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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

Tax Rates

Progressive rates (Year of Assessment 2018/19 onwards)

Net chargeable income (HK$)

Rate

Tax (HK$)

On the first 50,000

2%

1000

On the next 50,000

6%

3,000

On the next 50,000

10%

5,000

On the next 50,000

14%

7,000

Remainder

17%

 

Standard rate of tax (year of assessment 2014/15 onwards)

15%

 

Allowance

Year of assessment 2022/23 onwards, in HK$

Basic allowance

132,000

Married person’s allowance

264,000

Child allowance (For each of the 1st to 9th child)

120,000

For each child born during the year, the child allowance will be increased by

120,000

Dependent brother or sister allowance (for each dependent)

37,500

Dependent parent and dependent grandparent allowance (for each dependent)

 

- Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme

50,000

- Parent/grandparent between the age of 55 to 60

25,000

Additional dependent and dependent grandparent allowance

 

- Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme

50,000

- Parent/grandparent between the age of 55 to 60

25,000

Single parent allowance

132,000

Disabled dependent allowance (for each dependent)

75,000

Personal disability allowance

75,000

 

Deductions (Maximum Limits)

Year of assessment 2022/23 onwards, in HK$

Expenses of self-education

100,000

Elderly residential care expense

100,000

Home loan interest

100,000

Mandatory contribution to recognized retirement schemes

18,000

Approved charitable donations (income - allowable expenses - depreciation allowance) x percentage

35%

Qualifying premiums paid under Voluntary Health Insurance Scheme (VHIS) policy (for each insured person)

8,000

Qualifying annuity premiums and tax deductible MPF voluntary contributions

60,000

Domestic rent deduction* 

100,000

*Legislative amendments are required for implementing the tax measures as proposed by the Financial Secretary in the 2022-23 Budget.

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

Proposed Tax Reduction for Domestic Rental Expenses

Eligible persons

Who are eligible:

  • Taxpayers liable to salaries tax and tax charged under personal assessment
  • Deduction is also allowed to a taxpayer in respect of a tenancy agreement entered into by his/her co-habiting spouse

 

Who are not eligible:

  • Taxpayer who owns any domestic property
  • Landlord of the rented property is an associate of the taxpayer (e.g., the landlord is a spouse, parent, child, brother/sister or partner of the taxpayer, or a corporation controlled by the taxpayer)
  • Taxpayer who is provided with a place of residence by his/her employer (including those who receive a refund for any rent paid)

 

Eligible rented properties

What are eligible:

  • The rented private property must be the taxpayer’s principal place of residence in Hong Kong
  • With a stamped tenancy agreement

What are not eligible:

  • Premises in respect of which letting for domestic purposes is not permitted (e.g., the rented private property is a non-domestic property)
  • Domestic property rented under a lease-purchase agreement

Allowable deduction amount

  • Deduction ceiling: HK$100,000 for each year of assessment (no limit for entitlement period)
  • Deduction is only allowed for rental expenses already paid
  • If there is more than 1 tenant under the tenancy agreement, deduction ceiling is to be reduced in proportion to the number of co-tenants of the tenancy agreement
  • If the tenancy period falling within a year of assessment is less than 12 months, deduction ceiling is to be reduced in proportion to the relevant tenancy period within the year of assessment

Source: IRD & Financial Services and the Treasury Bureau

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  

Year of assessment 2020/21

HKS

Income: 6 months

45,000 × 6 = 270,000

First deduction: MPF contribution

1,500×6 = 9,000

Second deduction: Basic allowance

132,000

Net chargeable Income

270,000 - 9,000 - 132,000 = 129,000

Tax payable (before reduction) *:

50,000 × 2% + 50,000 × 6% + 29,000 × 10% = 6,900

Tax reduction for 2020/21: 100% tax exempt (Max.10,000)

6,900

Tax payable(after reduction):

6,900 - 6,900 = 0

*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%.

2. Under standard tax rate

Year of assessment 2020/21

HK$

Income: 6 months

45,000 × 6 = 270,000

First Deduction: MPF contribution

1,500×6 = 9,000

Net income:

270,000 - 9,000 = 261,000

Tax payable (before deduction)

261,000 × 15% = 39.150

Tax reduction for 2020/21: 100% tax exempt (Max.10,000)

39,150 × 100% = 39,150 > 10,000

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.
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