income/employment expenses to the Inland Revenue Department.

A. Location of Employment

What is the taxation status of workers who partly render services in Hong Kong and partly in foreign countries?

The Hong Kong tax system is territorial-based. Salaries Tax is imposed on all income arising in or derived from Hong Kong from an office or employment or any pension regardless of whether tax on that income has been paid in other jurisdictions, subject to certain exemptions and tax credits.

When determining the location of employment, the following three factors are taken into account:

1. the location in which the employment agreement was negotiated, entered into, and is enforceable;
2. place of residence of the employer; and
3. the place of payment of the employee’s remuneration.

In general, an employment is considered to be non-Hong Kong employment if all three of the aforementioned factors take place outside of Hong Kong. The Inland Revenue Department may, however, consider additional considerations besides these three.

Hong Kong Employment

Unless all your services are delivered outside of Hong Kong (no account is taken of services performed in Hong Kong during visits of not more than a total of 60 days in a year of assessment), your entire income is normally subject to Salaries Tax even if part of your services are conducted outside of Hong Kong.

Non-Hong Kong Employment

If some or all of your services were rendered in Hong Kong and your stay in Hong Kong is in excess of 60 days in total, you are typically only assessed for Salaries Tax based on the income from the services you rendered in Hong Kong and generally according to the number of days you were here during the year of assessment.

Full and Partial Exemption of Income and Tax Credit

Employees who render services partially in Hong Kong and in a foreign jurisdiction can make an application for exemption on the form (B.I.R.60) “Tax Return –Individuals” and its Appendix, together with the supporting documents required (e.g. a copy of employment contract or any documents verifying tax payment in a foreign country, etc.). Full or partial exemption of income, or relief from tax, may be available to these persons if they satisfy one of the following conditions:

i) Only part of the income was arising in or derived from Hong Kong from a non-Hong Kong employment (i.e. under Section 8(1A)(a) of the Inland Revenue Ordinance)

This exemption is only applicable for employees having a non-Hong Kong employment (e.g. assigned to work in Hong Kong by overseas employers). As Salaries Tax is in this circumstance levied on income derived from services rendered in Hong Kong, income attributable to services rendered outside Hong Kong is exempt from tax. The amount of income exempted is generally computed by time-basis apportionment by reference to the number of days spent outside Hong Kong, unless the stay in Hong Kong does not exceed 60 days in total in a year of assessment.

For the purpose of counting the number of days in Hong Kong, the day of departure from Hong Kong and the day of arrival to Hong Kong together are counted as one day only.

Example

Thus, broadly speaking, if your annual income for a year of assessment was $365,000 and you were in Hong Kong for 100 days in that year, your assessable income would be $365,000 x 100/365 = $100,000.

ii) All services were rendered outside Hong Kong during the year under a Hong Kong or non-Hong Kong employment (i.e. under Section 8(1A)(b)(ii)of the Inland Revenue Ordinance)

This exemption is generally available to employees irrespective of the locality of the employment. Attending trainings, meetings or reporting in Hong Kong is regarded as services rendered in Hong Kong for the purpose of the exemption. You are exempt from Salaries Tax for a year of assessment if you rendered all your services outside Hong Kong in that year of assessment, unless you are a civil servant, or a crew member of a ship or an aircraft. Income from services rendered in Hong Kong during “visits” not exceeding a total of 60 days in the year is also excluded from Salaries Tax.

Visit means a short or temporary stay. Whether the nature of a trip to Hong Kong made by a Hong Kong resident is "visit" or not depends on the circumstances of each case. In general, if a Hong Kong resident has a work base in a foreign country and is required to render services there as a permanent employee, the person's occasional return to Hong Kong will be recognized as a "visit".

In deciding whether visits to Hong Kong exceed a total of 60 days, the "days of presence" are counted. A day is counted although you may be present in Hong Kong for part of the day only. Therefore, the day of departure from Hong Kong and the day of arrival to Hong Kong are counted as two days.

Example

iii) Part of the income has already been charged to the tax in Mainland China or other countries during the year 

a) Income Exemption for Hong Kong Employment under Section 8(1A)(c)of the Inland Revenue Ordinance

This exemption is generally only applicable for employees having a source of employment in Hong Kong. If you have paid tax of substantially the same nature as Hong Kong Salaries Tax to a territory outside Hong Kong in respect of income relating to services rendered by you in that territory, that part of the income which has already been subject to foreign tax will be exempt from Hong Kong Salaries Tax. Evidence of foreign tax payment is required.

For example, your annual income for a year of assessment was $300,000 and two-third of the income (i.e. $200,000) was attributable to services rendered by you in, say, Country A. If you had paid tax similar to Hong Kong Salaries Tax in Country A on the $200,000 income, your assessable income in Hong Kong would be $100,000 only.

b) Tax Credits under Section 50 of the Inland Revenue Ordinance 

When a Hong Kong tax resident has paid tax in a territory outside of Hong Kong that has concluded a comprehensive double taxation agreement or arrangement ("CDTA") with Hong Kong in regard to his or her income obtained from services provided in that territory (a "DTA territory"), tax credit may be granted. The foreign tax paid may be applied as a tax credit against Hong Kong tax due provided that proper documentation proof of payment is given.

For instance, before claiming any tax credit, you are chargeable to $100,000 in income tax on the relevant income in Country A attributed to services provided in that Country A and $450,000 in Salaries Tax on your entire income in Hong Kong (assuming that income is taxed at the standard rate). If Country A and Hong Kong have a CDTA in place, and you claim a tax credit for the income tax you paid in Country A, your Hong Kong Salaries Tax obligation will be reduced from $450,000 to $350,000.  

Income Exemption for Hong Kong Employment vs. Tax Credits

For a year of assessment up to 2017/2018, if a Hong Kong resident has paid Salaries Tax in a DTA territory in respect of income derived from services rendered in that DTA territory, he/she may either apply for tax exemption under section 8(1A)(c) in respect of that part of income already subject to Individual Income Tax in the Mainland or apply for a tax credit under section 50. Documentary evidence of the payment of Individual Income Tax is required.

From the year of assessment 2018/2019 and onwards, for income derived by a person from services provided in a DTA territory, section 8(1A)(c) is no longer applicable. Only a tax credit allowed under section 50 may be used to provide relief from double taxation on such income. For example, if you are a Hong Kong resident person (a person who is resident for tax purposes in Hong Kong) and have paid Individual Income Tax in the Mainland China in respect of your income derived from services rendered in the Mainland, you may claim for tax credit under section 50 of the Inland Revenue Ordinance and the Arrangement between the Mainland China and the HKSAR for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income.

You must fill out section 3 or section 4 of the Appendix to Tax Return - Individuals, depending on whether you want to claim a tax exemption under section 8(1A)(c) or relief under section 50.

To get more details about full or partial exemption of income relating to places of employment, you can also visit the Inland Revenue Department's webpage.

B. General guidelines on how to compute Salaries Tax

1. What income is assessable and what deductions (and allowances) can be claimed under Salaries Tax?

The following is only intended to provide an outline of what taxable income, deductions, and allowances are. These terms will be explained further in separate questions and answers in other sub-sections on this website.

a) Income

According to section 11B of the Inland Revenue Ordinance, the assessable income of a person in any year of assessment shall be the aggregate amount of income accruing to that person from all sources in that year of assessment.

For the purposes of Salaries Tax, the assessable income includes:

i) Salaries/wages

ii) Commission, bonus, leave pay, end-of-contract gratuities, payment in lieu of notices accrued on or after 1 April 2012 

As a general rule, most forms of income that your employer pays to you are taxable, regardless of when the payments are made (before, during or after a period of employment) and whether the amount was paid according to the terms of employment or in excess of them. Only a few types of payments are exempt. These include, but are not limited to, compensation for injuries and payments specifically exempted under the Inland Revenue Ordinance.

iii) Allowances, perquisites and fringe benefits

These include cash allowances for food, traveling, housing, cost of living, holiday journal and education benefits and liability of employees discharged by employers.

iv) Tips from any person

Examples of tips include those paid by customers to waiters in restaurants and those paid by customers to tour guides.

v) Salaries Tax paid by an employer

The amount, if any, paid by your employer to cover your tax obligations should be reported as assessable income.

vi) Value of a place of residence

The ‘rental value' of a place of residence is taxable where (a) a place of residence is provided by an employer, or (b) the rent for which is paid or refunded (fully or partially) to the employee by the employer. “Employer” here also includes a corporation associated with the employer. This is taken to be 4%, 8% or 10% of the income earned from the employer (excluding any lump sum payment or gratuity on termination of employment) after deductions and depreciation allowances (if any) for the period during which the residence is provided, depending on the type of accommodation provided. For further details, please refer to here.

vii) Share awards and share options gain

This refers to stock awarded to you arising from your employment and the gain realized by the exercise, the assignment, or the release of a right to acquire shares or stock in a corporation.

viii) Back pay, gratuities, deferred pay and pay in arrears

Any income that you have received from your employer as back pay, gratuities, deferred pay and arrears of pay during the course of employment or upon or after cessation of employment are assessable and should be reported on your tax return.

ix) Termination payments and retirement benefits

Termination payments (e.g. salary for the last month of service, and payments in lieu of notice accrued on or after 1 April 2012 and payment in lieu of leave) as well as retirement benefits, including accrued benefits received from recognised occupational retirement schemes or receipts or deemed receipts from mandatory provident fund schemes (with exceptions), should be reported.

For more details relating to retirement benefits, please go to questions 6 and 7 in section C or click here.

x) Pensions

All pensions should be reported as assessable income.

Income not chargeable to Salaries Tax (not required to be reported in Tax Return – Individuals ) includes: 

• fees paid for your having served as a juror;
• severance payment or long service payment payable by the employer on termination of employment under the Employment Ordinance;
• payments received from MPFS on retirement, death, incapacity or termination of service attributable to mandatory contributions.

b) Deductions and Depreciation Allowances

You may claim deductions on the following categories, subject to a specified ceiling in relation to each year of assessment.

i) Outgoings and expenses

To qualify for deduction, the relevant outgoing and expense cannot be of a private or domestic nature and must meet the very stringent conditions of being wholly, exclusively, and necessarily incurred in the production of your assessable income. For more information, please refer to the Inland Revenue Department’s Departmental interpretation and Practice Notes No. 9.

ii) Expenses of self-education

Expenses of self-education (including tuition and the related examination fees) paid for a prescribed course of education may be deductible under Salaries Tax. For more information, please click here.

iii) Approved charitable donations

The minimum amount allowable for deduction is $100. The total amount to be deducted for the year should not exceed 35% of your assessable income less the deductions of outgoings and expenses and depreciation allowances.

iv) Mandatory contributions to (MPFS) or contributions to Recognized Occupational Retirement Schemes (RORS)

Some of the contributions that you make to a mandatory provident fund (MPF) scheme or a recognised occupational retirement (ROR) scheme can be deducted from your assessable income. Mandatory contributions to MPF schemes are deductible in computing your assessable income as an employee or assessable profits as a self-employed person's own contribution. All contributions other than mandatory contributions are voluntary and are not deductible. The maximum deduction for each year of assessment for the year of assessment 2018/19 is $18,000.

For more information, please click here.

v) Home loan interest

You can get deductions of home loan interest paid on the mortgage of your home. For more information, please click here.

The maximum amount of deduction for the year of assessment of 2018/19 to 2023/24 each year is $100,000 per year.  For the year of assessment of 2024/25 onwards, the maximum additional deduction is $20,000.

With effect from the year of assessment 2012/13, the number of years of deduction for home loan interest is extended from 10 to 15 (not necessarily consecutive) years of assessment.  The additional 5 years home loan interest deduction is not applicable to the year of assessment prior to the year of assessment 2012/13. However, it will not affect taxpayers’ entitlement (including those who had already got the deduction of home loan interest for 10 years of assessment) of the 5 additional years deduction from the year of assessment 2012/13 and onwards.  With effect from the year of assessment 2017/18, the number of years of deduction for home loan interest is further extended from 15 to 20 (not necessarily consecutive) years of assessment.

Following each home loan interest deduction, the Commissioner will notify you of the number of years for which deduction has been allowed and your remaining entitlement.

vi) Elderly residential care expenses (ERCE)

You can claim deduction of the ERCE actually incurred by you/your spouse in respect of the residential care for you/your spouse's parent/grandparent who is aged 60 or above at any time in the year of assessment, or who is under 60 but is entitled to claim an allowance under the Government's Disability Allowance Scheme; and is taken care of by a registered residential care home or nursing home situated in Hong Kong. The annual deduction ceiling for the year of assessment of 2018/19 onwards is $100,000. For more information, please click here. In respect of the same dependant, you can claim either Dependent Parent Allowance (see “Allowances” below), or ERCE, but not both. If ERCE and DPA are claimed simultaneously for the same dependant, you will only get a deduction for ERCE for that year.  For example, during the year of assessment 2023/24, you pay $60,000 to a residential care home for your father who is over the age of 60. You can choose to claim the deduction for elderly residential care expenses ($60,000) or the dependent parent allowance ($50,000). By claiming the deduction for the expenses you will be able to obtain more tax benefit.

vii) Depreciation allowances on plant & machinery

To qualify for such allowances, you must show that the use of the machinery or plant is essential to the production of your income and produce the relevant receipt for inspection, when required. This kind of depreciation allowance, however, is uncommon for Salaries Tax.

vii) Depreciation allowances on plant & machinery

To qualify for such allowances, you must show that the use of the machinery or plant is essential to the production of your income and produce the relevant receipt for inspection, when required. This kind of depreciation allowance, however, is uncommon for Salaries Tax.

viii) Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contributions 

From the year of assessment of 2019/20 onwards, a taxpayer may deduct MPF voluntary contributions made into a tax-deductible MPF voluntary contribution account as well as the qualifying annuity premiums of some qualifying insurance policies. For more details, please refer to here.  

ix) Qualifying Premiums paid under the Voluntary Health Insurance Scheme (VHIS) Policy 

From the year of assessment of 2019/20 onwards, a taxpayer who pays the insurer qualifying premiums for writing or renewing a VHIS insurance policy (i.e. a policy that is in whole or in part issued under an insurance plan that has been certified by the Secretary of Health as complying with the Government's VHIS) for themselves or their specified relatives (i.e. spouse, child, taxpayer’s or his/her spouse’s brother, sister, parent or grandparent, subject to certain additional requirements), is eligible to claim a deduction for that payment. The maximum deduction allowed to any taxpayer for any covered person shall not be greater of the amount of the prescribed maximum deduction or the amount of the qualifying premiums paid, whichever is less.

If an insurance policy covers a certified VHIS policy and a life insurance plan, the life insurance policy's premium is not deductible. The specified maximum deduction is $8,000 for the assessment year 2019/20 and beyond. There is no cap on how many specified relatives a taxpayer may claim. The same insured person may be claimed as a deduction by more than one taxpayer. For more details, please refer to here.

x) Tax deduction for domestic rents

Domestic rents paid by a taxpayer under a qualifying tenancy of domestic property used as the taxpayer's primary residence are deductible effective from the year of assessment of 2022–2023. Starting from the year of assessment of 2024/25, the deduction ceiling for domestic rents is raised from $100,000 to $120,000 for those taxpayers who reside with their child and if the specified conditions are met. For more details, please click here.

xi) Interest payments to produce rental income from properties 

You can deduct interest paid on money borrowed for generating rental income subject to Property Tax if you elect for Personal Assessment. The deduction, however, is limited to the net assessable value of each rental property let. Interest payments made for times the property was not rented out (such as when it was occupied by your family or was vacant) are not tax deductible.

c) Allowances

In every year of assessment, Please visit GovHK for updated allowance figures.

d) Tax Reduction

Since the assessment year 2017/18 and onwards, the Hong Kong government has implemented an annual one-time reduction of the Salaries Tax that is applied in the final assessment to reduce the amount of tax payable, subject to the corresponding ceilings listed below:

For Salaries Tax, the cap is applied to each individual taxpayer; however, for married couples who are jointly assessed, the cap is applicable to each married couple.

For Personal Assessment, the ceiling is applied to each single taxpayer or married person who elects for Personal Assessment separately from his/her spouse. When a taxpayer chooses Personal Assessment jointly with his or her spouse, each married couple is subject to the ceiling.

A taxpayer who is separately chargeable to Salaries Tax and Profits Tax can enjoy tax reduction under each of the tax types. If a taxpayer chooses Personal Assessment and has business earnings or rental income, the reduction will be based on the tax due under Personal Assessment. It might not be the same as the tax reduction the individual would receive if they had not been subject to Personal Assessment. Case by case analysis will be required to determine the actual position.

Only the final tax for the applicable year of assessment will be subject to the tax reduction; the Provisional Tax for the same year will not. As a result, notwithstanding the reduction measure, taxpayers must still pay their Provisional Tax on time. Any excess balance will be refunded.

2. What are the current rates for salaries tax?

Tax rates for the year of assessment 2018/19 and onwards (also applicable to Personal Assessment):

Net total income (Total Income – Deductions) < Standard rate: 15% or 16% (For the year of assessment 2024/25 onwards, a two-tired standard tax rates regime will be implemented, under which the first $5 million of the net income will continue to be subject to the standard rate of 15% while the portion of the net income exceeding $5 million will be subject to the standard rate of 16%)

Salaries Tax is chargeable on your net chargeable income at progressive rate or your net total income at standard rate, whichever is the lesser. It may be further reduced by tax reduction, subject to a ceiling each year. Based on the above table, progressive rate is more advantageous to people with relatively lower income. On the other hand, the standard rate will give more concession to people earning relatively higher income (since progressive rate will charge 17%, but not 15% or 16% (under the two-tiered standard tax rates), on the income after the first $200,000).

Please go to the next question for an illustration of how to compute Salaries Tax.

For more details on tax rates, you may also refer to the Inland Revenue Department's “Allowances, Deductions and Tax Rate Table”.

3. How is Salaries Tax and Provisional Salaries Tax computed?

You may use the Inland Revenue Department's simple Tax Calculator to assess your Salaries Tax and Provisional Salaries Tax.

4. When do I pay my Salaries Tax and Provisional Salaries Tax?

Normally you would be asked to pay the Salaries Tax and Provisional Salaries Tax by two installments: the first instalment to be paid by January, the second instalment to be paid by April. Generally speaking, when paying the first instalment, you are required to pay 75% of the Provisional Salaries Tax for a year after you have earned the income for at least nine months in the same year, and the remaining 25% is paid after you have earned the income for the whole year (i.e. in April). Assuming that there is no change on your monthly income on this year comparing with the previous year, paying Provisional Tax is actually not paying tax in advance, nor paying tax on future income.

5. Under what circumstances can I apply for paying less tax, or for holding over (deferring payment) of Provisional Salaries Tax?

An application for holding over of Provisional Salaries Tax may be made on one of the following grounds: 

• You have become entitled to an allowance, which was not given in the notice for payment of Provisional Tax, for example:
  • You are getting married this financial year and your spouse does not have any income. You are entitled to a married person’s allowance;
  • Child allowance for your newborn baby; or
  • Dependent parent allowance for your parent who has attained the qualifying age in the year of assessment for which Provisional Tax was charged.
     
• Your net chargeable income for the year of assessment for which Provisional Tax was charged is, or is likely to be, less than 90% of the net chargeable income for the preceding year or of the estimated sum in respect of which you are liable to pay Provisional Tax.

• You have been assessed to pay Provisional Salaries Tax and have paid or are anticipated to pay self-education expenses, contributions to a recognized retirement scheme, residential care expenses, home loan interest, qualifying premiums under the Voluntary Health Insurance Scheme Policy, qualifying annuity premiums, tax deductible MPF voluntary contributions or domestic rents during the year of assessment; and the amounts exceed or are anticipated to exceed the specified amount for the year preceding the year of assessment for which Provisional Tax was charged.
   
• You have ceased or will before the end of the year of assessment for which Provisional Tax was charged cease, to derive income chargeable to Salaries Tax. You should state the estimated amount of income for the whole year of assessment in your application and give reason for the reduction of income such as unemployment, retirement and salary reduction.
   
• You have objected to your Salaries Tax assessment for the year preceding the year of assessment for which Provisional Tax was charged.

Your application must be made in writing and received not later than 28 days before the due date for payment of the Provisional Salaries Tax, or 14 days after the issue of the demand note concerned, whichever is the later.

If the Provisional Tax is payable by two instalments and the first instalment has been settled by the due date, an application for holding over of the whole or part of the second instalment may be made subject to the prescribed time limit and grounds for application.

6. How can married persons report their salary income?

Married persons can choose "separate taxation" or "joint assessment":

i) Separate taxation

A husband and a wife are treated as separate individuals. Each is required to: 

• complete Tax Return – Individuals,
• declare his/her income,
• claim expenses (and deductions), and
• pay any tax due.

ii) Joint assessment (applicable only if advantageous)

If the earnings of one spouse are less than his/her tax allowance, allowance may not be fully utilised when the husband and wife are assessed separately under separate taxation. If a couple chooses to have a “joint assessment”, income and allowances for both husband and wife will be added together, and the married person's allowance will be deducted from their joint total income. Obviously, this will result in some savings in tax for the married couple.

Hence, where it appears that a joint tax bill may be smaller than your two tax bills added together, both you and your spouse should choose the “joint assessment” option in each of your Tax Returns on a year-by-year basis. While both the husband and wife must still file Tax Returns, if making the choice will reduce the total amount of taxes payable by the couple, only one notice of assessment will be sent out on their combined income from salaries, typically to the spouse who earns the higher amount of money and will demand payment of the tax. 

Where joint assessment is elected, the spouses of a married couple must nominate one of them to be the person liable for the tax payable on their aggregated net chargeable income.

If a joint assessment does not result in less tax, the Assessor will automatically issue separate tax bills to each of you instead.

Please note that there is a time limit for the selection/withdrawal of a joint assessment. After initially choosing to have a joint assessment, should you change your mind and withdraw your selection, you will not be allowed to request a joint assessment again in the same year of assessment.

An election or withdrawal of joint assessment must be made:

• within that year of assessment or the following year of assessment; or
• within 1 month after the assessment for the year of assessment becomes final and conclusive, whichever is the later; or
• within such further time, if any, as the Commissioner of Inland Revenue may allow as being reasonable in the circumstances. 

Any married couple may choose “joint assessment” under Hong Kong Salaries Tax regulations, irrespective of their residential status. The point to note for joint assessment is that both spouses should have income assessable to Hong Kong Salaries Tax for the specific year of assessment in question.

C. Income chargeable to Salaries Tax