Taxation of individuals

Hong Kong SAR does not impose income tax based on an individual’s total income. Instead, the three main types of income derived by individuals are taxed under different income taxes. That is, business or trading profits are taxed under profits tax, income from employment, office, or pension is taxed under salaries tax, and rental income from immovable property is taxed under property tax. The residence status of an individual is not a determinative factor in examining one's liability to salaries tax except in a tax treaty context.

A resident individual can elect for ‘personal assessment’, which is an assessment on the total income of the individual.

Territorial basis of taxation

A person’s residence, domicile or citizenship is not relevant in determining liability to Hong Kong salaries tax under the domestic law. The term ‘resident’ is defined in each of the comprehensive double tax agreements (CDTAs) signed by Hong Kong SAR and is used in applying a CDTA.

Hong Kong SAR adopts a territorial basis of taxation. All individuals, whether a resident or non-resident of Hong Kong SAR, are subject to Hong Kong salaries tax on (i) Hong Kong-sourced employment income, (ii) income from an office held in Hong Kong SAR, and (iii) income from a Hong Kong pension.

Employment income

A person has Hong Kong-sourced employment income if the employment is a Hong Kong employment or in case the employment is a non-Hong Kong employment, the employment services are rendered by the person in Hong Kong SAR.

The Hong Kong Inland Revenue Department (HKIRD) will generally accept that an employment is a non-Hong Kong employment if all of the following three conditions are met:

• The contract of employment was negotiated and entered into, and it is enforceable outside Hong Kong SAR.

• The employer is a resident outside Hong Kong SAR.

• The employee’s remuneration is paid outside Hong Kong SAR.

If any of the above conditions is not met, the employment will likely be considered by the HKIRD as Hong Kong employment.

For a Hong Kong employment, employment income is not taxable if all of the employment services for a year of assessment are rendered outside Hong Kong SAR. In determining whether all the services are rendered outside Hong Kong SAR for a given year of assessment, no account is taken of services rendered in Hong Kong SAR during visits not exceeding 60 days in the basis period for the year of assessment (the so-called ‘60-day rule’).

For a non-Hong Kong employment, only income attributed to services rendered in Hong Kong SAR is subject to Hong Kong salaries tax (the so-called ‘time apportionment basis’). Similar to Hong Kong employment, the 60-day rule will apply in considering whether there are any services rendered in Hong Kong SAR in a given year of assessment under a non-Hong Kong employment (i.e. services rendered in Hong Kong SAR during visits not exceeding 60 days in the basis period for the year of assessment will be ignored).

Where the employment income of an individual is subject to tax both in Hong Kong SAR and an overseas jurisdiction that does not have a CDTA with Hong Kong SAR, a unilateral income exemption may be available under the domestic tax law to provide relief from double taxation.

There are special rules for taxing employment income derived by seafarers and aircrew.

Carried interest received by or accrued to a qualifying employee on or after 1 April 2020 from an employment with a qualifying entity that provides investment management services to a certified investment fund in Hong Kong SAR can be wholly excluded from employment income for salaries tax purposes, subject to specified conditions.

Income from an office

The source of income from an office (e.g. directors’ fees) is determined by the location at which the company paying the fees is centrally managed and controlled. The ‘60-day rule’ and ‘time apportionment basis’ discussed above do not apply to income from an office.

Pensions

Pensions are, in practice, subject to Hong Kong salaries tax if the funds out of which the payment is made are managed and controlled in Hong Kong SAR, and the pensions (other than a government pension) are related to services rendered in Hong Kong SAR. Similar to income from an office, the ‘60-day rule’ and ‘time-apportionment basis’ discussed above do not apply to income from a pension.

Personal income tax (salaries tax) rates

In general, a person’s income from employment, less allowable deductions and personal allowances, is chargeable to Hong Kong salaries tax at progressive rates ranging from 2% to 17% as follows:

For 2023/24:

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The maximum tax for 2023/24, however, will be limited to tax at the standard rate (15%) on the net assessable income after any allowable deductions but without the deduction of personal allowances.

In rare cases where the total amount of allowable deductions exceeds the assessable income of an individual taxpayer in any year of assessment, the excess can be carried forward indefinitely to set off against the taxpayer’s assessable income in subsequent years of assessment.

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Social Contribution  

Contribution to mandatory provident fund (MPF) scheme

Hong Kong SAR’s MPF system came into operation on 1 December 2000. The MPF scheme is designed to provide a formal, compulsory system of retirement protection by way of a privately managed contribution scheme. An employee is required to contribute 5% of their monthly income, and the employer must make a monthly contribution matching this amount. The maximum level of income for contribution purposes is HKD 30,000 per month. Accordingly, the maximum mandatory contribution for each of the employee and employer is HKD 1,500 per month. The employee’s mandatory contributions will be withheld from the monthly income by the employer.

An employee whose income is less than HKD 7,100 per month is not required to make mandatory contributions. However, the employer of such employee is required to contribute an amount that is equal to 5% of the employee’s monthly income.

Exemption from joining the MPF scheme is available for some very limited categories of employees, including people from overseas who enter Hong Kong SAR for employment for not more than 13 months or who are covered by an overseas retirement scheme.

An employee or an employer may make voluntary contributions in addition to the mandatory contributions required.

Taxation of legal persons

Hong Kong SAR adopts a territorial basis of taxation. Profits tax is payable by every person (defined to include corporation, partnership, and sole proprietorship) carrying on a trade, profession, or business in Hong Kong SAR on profits arising in or derived from Hong Kong SAR from that trade, profession, or business. In general, the tax residence of a person is irrelevant, and there is no distinction between residents and non-residents when it comes to liability to profits tax, except in a tax treaty context. Non-residents carrying on a trade, profession, or business in Hong Kong SAR are chargeable to tax on profits arising in or derived from Hong Kong SAR unless they are from jurisdictions with which Hong Kong SAR has a tax treaty and are protected by the treaty.

Gains and receipts that are capital in nature are generally not subject to tax. Dividends from local companies chargeable to tax are exempt, whereas dividends from overseas companies are generally offshore in nature and not subject to tax in Hong Kong SAR. However, offshore disposal gains derived from the sale of assets and offshore dividends may be deemed taxable under the refined FSIE regime, as elaborated below. The tax treatments of public and private companies are the same.

Certain income that would not otherwise be subject to Hong Kong profits tax is deemed to arise in or be derived from Hong Kong SAR from a trade, profession, or business carried on in Hong Kong SAR and thus becomes taxable in Hong Kong SAR. This includes royalties received by a non-resident for the use of or right to use a patent, design, trademark, copyright material, layout-design of an integrated circuit, performer’s right, plant variety right, secret process or formula, or other property of a similar nature in Hong Kong SAR, or for the use of or right to use such intellectual property (IP) outside Hong Kong SAR, but the royalties paid can be claimed as a deduction by a person for Hong Kong profits tax purposes.

Effective from 1 January 2023, under the refined FSIE regime, four types of offshore income, namely (i) interest, (ii) dividends, (iii) disposal gains from the sale of equity interests (equity interest disposal gains), and (iv) IP income (collectively, ‘specified foreign-sourced income’), are deemed to be sourced from Hong Kong SAR and chargeable to profits tax if the income is received in Hong Kong SAR by a multinational enterprise (MNE) entity carrying on a trade, profession, or business in Hong Kong SAR (irrespective of its revenue or asset size) and the recipient entity fails to meet a relevant exception from the deeming provision. With effect from 1 January 2024, the scope of ‘specified foreign-sourced income’ is expanded to include disposal gains on other types of assets (in addition to equity interests). The exceptions from the deeming provision are:

• For interest and non-IP disposal gains: Economic substance requirement.

• For dividends and equity interest disposal gains: Economic substance requirement or participation requirement.

• For IP income and IP disposal gains: Nexus requirement.

• For disposal gains (both IP disposal gains and non-IP disposal gains): Effective from 1 January 2024, an intra-group transfer relief is available to defer any tax that may be chargeable on any type of disposal gain if the asset concerned is transferred between associated entities.

Effective from the year of assessment 2018/19, there is a two-tiered profits tax rates regime in Hong Kong SAR, 16,5% and 15%.

 

 

 

 

 

 

 

 

 

 

 

 
Value Added Tax - VAT

Hong Kong SAR does not have a VAT, goods and services tax, or sales tax.