Income Tax Brackets In Hong Kong: Explained

Introduction

Ever felt tangled up in the enigma of Hong Kong’s income tax brackets? Well, we’ve all been there, crunching numbers and wishing we had a finance degree.

This guide is your financial flashlight in this city of mysteries!

Today, we’re demystifying Hong Kong’s income tax brackets, to keep your wallet happy and your stress levels low.

What Is A Tax Bracket?

The tax brackets allow one to be not taxed unfairly. People with lesser income will have lower tax rates, and the people and corporations with higher incomes will have more tax to pay.

If one wants to know exactly how much tax will be charged on what percentage of income, then one needs to look it up through the tax brackets.

The tax brackets are mainly like the cusp that precisely decides the limit of a specific tax rate to be charged on a certain income.

The tax brackets decide a certain income will fall in a specific bracket, and a definite tax rate will be charged in each bracket. It refers to a range of different incomes. It does not mean that a person will have a fixed tax rate.

Instead, the tax rate will increase or decrease in accordance with the increase and decrease in an individual’s income.

What Is An Income Tax Bracket In Hong Kong?

The income tax brackets in Hong Kong create a progressive tax system that automatically shows the change in the tax rate with any change in a person’s or corporate’s income.

So, the low incomes fall into lower tax brackets with relatively low incomes and tax rates, while higher earnings fall into higher rates.

Some incomes earned through one’s employment, territory, and profits get taxed. Educational benefits for employees’ children and benefits convertible to cash are also taxable, as are some pensions.

Director’s fees received by directors of Hong Kong companies are also taxed in Hong Kong regardless of where the director resides. However, the tax rate will not be identical on all the income but would instead be determined as per the tax bracket.

The table below shows the average tax rate applied to the income brackets in Hong Kong:

Income	Tax Rate
Up to 50,000 HKD	2%
50,000-100,000 HKD	7%
100,000-150,000 HKD	12%
Over 150,000 HKD	14%
150,001 – 200,000 HKD	17%
Above 200,001 HKD	17%
Net total income (no allowances)	15 %

However, the tax bracket in Hong Kong is not just determined by a person’s total income but is decided through the different sources through which the income has been earned.

There are three primary tax categories on which the tax brackets for Hong Kong are decided. The following sources of income on which the taxes apply have been given below:

Type of Tax	Type of Incomes
Profit Tax	Income from Business or trading profits
Salaries Tax	Salary from office, employment, or pension
Property/Territorial Tax	Earnings from the rent of an immovable property.

What Are The Taxes Levied through Different Tax Brackets In Hong Kong?

In Hong Kong, the tax is not only imposed solely on an individual’s total income. But it also considers the different sources of income, and then the tax rate is decided accordingly.

The resident status of an individual does not matter when it comes to the determination of the taxes applied. The tax system of Hong Kong has a reflexive tax system that entails different tax rates on various incomes earned from different sources.

The main types of taxes, as mentioned earlier, which determine the different tax brackets, have been given below:

Territory/ Property Tax
Salary Tax
Profit Tax

All of these different categories of taxes which determine the different tax brackets have been explained below:

Territorial Tax System

As the taxation system of Hong Kong is based on the territorial system and not the residential system, any income that is earned by a resident of Hong Kong or a non-resident in the territory of Hong Kong will be taxed.

However, almost anything earned outside the territory of Hong Kong by any citizen of Hong Kong will not be charged.

A person’s citizenship is irrelevant to their responsibility of paying Hong Kong salary taxes under the tax brackets determined by the local laws. The term ‘resident’ is defined in a tax agreement signed by Hong Kong and is used in applying CDTA.

There are three primary conditions that clarify if the income earned by the individual will be taxed. They are as follows:

Income earned through employment in the territory of Hong Kong
Employment that gives income that is Hong Kong-sourced.
Pension from Hong Kong employment.

Salary Tax Or Personal Income Tax

The tax levied on one’s income is also known as the salary tax in Hong Kong. This tax is charged on the income sourced from one’s employment in Hong Kong. The range of tax charged on personal income is from 2% to 17%.

Net Income	Tax In HKD	Tax Rate
Up to 50,000 HKD	–	2%
50,000-100,000 HKD	1000	7%
100,000-150,000 HKD	4000	12%
Over 150,000 HKD	6000	14%
150,001 – 200,000 HKD	9000	17%
Above 200,001 HKD	16000	17%

The net tax rate on one’s income is limited to 15% after excluding any allowances. This percentage has been determined following the updated taxation laws in Hong Kong in 2022-2023.

To be taxed on one’s income, the source of income must be ensured that it’s coming from Hong Kong. One can include the following sources of personal income:

Employment Income from Hong Kong
Income from an office in Hong Kong
Local income taxes
Pension from a job in Hong Kong

There are only a few specific cases when a person can be exempted from paying taxes on one’s employment income.

That only happens when one has not been employed in Hong Kong then one would also need to present the proof of the following conditions to the Hong Kong Inland Revenue Department:

The employment contract was conferred, entered, and administered outside Hong Kong.
The employer is not a resident of Hong Kong but of some other place.
The wage or salary is sourced from outside of Hong Kong.

Also, in case the income of the individual is being subjected to tax both in Hong Kong and in a foreign country, then one can get relief from double taxation and access to unilateral income exemption in Hong Kong.

Profit Tax

Profit tax refers to the taxes imposed on the profits one earns through profits in one’s business through the stock market or selling of an immovable territory or through one’s Company or employment bonuses and commissions.

However, profit taxes are a pretty lucrative deal for Hong Kong taxpayers as Hong Kong does not impose a tax on:

Dividends,
Interest
Capital gains earned by individuals.

The above-mentioned detailed tax brackets showcase the taxes levied on Hong Kong taxpayers. Also, the percentage of taxes applied through these brackets makes it easy for taxpayers to determine how much they need to pay.

What Are The Chargeable And Non-chargeable Incomes?

Although the tax on one’s salary and other incomes in Hong Kong is considered the lowest in the world, there are other exemptions. Hong Kon’s tax system has categorized the incomes into two main categories:

Chargeable Income
Non-chargeable Income

The different categories of earned incomes are salary, territory, profit through business, and chargeable and non-chargeable incomes.

Some of the incomes do not get imposed with taxes. Both of the categories have been mentioned in detail below:

Chargeable Income

The incomes earned by employees on which the taxes will be imposed under the law of taxation in Hong Kong are:

Salary
Hong Kong sourced different wages and pay of directors.
In accordance with the notice taken on 1st April 2012, any commissions, bonuses, and leave pays will also be taxed.
Allowances, end-of-contract gratuities, payments perquisites, fringe benefits, deferred pay, and pay in arrears will also be taxed.
Tips
Value of place of residence
Stock awards
Retirement benefits
Pensions

Non-Chargeable Income

According to Hong Kong’s taxation policies, the incomes on which the taxes will not be imposed are called non-chargeable incomes. The incomes that are non-chargeable have been given below:

Severance payments and extended service payments
Jury fees
Income earned from services conducted in Hong Kong during short visits of less than 60 days a year will not be taxed.
Income already taxed in other jurisdictions or another country will either not be taxed or partially when one shows proof of payment of the foreign tax.

What Are Standard Deductions And Allowances In Taxation System In Hong Kong?

Hong Kong allows its taxpayers to further reduce the percentage of incomes to be taxed by allowing them to partake in personal deductions and allowances.

This step helps people who have dependents, who are disabled, or who are going through challenging circumstances. Employees can also claim tax deductions for the expenses used entirely for gaining income.

Deductions

Some of the other deductions that are not directly related to one’s income include the following:

Money spent on self-education.
Interest paid on the home loan.
Income spent on elderly residential care.
Mandatory provident fund.
Donations.

Allowances

Other than deductions, there are also allowances employees can claim. Some of these have been listed below:

Fundamental allowance
Allowance for the married person
Allowance for a dependent sibling
Allowance for dependent parents or grandparents
Single parent allowance
Allowance for disabled dependent
Allowance for personal disability

Are The Employer Benefits Also Taxed In Hong Kong?

Any profits that can be both cash and non-cash. What one obtains throughout one’s job is taxable in Hong Kong.

Some of these taxable benefits are given below:

On residence and housing allowance
Car gifted by the Company.
Education benefits received for children
Holiday allowances
Meal allowances
Any share awards.

How To Determine The Income Tax Bracket In Hong Kong?

Officially, the Inland Revenue Department (IRD) of Hong Kong declares individual tax returns on 1^st May every year. Thus, individuals must file for tax returns within one month of the declaration.

Thus, one must determine which tax bracket to pay the taxes first. One can do that by following the given steps below:

Calculate The Annual Income

The first step in determining one’s tax bracket in Hong Kong will be calculating one’s annual income. One must note all the taxable income earned in Hong Kong while one was in Hong Kong for more than 60 days.

This income includes business and employment benefits, rental income, or other sources like shares.

Subtract Any Allowances And Deductions

After the annual income has been calculated, one needs to check if one is eligible for any allowances and deductions in accordance with the taxation laws in Hong Kong.

If one finds oneself eligible for deductions for dependents or any additional allowances, one needs to review one’s income again after subtracting the deductions and allowances.

Also, one must have proper documentation to verify one’s claim for allowances.

Refer To Tax Rate Schedule

When the annual income has been determined after subtracting all the allowed deductions, one can see which tax bracket one’s income falls. After identifying the bracket, one would need to consult the official tax rate schedule.

The average tax rate is 15%. The table below shows the general tax rate schedule followed in Hong Kong at present:

Income	Tax Rate
Up to 50,000 HKD	2%
50,000-100,000 HKD	7%
100,000-150,000 HKD	12%
Over 150,000 HKD	14%
150,001 – 200,000 HKD	17%

Calculate Tax Liability

The next step will be to apply the relevant tax rate on one’s annual income and calculate the tax one needs to pay.

For example, suppose one’s income is 125000 HKD. In that case, the tax will be calculated by dividing the income into portions that fall in the relevant tax brackets and then applying the tax rate and adding all the liabilities to be paid.

File Tax Returns

After the liabilities to be paid have been calculated according to the established tax rate given by authorities, one can file for tax returns. One can download the tax return form from the Inland Revenue Department of Hong Kong website.

Fill out the form, attach the required documents, and file for tax returns before the deadline issued by the authorities.

Pay Taxes

Once one has filed for the tax returns, one will have to wait for some time to get the tax assessment from the Inland Revenue Department. One would need to pay the amount determined by the authorities by the date set on the official papers.

Pay Taxes Or Appeal

After receiving the tax assessment, one must pay the taxes accordingly. However, if one finds discord with the tax assessment given by the Inland Revenue Department of Hong Kong, one has the option to make an appeal.

One would need to follow the procedures of objecting to official tax assessment within the time limit.

Consult A Professional

If one finds the whole process of filing taxes difficult, one can consult professionals for help. Especially if one has complicated financial circumstances, it is always better to ask for help.

One can reach out for a consultation to a consulting company that may help one through a tax professional or an accountant. Or one may get guidance from the professionals employed by the government.

Keep Records

The most crucial thing in paying taxes is keeping a record of the supporting documents related to deductions, allowances, bank statements, and annual income for the last seven years.

These records and proofs are of utmost importance for verifying one’s claims. In case one does not want to get tangled in any legal ramifications.

How To Change Tax Bracket In Hong Kong?

Before one wants to change the Tax Bracket, one would need to know specific details about the taxation system of Hong Kong.

The tax brackets that one falls in depend on the annual income one earns in the territory of Hong Kong. Thus, the tax liability increases with the increase in one’s income as it crosses specific criteria set by Hong Kong’s tax brackets.

To change one’s tax bracket, one would need to be well-informed about the following details:

Progressive Tax System

The tax system established in Hong Kong is progressive. It entails that an increase in one’s income would lead to one falling into a higher tax bracket, which will, in turn, cause a higher tax rate.

Thus, one would need to pay more tax when one earns more.

Tax Rate Bands

To know how one may change one’s tax bracket, one needs to be aware of the tax rate each band imposes.

Only then can one analyze how much tax will be imposed on one and how one may decrease the tax one needs to pay.

Change In Income

The progressive tax system of Hong Kong means that if there is a change in one’s income, there will be a corresponding change in one’s place in the tax band.

If the income increases, one will be at the higher end of the tax bracket, but one would fall in the lower band if it decreases. Certain thresholds of income may lead to a change in tax brackets.

For example, if one’s income was 60,000 HKD, one may have to pay 7% tax, but if it increases to 120,000 HKD, one would need to pay 12% tax.

Tax Planning

One may accomplish the lowering of one’s taxes when one coordinates the timing of one’s deductions and allowances with the official tax declaration. One may consult a taxation professional or an accountant who knows the law best.

The professional may help in devising an appropriate plan. Thus, proper tax planning can lead one to place oneself in a lower tax bracket if done correctly.

Year End Assessment

Taxes are levied based on Year-End Assessments and Mid-Year Changes. One’s tax bracket is mainly determined based on the total income from Hong Kong that one earns throughout the year.

After the end of the tax year, one has to file for tax returns, and the Inland Revenue Department assesses and confirms the amount one has to pay.

Thus, this time is significant regarding wanting to change the tax bracket, as this is when one can file for any refunds or owed taxes.

Mid-Year Changes

If one changes jobs or one’s business earns a significant profit, it can lead to changes in one’s income. These changes throughout the year must be recorded to satisfy the authorities that one is responsible enough to pay for one’s withholding taxes.

So, one would need to make estimated payments or do proper accounting to be assured that one has paid all the tax liabilities that one owes the government.

Otherwise, if the mid-year changes in income are not noted and filed, one may get fined and punished by the legal authorities of Hong Kong.

What Are The Pros And Cons Of Tax Brackets In Hong Kong?

The progressive taxation system contrasts with the flat-rate taxation system, which dictates that everyone has to pay the same tax percentage irrespective of their income.

The tax brackets in the progressive taxation system in Hong Kong have both supporters and opponents. Thus, the supporting and opposing arguments against the progressive taxation system of Hong Kong have been given in the form of pros and cons in the table below:

Pros	Cons
✅ Higher-income individuals must pay more income taxes while maintaining a good lifestyle.	❌ Wealthy people end up paying an unequal amount of taxes.
✅ Low-income individuals have to pay less, thus leaving them more space to navigate and uphold a better living standard.	❌ Tax Brackets may make the rich focus more on looking for tax loopholes. Consequently, many wealthy people underpay their taxes, reducing revenue generation for the government.
✅ Tax deductions and allowances give an advantage to high-income individuals by giving them tax relief in the form of donations.	❌ Progressive taxation can lead to less personal savings as most will have to pay increased taxes with increased income.
✅ Progressive tax system leads to Reduced Income Inequality. In return, it reduces the difference in haves and have-nots between the poor and the rich.	❌ Incongruity between the amount of tax that wealthy people pay and the representation in government they receive.
✅ Progressive Tax system makes more revenue for the government and thus allows the government to function better.	❌ The opposition argues that if, politically, one vote is equal for all, so economically, the taxes should also be equal for everyone.

Conclusion

Voila! We’ve just journeyed through the maze of Hong Kong’s income tax brackets, and hey, it wasn’t that bad, was it? Now, armed with your newfound knowledge, you’re ready to face the tax season head-on!

Finance Wisely!

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