Tax information: going to Hong Kong
Welcome to the tax guide on going to Hong Kong, produced by Deloitte. Looking for tax information about leaving Hong Kong, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you arriveQ. Do I need a work permit to work in Hong Kong?
A. Yes. Foreign nationals who do not have the right of abode or right to land in Hong Kong are required to secure an employment visa to work in Hong Kong. Dependants (spouse or unmarried children under the age of 18) of a Hong Kong employment visa holder should obtain dependants' visas to reside in Hong Kong. This is effective from May 15 2006, dependant visa holders can work in Hong Kong (except for those whose visa sponsor is a Hong Kong student visa holder).
Q. Should I complete any documentation upon arrival in Hong Kong
A. For tax reporting purposes, there are no specific individual reporting requirements on arrival. Your employer must, however, file a Commencement Notification (Form IR56E) notifying the Inland Revenue Department (IRD) of your employment/assignment.
The Commencement Notification must be filed within three months of the date of commencement of the employment/assignment.
If your spouse or children have no income assessable to tax in Hong Kong, there is no tax registration required although all individuals who intend to reside in Hong Kong for more than 180 days must apply for a Hong Kong Identity Card, which must be carried at all times.
Q. Is it beneficial to open an offshore bank account in comparison to an account in Hong Kong?
A. Payment of salary into an offshore bank account will facilitate a time apportionment claim to exclude from Hong Kong tax any income relating to duties performed outside Hong Kong. Time apportionment claims are subject to the IRD's review and approval. It is important to keep track of the travel days during the year.
Q. What is the name of the tax authority in Hong Kong?
A. Inland Revenue Department, see http://www.ird.gov.hk/eng/welcome.htm
Q. What is the tax year?
A. 1 April to 31 March.
Q. How will I be taxed in Hong Kong?
A. Exposure to Hong Kong tax generally is based on the source of income. Anyone receiving Hong Kong source income is subject to Hong Kong tax on that income.
Income from employment, solely owned Hong Kong property, and a sole proprietorship business (based in Hong Kong) is reported on a combined return; however, separate assessments are made for each income category; salaries tax, property tax and profits tax.
Q. How is tax residence determined?
A. Hong Kong applies a territorial system of taxation and the concepts of residence, domicile and citizenship generally are not relevant for taxation in Hong Kong.
Only income arising in or derived from within the territory of Hong Kong will be liable to tax. Employment income arises in or is derived from Hong Kong if it is earned from employment that is fundamentally located in Hong Kong, or if it relates to duties performed in Hong Kong.
In general, an employment will be considered to be fundamentally located in Hong Kong if the employer is resident in Hong Kong or if the contract of employment is negotiated and enforceable in Hong Kong and the remuneration is payable in Hong Kong.
Visitors who are not based in Hong Kong whose visits to Hong Kong do not exceed 60 days in a year of assessment will generally be exempt from Hong Kong salaries tax.
Q. Are there any regional or state taxes?
A. No.
Q. Can I file a joint tax return with my spouse?
A. Separate taxation is standard. However, if being taxed separately will result in a greater tax liability, both parties can apply for joint assessment by completing the relevant sections on the salaries tax return form. Income will be combined and a married persons allowance will be given for married taxpayers who elect to have joint assessment.
Q. What rate of tax will I pay in Hong Kong?
A. Hong Kong salaries tax is charged on an individuals income from employment, less allowable deductions, charitable donations and personal allowances, i.e. net chargeable income, at the following progressive rates. However, the maximum tax payable is limited to tax at the standard rate (15% for the year ended 31 March 2009) on the individuals income from employment less allowable deductions and charitable donations, but without a deduction for personal allowances. The progressive tax rates for the year ended 31 March 2009 are as follows:
| From | To | Tax Rate | Plus |
| HK$ | HK$ | HK$ | |
| 0 | 40,001 | 2% | 800 |
| 40,001 | 80,000 | 7.0% | 2,800 |
| 80,000 | 120,000 | 12% | 4,800 |
| 120,000 | and up | 17% |
Property tax and profits tax are charged at a fixed standard rate (15% for the year ended 31 March 2009) with no deduction for personal allowances, unless an election for personal assessment is made grouping all income together.
The election for personal assessment is only available to individuals who are ordinarily residents in Hong Kong or those who may be regarded as temporary residents. Special rules apply to elections by married couples.
Q. Can I claim a tax deduction for charitable contributions?
A. You are entitled to a deduction for charitable contributions; however, this deduction is limited to 35% of assessable income after deduction of allowable expenses and depreciation allowances (for the year ended 31 March 2009). The aggregate donations must be a donation of money of at least HK$100 and made to Hong Kong approved charitable entities.
Q. Are any other tax deductions available?
A. A limited number of deductions are allowed in arriving at net assessable income, including expenses wholly, exclusively, and necessarily incurred in the production of assessable income, depreciation allowances, self-education expenses (limited to HK$60,000), home mortgage interest (subject to the maximum annual limit of HK$100,000 for the year of assessment 2008/09 and can be claimed by each person for 10 years of assessment, whether consecutive or not), contributions made to recognized retirement schemes (limited to HK$12,000 per year of assessment) and elderly residential care expenses (maximum claim is HK$60,000).
Q. I will also be paying tax in my home country. Am I being taxed twice?
A. Hong Kong has entered into tax treaties/double tax agreements with Belgium, Thailand, Luxembourg, Vietnam and the PRC .
A double tax exposure can arise where individuals are employed under a Hong Kong employment but render services outside of Hong Kong. Under domestic legislation, an exemption is available in respect of such remuneration where it has been subject to tax of a substantially similar nature to Hong Kong salaries tax in the territory where the relevant services were rendered.
Please note if no services are rendered in the home location, and the ongoing home country tax exposure arises simply by virtue of ongoing residence status no relief would be available under Hong Kong domestic legislation. The position with regard to double tax relief should be clarified with the tax authorities in the home location.
You should seek professional tax advice in both countries.
Q. Do I need to file a Hong Kong tax return?
A. Yes. Tax authorities typically issue employers returns in early April and salaries tax returns in early May; all these returns must be completed within one month. For salary income, both employees and employers must file a return for each year of assessment. If you do not receive the required return, you must give notice to the IRD by 31 July that you are chargeable to tax.
Income from employment, solely owned property and sole proprietorship business is reported on a combined return; however, separate assessments are made for each income category; salaries tax, property tax and profits tax. You can elect personal assessment so that you and your spouse's income chargeable to salaries tax, property tax and profits tax are aggregated and the tax is computed on the total income.
Q. Can the filing deadline be extended?
A.Where there are reasonable grounds, an application to extend the filing date may be made before the original filing deadline.
Q. What is the procedure for paying tax?
A. There is no pay-as-you-earn (PAYE) withholding against income earned in Hong Kong except for departure cases. Tax is paid directly by the taxpayer to the IRD on or before the due date specified in the assessment notice.
Assessments of current year tax and provisional tax for the following year are issued once each year for salaries tax. The assessment incorporates a system of provisional tax. The provisional assessment is an estimate, normally based on the previous year's income, and is payable in two installments, one of 75% in the final quarter of the year of assessment (January to March) and the remaining 25%, just after the end of the year of assessment (April to June).
A provisional assessment may also be issued after the Commencement Notification (Form IR56E) has been submitted to the IRD. The IRD may issue Provisional Tax Return (BIR60C) and Provisional Assessment afterwards.
When the actual income of the year of assessment is known, an Assessment is issued crediting the provisional salaries tax already paid. At the same time, provisional salaries tax is levied for the following year of assessment. Any excess/deficit of provisional salaries tax over the actual final liability is offset against/added to the provisional salaries tax payable for the following year of assessment.
There are provisions to enable the collection of salaries tax and the provisional salaries tax demanded to be reduced in appropriate circumstances, i.e. significant reductions in income.
The assessment will also detail the due dates for payment.
Q. Will non-cash compensation be taxable (e.g. housing)?
A. Salaries tax is imposed on income arising in or derived from Hong Kong from any office or employment (including pensions). Consequently, most income and benefits from employment (including salary, bonuses, commissions, leave pay, fees, gratuities, living allowances, foreign services allowances, education benefits and reimbursement of salaries tax) are subject to salaries tax.
Generally, where an employer makes a payment discharging an employees personal liability monies paid will be regarded as a taxable benefit. Accordingly, where services are contracted directly between the employer and the service provider, a tax charge can generally be avoided, subject to certain exceptions, e.g. home leave or education benefits.
The provision of housing benefits to employee in any one of the following two ways is included in assessable income of the employee:
1. The employer provides the employee with a wholly or partly rent free accommodation owned or leased by itself, or
2. The employer wholly or partly reimburses the rent paid by the employee under a lease agreement entered into by the employee in the right circumstances.
The employee would be taxed on 10% of his total assessable income (i.e. the rental value) for the above housing benefits. The actual rent paid or rental refund is not considered to be income.
The 10% amount may be reduced in the event that the accommodation consists of a room in a hotel, hostel or boarding house, in which case the rental value is deemed to be 4%; and 8% in the event of 2 rooms. In addition, if the rateable value is less than the 10% rental value, the rateable value may be used instead.
As noted above, certain other fringe benefits including a company car, club memberships and medical benefits may be structured in a tax efficient manner.
Q. I will be working in different countries while living in Hong Kong. Will all of my employment income be taxable in Hong Kong?
A. When an individual is holding a non-Hong Kong employment, only income related to duties performed in Hong Kong is subject to the salaries tax. The taxable portion of the income is ascertained by time apportionment on a days-in, days-out basis.
In determining whether an individual has a non-Hong Kong employment, the IRD will focus on three key criteria as follows:
1) Was the contract of employment negotiated and entered into outside Hong Kong, and is it enforceable outside Hong Kong?
2) Is the employer resident outside Hong Kong (i.e. is its central management and control outside Hong Kong)?, and
3) Is the employee's remuneration paid to him outside Hong Kong?
This is an area of increased investigation by the IRD who will look not only at the written contractual arrangements but also how the contract works in practice.
Q.What tax relief is available if I hold a Hong Kong employment?
A. Unilateral tax relief
The legislation offers unilateral tax relief in respect of the portion of a persons employment income where it has been subject to tax of a substantially similar nature to Hong Kong salaries tax in the territory where the relevant services were rendered.
No service claim
If you do not render any services in Hong Kong in any year of assessment (i.e. April 1 to March 31), the full amount of the employment income derived in that relevant year of assessment is fully exempt from Hong Kong salaries tax.
60-day claim
Visitors who are not based in Hong Kong whose visits to Hong Kong do not exceed 60 days in a year of assessment will generally be exempt from Hong Kong salaries tax.
Q. Will I pay Hong Kong tax on investments and rental income generated in my home country?
A. Interest and dividends are not taxable in Hong Kong, regardless of whether the income is derived in Hong Kong.
Rental income from a property located outside Hong Kong will not be assessable to Hong Kong tax.
Q. Is there a Capital Gains Tax regime in Hong Kong?
A. No. Capital gains are not taxable, and capital losses are not deductible.
Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. Property tax: Property tax is imposed on the owner of real property situated in Hong Kong at 15% for 2008/09 on the net assessable value of the property.
Stamp duty:Stamp duty is imposed on any transactions in relation to real property, Hong Kong stocks, Hong Kong bearer instruments and counterparts of the above transactions.
Estate Duty: Estate duty was abolished with the IRD (Abolition of Estate Duty Bill 2005) which came into effect on 11 February 2006.
Q. Will I be required to pay Hong Kong Social Security?
A. Hong Kong does not have a Social Security system. However, in order to provide a formal system of retirement protection, the Hong Kong government took a major step in enacting the Mandatory Provident Fund (MPF) schemes ordinance which provides a framework for the establishment of a system of privately-managed and employment-related MPF schemes to accrue financial benefits for members of the workforce when they retire.
Hong Kong legislation requires MPF contributions of 5% of relevant income (cash equivalent items) from both the employer and the employee, subject to a maximum annual contribution of HK$12,000 each. No contribution is required for taxpayers earning less than HK$5,000 per month, and visitors to Hong Kong given the right to land in Hong Kong for the purposes of employment are exempt if they are in Hong Kong for less than thirteen months or if they are members of a similar scheme in their home countries.
Q. Are social security contributions deductible for tax purposes?
A. Contributions to the MPF and to recognized occupational retirement schemes are deductible to a maximum of HK$12,000 per annum.
