How Personal Income Tax is Calculated in Hong Kong
Hong Kong employs a progressive tax system for personal income, known as Salaries Tax.
Determine Net Chargeable Income:
- Start with your gross income from employment (salary, bonuses, commissions, etc.).
- Subtract allowable deductions like mandatory contributions to the Mandatory Provident Fund (MPF), self-education expenses, and home loan interest (under certain conditions).
- Deduct personal allowances (basic allowance, married person's allowance, child allowances, dependent parent/grandparent allowance).
Calculate Tax Liability:
- Apply progressive tax rates to your net chargeable income based on the tax brackets.
- Alternatively, you can opt for a standard rate on your net income (after deductions but before personal allowances). Note that the standard rate has a two-tiered structure for the 2024/25 assessment year.
Compare and Choose Lower Amount:
- Pay the lower amount between the calculated tax under the progressive rates and the standard rate.
Applicable Tax Rates (2024/25 Assessment Year)
| Net Chargeable Income (HKD) | Rate |
|---|---|
| First 50,000 | 2% |
| Next 50,000 | 6% |
| Next 50,000 | 10% |
| Next 50,000 | 14% |
| Remainder | 17% |
Standard Rate (2024/25):
- For net income below HKD 5 million: 15%
- For net income exceeding HKD 5 million:
- First HKD 5 million at 15%
- Remaining income at 16%
Taxable Income
The following types of income are considered taxable in Hong Kong:
- Employment Income: Salaries, wages, bonuses, commissions, allowances, perquisites, and other benefits received in connection with employment.
- Pension: Payments received from a pension scheme.
- Income from Office or Employment: This includes income received by office holders and directors.
Exempt Income
The following types of income are generally exempt from Salaries Tax in Hong Kong:
- Capital Gains: Profits from the sale of capital assets like stocks and real estate.
- Dividends: Income received from shares.
- Interest Income: Interest earned on savings accounts or deposits.
- Rental Income: Income from renting out property (subject to Property Tax).
The primary law governing personal income tax in Hong Kong is the Inland Revenue Ordinance (IRO). Key sections relevant to the topics you inquired about include:
- Section 8: Defines assessable income for Salaries Tax.
- Section 9: Outlines allowable deductions.
- Section 10: Specifies personal allowances.
- Section 11: Sets out the progressive tax rates.
- Section 11A: Provides for the standard rate option.
- Section 12: Deals with the exemption of certain types of income.
The progressive tax system aims to ensure a fairer distribution of the tax burden, with higher earners paying a larger percentage of their income in tax. The standard rate option provides an alternative for taxpayers who may not benefit significantly from the progressive rates due to limited deductions and allowances. The exemption of certain types of income like capital gains and dividends is designed to promote investment and economic growth.
Additional Notes
- Hong Kong does not have a general income tax on worldwide income. Only income sourced in Hong Kong is subject to Salaries Tax.
- Individual taxpayers can choose to be assessed jointly with their spouse under Personal Assessment, which may result in lower tax liability in certain situations.
- For the 2023/24 assessment year, there was a one-off reduction of salaries tax and tax under personal assessment by 100%, subject to a ceiling of HKD 3,000 per case.
