Tax rates and calculations
All individuals earning income arising in or derived from Hong Kong from an office, employment or pension are subject to salaries tax in Hong Kong. Tax payable is calculated at a progressive rate on the “net chargeable income” or at a standard rate on the “net income” (before deduction of the allowances), depending on which is lower. It is further reduced by the tax reduction, subject to a maximum.
Net Chargeable Income = Total Income – Deductions – Allowances
Net Income = Total Income – Deductions
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Tax Rates |
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Progressive rates (Year of Assessment 2018/19 onwards) |
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Net chargeable income (HK$) |
Rate |
Tax (HK$) |
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On the first 50,000 |
2% |
1000 |
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On the next 50,000 |
6% |
3,000 |
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On the next 50,000 |
10% |
5,000 |
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On the next 50,000 |
14% |
7,000 |
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Remainder |
17% |
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Standard rate of tax (year of assessment 2014/15 onwards) |
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15% |
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Allowance |
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Year of assessment 2022/23 onwards, in HK$ |
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Basic allowance |
132,000 |
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Married person’s allowance |
264,000 |
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Child allowance (For each of the 1st to 9th child) |
120,000 |
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For each child born during the year, the child allowance will be increased by |
120,000 |
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Dependent brother or sister allowance (for each dependent) |
37,500 |
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Dependent parent and dependent grandparent allowance (for each dependent) |
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- Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme |
50,000 |
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- Parent/grandparent between the age of 55 to 60 |
25,000 |
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Additional dependent and dependent grandparent allowance |
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- Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme |
50,000 |
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- Parent/grandparent between the age of 55 to 60 |
25,000 |
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Single parent allowance |
132,000 |
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Disabled dependent allowance (for each dependent) |
75,000 |
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Personal disability allowance |
75,000 |
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Deductions (Maximum Limits) |
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Year of assessment 2022/23 onwards, in HK$ |
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Expenses of self-education |
100,000 |
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Elderly residential care expense |
100,000 |
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Home loan interest |
100,000 |
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Mandatory contribution to recognized retirement schemes |
18,000 |
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Approved charitable donations (income - allowable expenses - depreciation allowance) x percentage |
35% |
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Qualifying premiums paid under Voluntary Health Insurance Scheme (VHIS) policy (for each insured person) |
8,000 |
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Qualifying annuity premiums and tax deductible MPF voluntary contributions |
60,000 |
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Domestic rent deduction* |
100,000 |
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*Legislative amendments are required for implementing the tax measures as proposed by the Financial Secretary in the 2022-23 Budget. |
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The Hong Kong 2022-23 Budget proposed to provide a tax reduction for domestic rental expenses starting from the year of assessment 2022/23, subject to a ceiling of HK$100,000 for a year of assessment. This is to ease the burden of renting a private property on taxpayers liable to salaries tax and tax under personal assessment who are not owners of domestic properties. This measure will be effected by amending the Inland Revenue Ordinance.
Further information supplemented by the IRD is noted in the table below
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Proposed Tax Reduction for Domestic Rental Expenses |
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Eligible persons |
Who are eligible:
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Who are not eligible:
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Eligible rented properties |
What are eligible:
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What are not eligible:
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Allowable deduction amount |
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Source: IRD & Financial Services and the Treasury Bureau |
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Maximum tax reductions
Salaries tax for the year of assessment 2021/22 is further reduced by a one-off tax reduction of 100 percent, subject to a ceiling of HK$10,000 per case. For single taxpayers, the ceiling is applied to each individual; for couples jointly assessed, the ceiling is applied to each married couple (that is, capped at HK$10,000 in total). Married persons may elect personal assessment separately to reduce tax liability.
[tips title="Did You Know"]The tax reduction will only be applicable to the final tax for the year of assessment 2021/22, but not to the provisional tax of the same year. Therefore, taxpayers are still required to pay their provisional tax on time despite the reduction measure.[/tips]
Provisional salaries tax
Salaries tax is chargeable on the assessable income for each year of assessment.
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As the assessable income for any particular year cannot be known until after the end of the year concerned, a provisional tax charge has to be raised. When the assessable income for the year of assessment is subsequently ascertained, an assessment will be made and the provisional salaries tax paid will be utilized to offset the tax liability under the assessment.
The taxpayer can apply in writing for holding over of the whole or part of the provisional salaries tax on the grounds as specified in the Inland Revenue Ordinance.
Grounds for application
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, 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. Full particulars relating to the allowance claimed should be provided in your application, such as name and date of birth of the newborn child, or name, date of birth and Hong Kong Identity Card number of the dependent parent or grandparent together with a confirmation whether he/she was ordinarily resident in Hong Kong during the relevant year.
- Your net chargeable income for the year of assessment for which provisional tax was charged is, or is likely to be, less than 90 percent 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 assessed to provisional salary tax and have paid or are likely 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 or tax deductible MPF voluntary contributions during the year of assessment; and the amounts exceed or are likely 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 have objected to your salaries tax assessment for the year preceding the year of assessment for which provisional tax was charged.
Time limit for application
Your application for holding over of provisional tax should be lodged no later than:
- 28 days before the due date for payment of the provisional tax, or
- 14 days after the date of issue of the notice for payment of the provisional tax, whichever is later.
If the provisional tax is payable by two installments and the first installment has been settled by the due date, an application for holding over of the whole or part of the second installment may be made subject to the prescribed time limit and grounds for application.
Employer
As mentioned earlier, the employer needs to inform the Inland Revenue Department (IRD) within three months if it anticipates that the employee is likely to be chargeable to salaries tax. The employer also needs to file the Employer’s Return one month before the date of termination when an employee is terminated, and file the Employer’s Return one month before the expected date of departure for employees leaving Hong Kong permanently or for a substantial period of time.
Employee
Employees are also legally responsible for the Annual Tax Return to the Inland Revenue Department.
If the employee receives a tax return from the Inland Revenue Department, s/he must complete and submit it by the due date for filing even if they have no income that can be charged to salaries tax. The reporting should include total income, allowance, deductions, etc.
If the employee doesn’t receive a tax return, s/he should notify the Inland Revenue Department that the income could be chargeable to tax.
The Inland Revenue Department will evaluate the employee’s situation and decide on a tax rate which the employee needs to pay for the past tax period (from April 1 each year to March 31 of next year).
Case study
From 1st Oct 2019, the subject’s monthly salary is $40,000 and MPF contribution is $1,500. The financial year is April 1 to March 31 of the following year. Tax is filed and paid on annual base. No pre-deductions were required. Then how to calculate subject’s salary tax for year of assessment 2020/21 under the progressive rate and standard rate?
1. Under progressive tax rate
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Year of assessment 2020/21 |
HKS |
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Income: 6 months |
45,000 × 6 = 270,000 |
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First deduction: MPF contribution |
1,500×6 = 9,000 |
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Second deduction: Basic allowance |
132,000 |
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Net chargeable Income |
270,000 - 9,000 - 132,000 = 129,000 |
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Tax payable (before reduction) *: |
50,000 × 2% + 50,000 × 6% + 29,000 × 10% = 6,900 |
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Tax reduction for 2020/21: 100% tax exempt (Max.10,000) |
6,900 |
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Tax payable(after reduction): |
6,900 - 6,900 = 0 |
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*For year of assessment 2020/21, the first HK$50,000 net chargeable income is subject to tax rate of 2%, the second HK$50,000 is subject to tax rate of 6%, and the third HK$50,000 is subject to tax rate of 10%. |
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2. Under standard tax rate
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Year of assessment 2020/21 |
HK$ |
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Income: 6 months |
45,000 × 6 = 270,000 |
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First Deduction: MPF contribution |
1,500×6 = 9,000 |
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Net income: |
270,000 - 9,000 = 261,000 |
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Tax payable (before deduction) |
261,000 × 15% = 39.150 |
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Tax reduction for 2020/21: 100% tax exempt (Max.10,000) |
39,150 × 100% = 39,150 > 10,000 |
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Tax payable (after reduction): |
39,150 - 10,000 = 29,150 |
Through the comparison, the employee should better use progressive tax rate to calculate the annual tax, and the tax amount is shown in above table.
Also, in practical, there’s also some other deductible related considerations:
- Family status (spouse income status, children or dependents);
- Residential status;
- Foreign staff (no need to pay MPF in the first 12 months);
- Home loan interests;
- Loss from other personal business; and
- Double tax treaties.
