Hong KongTax Obligations Detailed

In Hong Kong, employers have various tax obligations related to employee compensation, primarily concerning salaries tax and Mandatory Provident Fund (MPF) contributions.

Salaries Tax

• Tax Rates (2024-2025 onwards): A two-tiered system applies. 15% on the first HK$5 million of net income, and 16% on any amount exceeding this threshold.
• Reporting Requirements: Employers must report employee earnings to the Inland Revenue Department (IRD). Specific forms (IR56B, IR56E, IR56F, IR56G) are required for different employment events (new hires, terminations, departures). The IRD must be notified within three months of hiring if the employee is likely subject to salaries tax.
• Taxable Income: Salaries, wages, director's fees, commissions, bonuses, leave pay, end-of-contract gratuities, payments in lieu of notice (accrued on or after April 1, 2012), allowances, perquisites, and fringe benefits are generally considered taxable income.
• Exemptions: Income derived from employment wholly performed outside Hong Kong is tax-free, including services within Hong Kong for less than 60 days in a tax year. For non-Hong Kong employment, only income tied to services within Hong Kong is taxed, with the 60-day rule applicable.

Mandatory Provident Fund (MPF)

• Contribution Rates: Both employers and employees contribute 5% of the employee's relevant income, capped at HK$1,500 per month per employee.
• Tax Deductibility: For employees, mandatory contributions up to HK$18,000 annually are tax-deductible. Voluntary contributions to a designated MPF account (Tax Deductible Voluntary Contributions or TVC) are also deductible, with a combined annual limit of HK$60,000 for TVC and Qualifying Annuity Premiums. Employer contributions are deductible up to 15% of the employee's total emoluments.
• Administration: Employers must enroll eligible employees in an MPF scheme and remit contributions on time. They also handle deducting employee contributions from salaries. TVC accounts are managed separately by employees directly with MPF providers.

Profits Tax (For Employer's Business)

• Tax Rates: A two-tiered system exists for businesses. For corporations: 8.25% on the first HK$2 million of profits, 16.5% on the remaining profits. For unincorporated businesses: 7.5% on the first HK$2 million, 15% on the remainder. Only one entity within a group of connected entities can utilize these two-tiered rates.
• No Social Security Tax There are not social security tax obligations for the employers.
• Record Keeping Employers should keep records of payroll for at least 7 years.

Please note that this information is based on the current understanding of Hong Kong tax regulations as of February 5, 2025, and is subject to change. Consulting with a tax professional is advised for specific situations.

In Hong Kong, employee tax deductions primarily revolve around Mandatory Provident Fund (MPF) contributions and limited allowable expenses.

Mandatory Provident Fund (MPF)

• Mandatory Contributions: Both employers and employees contribute 5% of the employee's relevant income, capped at HKD 1,500 per month per employee. The employee's portion is deducted directly from their salary. For the employee, these mandatory contributions are tax-deductible up to HKD 18,000 annually.
• Voluntary Contributions (TVC): Employees can make additional voluntary contributions to a separate MPF TVC account. These are tax-deductible up to HKD 60,000 per year when combined with qualifying deferred annuity premiums.
• Employer Contributions: Employer contributions are capped at 15% of the employee's total emoluments. While not a deduction from the employee's salary, this impacts the overall cost of employment for the employer.

Allowable Deductions & Expenses

• Self-Education Expenses: Expenses for employment-related courses are deductible up to HKD 100,000 per year. These must be directly related to the employee's current role or career advancement within their field.
• Approved Charitable Donations: Donations to approved charities are deductible. Details of eligible charities and the deduction mechanism can be found on the Inland Revenue Department website.
• Home Loan Interest: While not strictly an employment-related deduction, home loan interest payments can be deductible under personal assessment, potentially impacting an employee's overall tax burden.
• Other Expenses: Very few other expenses qualify for deduction under salaries tax due to stringent requirements (wholly, exclusively, and necessarily incurred in producing assessable income). Some business travel and entertainment expenses may qualify under very limited circumstances but are rarely deductible in practice.

Tax Rates & Calculation (Salaries Tax)

Hong Kong operates a progressive tax system for salaries tax with two tiers.

• Standard Rate: Up to net income of HKD 5 million, the applicable rates range from 2% to 17%. A two-tiered system applies for the 2024/25 assessment year onwards, impacting those with net incomes over HKD 5 million. The portion exceeding HKD 5 million is taxed at 16%. This impacts roughly 12,000 taxpayers.

• Personal Assessment: Employees can opt for personal assessment which considers total income from all sources (including employment, property, and investments) rather than solely employment income under salaries tax. This allows a broader range of deductions and potentially a lower overall tax burden.

Key Dates & Procedures

• Tax Year: The Hong Kong tax year runs from April 1st to March 31st.
• Tax Returns: Employers typically withhold salaries tax and remit it to the Inland Revenue Department. Individuals must also file annual tax returns. Deadlines vary depending on the filing method (online, by post, etc.).
• Further Information: The Inland Revenue Department (IRD) website provides comprehensive information and resources regarding tax obligations for both employers and employees.

General Information on Employment in Hong Kong

• No Social Security Tax: Hong Kong does not levy a separate social security tax. The MPF system serves as the primary retirement savings framework.
• Territorial Taxation: Hong Kong follows a territorial tax system, meaning only income derived from Hong Kong is subject to taxation. However, employment is considered Hong Kong employment even if the individual performs services outside Hong Kong for less than 60 days during the assessment year unless the employment contract is negotiated and enforced outside Hong Kong, the employer is non-resident, and remuneration is paid outside Hong Kong. In case of non-Hong Kong employment, income is subject to Hong Kong salaries tax for services rendered in Hong Kong exceeding 60 days during the assessment year.
• Accommodation Benefit: If the employer provides accommodation, it constitutes a taxable benefit ranging from 4% to 10% of the employee's other taxable income, depending on the accommodation type.

This information is current as of today's date, February 5, 2025, and is subject to change based on future legislative amendments or updates by the Hong Kong Inland Revenue Department. It is advisable to consult the IRD website or a tax professional for the latest information and personalized advice.

Hong Kong does not have a Value Added Tax (VAT) or Goods and Services Tax (GST).

Hong Kong Taxation

Hong Kong operates a territorial tax system, meaning only profits sourced in Hong Kong are subject to taxation. No VAT, GST, or sales tax is levied on goods and services.

Profits Tax

• A two-tiered profits tax system is in place for both corporations and unincorporated businesses.
• Corporations: 8.25% on the first HK$2 million of assessable profits; 16.5% on profits exceeding HK$2 million.
• Unincorporated Businesses: 7.5% on the first HK$2 million; 15% on profits exceeding HK$2 million.

Salaries Tax

Salaries tax is capped at 15%. Various allowances and deductions can reduce the taxable amount.

Property Tax

Property tax is levied at a rate of 15% on the net assessable value of land or buildings (excluding government and consular properties).

Other Taxes and Duties

• Customs Duties: No tariffs on general imports.
• Excise Tax: Levied on specific goods like tobacco, liquor, methyl alcohol, and hydrocarbons.
• Stamp Duty: Applies to various transactions, including stock transfers (0.2% of consideration or market value, whichever is higher) and property transfers (progressive rates ranging from HKD 100 to 4.25%, depending on the transaction value, effective from 28 February 2024).
• Business Registration Fees: Applicable to all businesses operating in Hong Kong.

Tax Filing and Administration

• Profits tax returns are typically issued on the first working day of April.
• The filing deadline is usually one month from the date of issue, with possible extensions.
• Electronic filing is encouraged and may qualify for extended deadlines.

As of 05 February 2025, this information is believed to be accurate. Tax laws and regulations are subject to change. It is always recommended to consult with a tax professional for the latest information and personalized advice.

Hong Kong offers a low-tax environment with targeted incentives for specific sectors.

Profits Tax

• Two-Tiered Profits Tax Rates: Hong Kong implements a two-tiered profits tax system. The first HK$2 million of assessable profits are taxed at 8.25%, while profits exceeding this amount are taxed at the standard rate of 16.5%.
• Specific Business Operations: Certain business operations benefit from tax incentives. Profits derived by offshore funds and from operating ships in Hong Kong are often exempt. Profits from reinsurance of offshore risks (as a professional reinsurer) and qualifying Corporate Treasury Centres are taxed at half the standard corporate tax rate.

Foreign Tax Credits

Foreign tax credits are available for Hong Kong tax residents on income derived from a jurisdiction with a Comprehensive Double Taxation Agreement (CDTA) with Hong Kong, if that income is also subject to tax in Hong Kong. Taxpayers must take all reasonable steps to minimize foreign tax payable before claiming this credit. Credits are also available for specific foreign-sourced income deemed taxable under the refined Foreign-Sourced Income Exemption (FSIE) regime, regardless of a CDTA. Again, taxpayers must minimize foreign tax payable before claiming the credit.

Incentives for Specific Sectors

• While general foreign investment incentives are limited, certain sectors receive support.
• The aviation services, financial services, and shipping sectors have tailored benefits.
• Recent proposals aim to enhance tax incentives for Real Estate Investment Trusts (REITs) and commodity traders. These proposals include waiving stamp duties on the transfer of REIT units and potential profits tax incentives for qualifying REITs.

Tax Concessions under Consultation or Review

• Carried Interest, Funds, and Single Family Offices: The government is actively consulting on enhancements to tax concessions for carried interest, funds, and single family offices, aiming to strengthen Hong Kong's position as an asset and wealth management hub. Proposals include broadening the scope of carried interest tax concessions, expanding qualifying transactions, and increasing flexibility for incidental transactions.

Other Tax Considerations

• Personal Assessment: Hong Kong residents may elect for personal assessment, which can potentially reduce overall tax liability for individuals who pay profits tax and/or property tax. This is not beneficial for individuals whose sole income is subject to salaries tax.
• No Capital Gains Tax: Hong Kong does not levy capital gains tax, offering investors and individuals the opportunity to retain investment returns without this tax burden.
• No Withholding Tax, Sales Tax, VAT, Estate Duty: Hong Kong does not impose withholding tax on dividends and interest, sales tax or VAT, or estate duty. There is also no tax on dividends.

Please note that this information is current as of February 5, 2025, and might be subject to change. For the most up-to-date details, consult official government resources and tax professionals.