Hong Kong is a free trade zone with a simple tax system and low tax rates, attracting many local and foreign businesses to develop their operations in Hong Kong.
Every year, both individuals and businesses are required to file tax returns. In Hong Kong, 90% of businesses are small and medium-sized enterprises (SMEs), and many taxpayers may overlook their accounting and tax filing obligations due to busy schedules. This can result in penalties, and in some cases, court summons for tax recovery.
In fact, as long as you engage a suitable professional accounting and tax filing consultant in a timely manner, everything can become easy and simple. Not only can it relieve you of the worry of tax matters or late penalties, but you can also obtain professional advice to avoid overpaying taxes.
Any persons, including Hong Kong residents and non-Hong Kong residents, who operate a trade, profession or business in Hong Kong and earn profits are subject to taxation.
Currently, Profits Tax in Hong Kong can be calculated using either the standard tax rate or the two-tiered tax rate system.
Limited companies and sole proprietors or partnerships are subject to Profits Tax at the standard tax rates of 16.5% and 15%, respectively. Generally, expenses related to the earned assessable profits from business operations can be deducted for tax purposes, such as rental expenses of business premises, employee salaries, employee benefits, and interest on loans, among others.
Starting from the 2018/19 tax year, the Inland Revenue Department (IRD) introduced the two-tiered tax rate system. For limited companies, the tax rate is 8.25% on the first HKD 2 million of profits, and the standard tax rate of 16.5% applies to profits beyond that amount. For sole proprietorships or partnerships, the tax rate is 7.5% on the first HKD 2 million of profits, and the standard tax rate of 15% applies to profits beyond that amount.
However, only one of two or more related entities may opt for the two-tiered profits tax rate.
Any individual who earns income from employment, office, or pension in Hong Kong is subject to Salaries Tax.
If an individual receives the Individual Tax Return (BIR60) from the Inland Revenue Department, even if there is no assessable income subject to Salaries Tax, the form must still be completed and submitted to the department within the specified deadline to report the income.
Currently, Salaries Tax in Hong Kong can be calculated using either the standard tax rate or the progressive tax rate system, whichever results in the lower amount of tax payable.
1. The standard tax rate is calculated at 15% of net income (before deduction of allowances).
2. The progressive tax rate system, also known as marginal tax rate, requires taxpayers to pay a corresponding tax rate based on different tax brackets.
When calculating Salaries Tax, taxpayers can claim deductions and allowances. Some common deductible items include government-approved charitable donations, mandatory contributions to recognized retirement schemes or Mandatory Provident Fund (MPF) schemes, personal education expenses, and relevant expenses that are wholly, exclusively or necessarily incurred in producing the assessable income.
In each tax year, every person can enjoy a personal basic allowance without the need for application. If the person is married and has already been granted married person's allowance in that year, they are not entitled to the personal basic allowance. Other allowances include child allowance, parent/grandparent allowance, sibling allowance, single parent allowance, disabled dependant allowance, and dependent brother/sister allowance. For details on the specific amounts of allowances, please refer to the relevant tax guidelines:The Hong Kong Government's One-stop Portal website。
Owners of rental properties in Hong Kong are subject to taxation on the rental income earned from their locally situated properties.
Currently, Property Tax in Hong Kong is calculated based on the assessable net value (i.e. net rental income) of the property for the relevant tax year, and is charged at the standard tax rate of 15%.
Assessable net value refers to the "annual rental income" minus any irrecoverable rent and rates paid during the year.
As building maintenance costs may vary depending on the age of the property, the Inland Revenue Department automatically deducts 20% of the assessable net value as a standard deduction for repairs and expenses in order to simplify the tax assessment calculation process.
The 20% standard deduction for repairs and expenses also includes expenses related to the rental property, such as land rent, building renovation costs, rental collection fees, building management fees, insurance costs, and mortgage interest payments. Property owners do not need to provide documentary evidence of their actual expenses to the Inland Revenue Department.
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