Tax Declaration In Hong Kong: Step By Step Guide

Student Visa In Taiwan

Introduction

Navigating through the whirlwind of tax declarations in Hong Kong? It’s like trying to solve a puzzle with pieces that just won’t fit!

This is your guide to making sense of the tax jigsaw!

In this article, we’re clearing the fog around tax declarations in Hong Kong, transforming perplexity into proficiency!

[lwptoc]

What Does Tax Declaration Mean?

Tax Declaration In Hong Kong 1

Tax declaration refers to tax returns or tax filing. It is a formal procedure in which a person or a business collects all information about one’s finances earned in a year, reports to the authorities, and submits the amount of tax one owes to the state. 

The financial data includes the income, expenses, and all the deductions and allowances, as well as the property one has. It is mandatory to declare the ownership of all the earnings and properties to the state from which one has sourced it.

After reporting all the information to the authorities, one gets a document about the taxes one owes according to one’s wealth. One must pay the set amount of taxes, or one might get punished or fined for breaking the law.

There are critical aspects to tax declaration, which are given below:

Income Reporting

All the residents must report all sources of their income earned during one tax year. The finances include salary, wages, self-employment investment income, and other earnings.

Reporting Of Expenses And Deductions

Taxpayers can deduct personal expenses like any expenses that one has invested to start one’s business, medical expenses, mortgage interest or donations, and other charitable contributions. 

These deductions and allowances make one fall in the lower tax bracket and thus pay less tax overall. But still, all the deductions have to be mentioned during tax filing.

Tax Credits

In most taxation systems, certain tax credits are allotted to taxpayers, like child tax credits, education credits, and energy efficiency credits, that allow the taxpayers to further take advantage and reduce their owed taxes.

Compliance And Accuracy

Complying with filing taxes and accurately displaying all the financial information is a legal obligation of every taxpayer. Thus, not doing so properly or deliberately omitting any information can lead to legal ramifications.

Filing Deadline

Every country announces a date and a deadline when one has to file for taxes and pay the taxes. Thus, taking notice of the deadline is very important, as failing to adhere to the deadline may result in penalties and further interest on the taxes.

Payments of Refunds

The tax declaration determines whether one gets a refund or is eligible for additional taxes. So, one should follow the procedure and file for tax declaration by the given deadline to not cause oneself concern.

Keeping Record

Retaining a record of one’s finances and past declarations and documents that prove that one has submitted one’s taxes is a must as the authorities might ask for specific documentation to prove the payment of taxes of at least the past 7 years.

One must educate oneself about all of the abovementioned aspects when declaring taxes. 

When Is The Personal Tax Declared In Hong Kong?

Tax Declaration In Hong Kong 2

Taxpayers in Hong Kong have to file personal tax returns every year with the Inland Revenue Department (IRD). Usually, the assessment dates for tax declaration are from 1st April to 31st March of the coming year.

The Inland Revenue Department will announce the tax return notices by 1st May of each year. One will have to submit the required taxes within a month from the date of issuance of the tax declaration. 

Even if one does not earn income in the past year, one still has to declare zero income in the tax return form. Suppose the tax assessment received from the authorities has issues. In that case, one can file for an objection notice within one month of the tax declaration date.

Is It Mandatory To File A Tax Declaration In Hong Kong? 

Usually, all individuals must file for tax returns in many countries. However, in Hong Kong, some people have been exempted from filing for tax returns due to their tax status and income resources.

Some general guidelines regarding mandatory filing of taxes have been given below:

Tax On Salary Of Employees

Suppose an individual is an employee, and the person’s only source of income is the salary of one’s job. In that case, one is not required to file a tax return only in the following conditions:

  • Personal income is, at most, the basic personal allowance
  • Not receiving any taxable income from outside of Hong Kong.

However, if one earns a salary more than the personal allowance or has sourced an extra income from outside of Hong Kong, one must file for taxes.

Non-Salary Income

Suppose an individual’s income sources are other than the salary from employment. In that case, one is required to file for tax returns.

The other sources of income can be:

  • From rent from a personal property
  • Income from a business
  • From dividends
  • From interest

In these cases, it does not matter how much a person earns; one must file for the tax returns.

Self-Employed And Business Owners

Tax Declaration In Hong Kong 3

Self-employed individuals and business owners must file for tax returns, regardless of how much they earn.

Income Sourced From Outside

If one is a Hong Kong tax-paying resident and has sourced the income from outside of Hong Kong, then that individual is subjected to pay Hong Kong Tax. 

However, if the taxes are levied on the same income by a different jurisdiction, one may file for partial taxation. One must present complete proof of payment of taxes to the country from which the job was sourced.

Provisional Taxpayers

If one is a provisional taxpayer, one must pay taxes in advance according to the estimated tax liabilities. One may also need to file for a tax return to settle one’s provisional payments with the actual taxes.

How Does The Taxation System In Hong Kong Work?

Tax Declaration In Hong Kong 4

Before declaring taxes, one needs to know the essential workings of the taxation system of Hong Kong. All the dealings in Hong Kong are done in the official currency, Hong Kong Dollar. One year or 12 months is considered the fiscal period to be charged with taxes.

The department supervising the taxation matters is the Inland Revenue Department of Hong Kong. The taxes charged on business companies are known as Profit Taxes, which are calculated on a flat-rate basis.

A flat-rate taxation system means a set taxation rate that does not change depending on the income or profits earned by each company. 

However, in 2018, the government also offered a two-tier taxation system that allows one to follow a bracket system if one’s profit increases a specific limit. This two-tier system points towards the progressive system of taxation.

The taxes imposed on individuals’ salary in Hong Kong is known as the Salaries Tax. It is calculated based on a progressive tax system

It does not adhere to a flat tax rate; it follows a minimum and maximum bracket and charges the tax rate according to the income earned.

The best thing about the taxes in Hong Kong is that many items and services in Hong Kong are not taxed with VAT, nor are the capital gains taxed. Dividends are not taxed with Withholding taxes.

Individuals who use properties or land to earn their income have to pay a 15% tax on the property’s value. Also, stamp duty has to be paid on shares, stocks, and property-related documents.

What Are The Different Taxes Being Declared In Hong Kong?

Tax Declaration In Hong Kong 5

There are two most relevant taxes that people need to declare when it comes to filing for taxes in Hong Kong. 

  1. Profit Taxes
  2. Salary Tax

These taxes have been described in detail below:

Profit Taxes

The taxation in Hong Kong is based on the territorial system rather than on the residency or citizenship of an individual. Thus, people earning their income from the territory of Hong Kong will be liable to pay taxes even if they are not citizens of Hong Kong.

The profit taxes are also corporate taxes and are calculated during 12 months. The profit made during one fiscal year is the accessible profit the Hong Kong authorities charge tax.

When the companies declare their taxes, they have two options in Hong Kong for the tax rate to be calculated. The two-tier system allows them to choose a flat rate of 15% – 16.5%.

The other option for the companies is to choose the bracket system, which taxes 8.25% on the accessible profit of 2 million HKD. If the profit increases by 2 million HKD, the remaining amount will be taxed at 16.5%.

Thus, a company in Hong Kong has a flexible choice to choose the tax rate according to the profits earned. However, suppose a company has delayed the declaration or payment of taxes. In that case, they can be presented with provisional assessments by IRD.

Some Hong Kong companies can also be exempted from paying taxes if they have earned their incomes entirely from an outside source.

Salary Tax

Unlike Profit Taxes, the salary taxes in Hong Kong are not calculated with a flat rate but with a progressive rate. These taxes are calculated from 31st March of one year to 1st April of the following year.

People who earn through a job employment contract in Hong Kong, rent a property or have a pension need to pay the income tax, also known as the salary Tax. 

The tax rate is charged according to the minimum and maximum income brackets as given in the table below:

Net IncomeTax In HKDTax Rate
Up to 50,000 HKD2%
50,000-100,000 HKD10007%
100,000-150,000 HKD400012%
Over 150,000 HKD600014%
150,001 – 200,000 HKD900017%

How To File A Tax Declaration In Hong Kong?

Tax Declaration In Hong Kong 6

The Inland Revenue Department of Hong Kong issues tax notices for individuals as well as for companies by sending the taxation documents to the registered addresses of the taxpayers after one fiscal year.

Hong Kong also has online platforms where taxpayers can make online declarations. They can also file tax returns online. However, companies still need to submit the original tax assessment documents for getting the tax returns.

Following the given steps below can make it easy for first-time tax filers to declare their taxes and file for tax returns in Hong Kong: 

Conclude The Tax Obligation

The first step is to determine if one is eligible to apply for taxes. One’s sources of income and all financial activities will decide whether one should apply for tax returns within the set time limit given by the authorities. 

Gather Required Documents

The second step for filing taxes will be to gather all the required documents, including all the records of pay slips, rental or business income, bank statements, dividends, interests, deductions, allowances, etc. 

Gathering all the needed documents is of utmost importance as even one missing document may lead to being fined or rejecting applications, further delaying the whole process of filing for tax returns.

Choose The Appropriate Tax Forms

The Inland Revenue Department of Hong Kong has issued separate tax forms for different entities, making categorizing the whole taxation process easier. So, one needs to choose an appropriate tax form.

For Individuals, the tax forms are:

  • BIR60
  • BIR54A

Tax forms for corporations are:

  • BIR51
  • BIR52

Calculate Taxes And Fill The Tax Forms

After choosing the correct tax form, one must calculate the complete taxes one owes. Also, fill out the tax form according to the calculated taxes, thus mentioning one’s income from every source and subtracting any deductions and allowances if needed.

One also needs to consciously fill in all the personal and business details in the form, as this document will be used as evidence if one is caught lying or misleading, which can also lead to one getting fined or legally punished.

Submitting The Tax Return Form

Tax Declaration In Hong Kong 7

After verifying and reviewing each detail, one may submit the tax form to the IRD Hong Kong. One may submit the form in the following ways:

  • Online
  • By Mail
  • In Person 

Pay Any Outstanding Fee

One needs to pay the taxes one owes based on one’s tax returns. This outstanding amount can be paid to the IRD by the precise deadline. The outstanding fee can be paid electronically, in person, through cash, or by check.

Await Assessment

Once all the documents have been filed, the inland Revenue department will also calculate the tax liabilities one owes. 

The taxpayer will need to wait for the assessment that they will issue. It will also include the notice of any refund owed or the remaining balance left to be paid.

Maintain Records

Keeping records of all the documents, as well as the tax notices, is a must. This record should be kept for at least the past 7 years as this will save one much hassle if one gets investigated by the authorities. 

So, one can save oneself from punishment or getting fined if one has kept a record and proof of all the claims made when filing for taxes.

Take Professional Help

One may also get help from an accountant or a tax professional if one needs clarification. Also, suppose one has complex financial investments or international income and wants to optimize one’s tax position. In that case, it is always better to seek help.

What Are The Documents Needed For Tax Return In Hong Kong?

Tax Declaration In Hong Kong 8

When one has to declare taxes, one needs to be cautious about every claim one makes, and every document one attaches, as the legal consequences of any misleading claim can cause one to suffer legal ramifications. 

So, one must be careful when attaching the required documents and not missing any. For different types of taxes, different documents will be required. Some of the documents needed for filing for tax return in Hong Kong are the following:

For Individuals Paying Salary Tax Returns

For people paying the Salary Tax, they’ll need the following documents:

Identity And Personal Documents

People must submit copies and details of their Identity Card or Passport and provide their contact information. They’ll also have to attach the house registry or the rental agreement verifying their current residence address.

Employment Income

Attached are bank statements, salary slips, and proof of wages. One would also need to attach the document that verifies the employer’s name and address. 

Also, all the information about the bonuses, allowances, gratuities, and fringe benefits must be submitted.

Self-Employed Income

Self-employed people must also attach documents verifying their gross income, expenses, and net profits or losses. The receipts and invoices of all the business expenses and deductions also should be submitted.

Rental Income

The person earning from renting a personal property needs to submit the document showcasing the property‘s address and ownership. Also, the received income, rental amount, rental agreement, and all the expenses related to the rental property.

Other Sources Of Income

Suppose one has more than one source of income. In that case, one must submit all the documents verifying the different income sources. Also, attach the interest income, dividend income, capital gains, and other royalties. 

Deductions And Allowances

One must also show proof of any deductions or allowances one is eligible for, including deductions for dependent children, dependent parents, or any other recognized retirement plans.

Documents Required For Business And Corporations

 Most of the documents mentioned below are the required documents that the Inland Revenue Department of Hong Kong asks for when businesses or corporations file taxes:

Company’s Information

The registration certificate of the company, as well as the address and personal identification details of the leading directors and owners. 

Records Of Income And Expenses

The business owners or corporations must submit all financial statements, including gross profit and loss statements and balance sheets. All the detailed records of business income, expenses, deductions, and allowances would be submitted too.

All the documents of salaries, wages, compensations, bonuses, and compensations for the employees will also be attached.

Asset And Investment Records

All the information related to different assets, investments, and capital gains must also be disclosed. All the documents that showcase the records of property and equipment used in the business must also be ascribed. 

Tax Computation And Other Assessment

All the documents that refer to the details of the loans, interest payments, and other financial transactions are required. Also, all the paid taxes, property tax, and stamp duty records must be submitted.

All these documents will help in calculating taxes acquired by the company. 

Audited Accounts

Some corporations or businesses may also be asked to provide audited financial statements and tax returns.

When Is The Hong Kong Tax Return Deadline?

Tax Declaration In Hong Kong 9

The Hong Kong tax return deadline usually follows a fiscal year ending on 31st March. The deadline for filing taxes for the individual taxpayers who pay Salary Tax and the corporations who pay Profit tax is April of the following year.

How Long Does It Take To Get Tax Refund In Hong Kong?

It takes only a few months for the IRD to send back a tax assessment to taxpayers. But the time frame may be prolonged or reduced depending on the following factors:

  • Accuracy of Information will quicken up the whole process.
  • Opting for bank transfer as a transfer method also quickens the whole assessment.
  • Additional review may prolong the assessment time.
  • Provisional tax and complicated financial tax returns may take more time to assess.

How To Declare Taxes If Leaving Hong Kong? 

There will be specific requirements that one would need to fulfill if one is leaving Hong Kong. The employee and the employer must complete specific tasks and submit a list of documents to IRD before leaving Hong Kong. 

The employee would need to do the following steps: 

  • Inform the department and provide the new personal details, like contact information and new residence. 
  • Submit tax return (BIR60)
  • Call in person to quickly wrap up things
  • Pay Taxes 

After clearance of tax, the employee must also inform the IRD if he receives any extra rumination or income from Hong Kong. One would also need to show a tax clearance certificate.

The employer should also do the following tasks one month before the date of departure:

  • File IR56G and submit all the required documents.
  • Withhold any payment to the employee for one month from the date the IR56G form had been submitted.

The employer should give the employee full payment after the expiry of the money-withholding period. Following all of these stipulations are necessary for the employee and the employer for declaring taxes when one is leaving Hong Kong.

Conclusion

There you have it—tax declaration in Hong Kong, decoded! It’s time to step into the tax season with confidence and ease. Keep those finances flawless!

Declare Smoothly!

But wait! There’s lot more that you might be interested in to follow:

  • Income Tax Brackets In Hong Kong
  • Tax Consulting In Hong Kong
  • Tax System In Hong Kong