Introduction to Hong Kong Salaries Tax
1. Meaning
Salaries tax refers to a type of income tax levied in Hong Kong on the income of individuals derived from Hong Kong. The taxpayers are individuals who derive income from their employment or occupation in Hong Kong. It covers wages, salaries, vacation pay, commissions, bonuses, gratuities, perquisites, "rental value" (equivalent to housing rent) of accommodation provided free of charge by the employer, and income derived from the use or transfer of the rights of any person who, by virtue of his employment or occupation, has the right to acquire shares in a company.
2. Basis of assessment
Salaries Tax is calculated on the basis of actual income for the year of assessment and a provisional salaries tax is first levied for that year of assessment. When the salaries tax payable for that year of assessment is assessed in the following year, the provisional salaries tax already paid is used to offset that tax first, and any surplus is used to offset the provisional salaries tax for the following year. Provisional Salaries Tax is calculated on the basis of income less allowances for the previous year or, if income was not available for the whole of the previous year, on the basis of the estimated income less allowances for the whole of that year of assessment.
2.1 Salaries Tax - Current Allowances Overview
Project | Amount (HK$) |
Persons | Tax exemption 108,000 |
Married person | Tax exemption 216,000 |
Eldest to second child | Each 30,000 |
Third to ninth child | Each 15,000 |
Dependent parent or grandparent | Tax exemption 30,000 |
Single parent | Tax exemption108,000 |
Provide for your brothers and sisters | Tax exemption 30,000 |
Disabled dependants | Tax exemption 60,000 |
3. Salaries tax rates
In Hong Kong, there are two ways of calculating salaries tax, namely standard rate and progressive rate. The standard tax rate is 15% and the progressive tax rate is divided into five bands, each of which is 2%, 6%, 10%, 14% and 17% respectively, and the Inland Revenue Department (IRD) will choose the lower amount of tax to be levied for salaries tax. The standard rate is usually more suitable for high income earners, while the progressive rate is more suitable for middle and low income earners.
4. Tax filing time and payment method
In Hong Kong, tax returns are filed on an annual basis, with the year of assessment running from April 1 of each year to March 31 of the following year. The Inland Revenue Department (IRD) will normally issue the "Employer's Return of Salaries and Pensions", i.e. BIR56A and BIR56B, to Hong Kong companies in April each year.
If an employee is subject to or may be subject to salaries tax, the Inland Revenue Department will normally send an Individual Return (BIR60) to the taxpayer in May of the same year. The taxpayer is required to file his/her own salaries tax return, and the Hong Kong employer is not obliged to withhold salaries tax on his/her behalf.
In the Mainland, tax is paid in advance on a monthly basis and remitted on an annual (natural year) basis. The consolidated annual remittance is usually made between March 1 and June 30th. Employers in the Mainland are required to withhold and pay their employees' personal income tax on behalf of their employees on a monthly basis by deducting the tax payable from the employees' salaries and paying the personal income tax to the tax authorities after the monthly salary payment.