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Personal Taxation in Hong Kong
 
 
 

Salaries Tax

In Hong Kong personal income tax is known as salaries tax. Individuals are only assessed on annual employment income. Non-employment source income such as share dividends and capital gains realised on the sale of shares are not taxable in the territory. Salaries tax is governed by the provisions of the Inland Revenue Ordinance. Income received by an employee is subject to salaries tax whilst income received by a self employed person is subject to profits tax. Salary tax rates are among the lowest in the world and remain one of the major attractions of locating to the territory.

The territorial principle governs salaries tax with the consequence that salaries tax is only levied on income "arising in or derived from a Hong Kong employment". The definition of income includes wages, salaries, bonuses, commissions, payments by the employer into a pension fund for the employee and gratuities. It does not include either a pension from a source outside Hong Kong or compensation for loss of employment.

The assessment to salaries tax is provisional and is based on the previous year's income with a tax credit being given in the subsequent year in the event of the assessment exceeding the actual income. 75% of the provisional assessment is payable in the third quarter with the final 25% being payable in the final quarter.

The salaries tax rate is the lower of either:

• 15% of "assessable income" after the deduction of allowances; or
• a progressive rate levied on "assessable income" after the deduction of allowances.

Recent budgets have introduced several personal tax relief measures.

The Revenue Bill 2006, tabled in the 2006/7 budget, lowered the marginal rates of the second, third and top tax bands by 1% from the existing levels of 8%, 14% and 20%. These were lowered to 7%, 13% and 19% for 2006/7 and to their present levels from the 2007/8 tax year. The Revenue Bill 2007 widened each marginal tax band from HK$30,000 to HK$35,000. Each band was widened to HK$40,000 from the 2008/9 tax year.

In the 2007/8 budget further relief was announced: 50% of the 2006-07 salaries tax or tax charged under personal assessment was waived subject to a ceiling of HK$15,000 per assessment. This measure was intended to be a 'one-off,' but its has been extended in subsequent budgets thus:

• for 2007/08, 75% of the final tax payable under salaries tax and tax under personal assessment would be waived, subject to a ceiling of HK$25,000 per case;

• for 2008/09, 100% of the final tax payable under salaries tax and tax under personal assessment would be waived, subject to a ceiling of HK$8,000 per case; and

• for 2009/10, 75% of the final tax payable under salaries tax and tax under personal assessment would be waived, subject to a ceiling of HK$6,000 per case.


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