Filling in tax returns comes top of precisely no-one’s favourite things to do and often gets pushed down the priority list. However, if you’re living and working in Hong Kong, whether you are an employee or self-employed, you’ll need to fill in a tax return, and failing to do so and pay your dues on time can lead to hefty fines.
Here’s a 101 on paying and filing taxes in Hong Kong so that when the green envelope drops through your letterbox, filling it in will be as stress-free as possible.
Hong Kong tax at a glance – the main points
- The tax year runs from 1st April to 31st March in Hong Kong
- The tax paid by individuals is called Salaries Tax
- Individual taxpayers should fill in a BIR60 form to declare their income
- Tax assessment forms are sent out in May/June and must be returned within one month of issue (in 2020 forms were sent out on 1st June and due on or before 2nd July)
- Or go paperless and declare online by setting up an eTax account
- Taxpayers who have earned no income should still submit a return
- Your tax bill will arrive a few months later and will be due for payment in January and April the following year
- 75% of the total tax due is payable in January and 25% in April
- The Inland Revenue Department is responsible for managing taxes – their website is full of useful information
Hong Kong tax rates
Salaries Tax is calculated in one of two ways. Individuals pay the lower of the two.
» Option 1 – progressive rates on net chargeable income
Net chargeable income = Total income – Deductions – Allowances
Salaries Tax rates start at 2% for the first HK$50,000 rising on a sliding scale to 17% for incomes of HK$200,000 and above. There are three other marginal tax brackets of 6%, 10%, 14%.
» Option 2 – standard rate
The standard rate is currently 15%, charged on net income.
Net income = Total income – Deductions
You will find a useful Salaries Tax calculator for 2020/21 here to help work out what you owe for the year. You must declare all income from full, part-time and casual work, before MPF deductions, as well as pensions. Your pay slips should contain the information you need.
Provisional taxes in Hong Kong
Newcomers to Hong Kong are sometimes surprised by the size of their first tax bill. This is because taxes are partly paid in advance based on the salary of the previous year. It’s best to be aware of this so you can make the necessary provisions. If you think your salary might drop the following year, for example if you’re starting a business, changing jobs or taking a career break, you can apply for holding over of provisional tax. You’ll find further information here.
Declaring tax electronically in Hong Kong
You can now manage all your tax affairs electronically which is not only better for the environment but, for the internet savvy, is quicker, easier and more flexible. You can edit your return at any point before you submit the form, which can be done at the touch of a button. You’ll also get a useful estimate of your tax bill well in advance of the payment date. Create an online eTax account here.
Hong Kong’s Rental Reimbursement Scheme – a tax break on accommodation costs
Hong Kong’s Rental Reimbursement Scheme is a tax break for salaried employees which effectively offers housing benefits in the form of a place of residence instead of a cash allowance paid by employers. This is welcomed by many given that Hong Kong rents are the highest in the world.
The way the scheme works is that you pay rent to your landlord and your employer reimburses you as part of your salary, up to 10%. While this usually doesn’t nearly cover the actual rent, it is still a welcome perk as it reduces assessable income and therefore the amount of Salaries Tax payable.
Salaries Tax allowances in Hong Kong
All individuals are entitled to a basic tax-free allowance, currently HK$132,000, and there are a raft of other personal allowances applicable, depending on your personal situation. Here is a useful summary table for the 2020/21 tax year:
Other tax breaks for individuals in Hong Kong
Tax deductions are granted for self-education expenses for training related to your employment up to a maximum of HK$100,000.
Charitable donations up to 35% of assessable income are also tax deductible so you can give generously to your favourite cause tax-free.
Mandatory MPF contributions (covered in this blog) are deductible up to a maximum of HK$18,000 in 2020/21, as are voluntary MPF contributions and payments into other Recognised Occupational Retirement Schemes.
Whatever deductions you claim, you will need to keep documentary evidence to support them. While you won’t need to submit receipts, you will be asked to produce them in the case of a random audit – these do happen. Make sure you are meticulous in filing everything related to your tax return and keep everything for at least six years.
I hope you find this article useful. It comes with the usual caveat on all things tax-related: this is general advice and may not be applicable to everyone. If you are a company director, self-employed or your personal situation is complicated, seek advice relevant to your personal situation.
Over the years I have helped hundreds of clients organise their finances. For me, financial planning is not limited to a single piece of advice and then moving on as is common in the industry. Instead, I like to build long term relationships and help people manage their finances to meet their needs as circumstances change. As a result, many of my clients have been with me for a number of years. They live throughout Asia and further afield but know that I am only a Skype or telephone call away.
