hong Kong salaries tax and deductions in 2024
If you have employees in Hong Kong, they will need to file their salaries tax return each year with the Inland Revenue Department (IRD). This guide aims to navigate the process and covers the tax filing and payment process, taxable and non-taxable income, tax rates, common tax allowances and deductions, and common tax issues.
Key dates and the tax return deadline
The tax year in Hong Kong runs from April 1st to March 31st of the following year, i.e. the last Year of Assessment was 01 April 2023 to 31 March 2024. The tax return for a particular year of assessment is usually issued on May 2nd and must be filed by June 1st of the same year.
How to submit the return
Employees can submit their tax return electronically via eTax or by using the return form issued in the green envelope.
But you don’t need to pay just yet. Once the tax return has been filed, the Inland Revenue Department will issue a Notice of Assessment around September of that year which shows the amount due.
The total tax payable will be separated into two instalments. This includes the final tax bill as well as ‘provisional’ tax, which uses the previous year’s income to estimate tax for the coming year.
Using 2023 as our example, 100% of the final tax bill + 75% of the provisional tax is payable in January 2024, with the remainder of the balance of 25% in April 2024.
Which income is taxed?
The tax return should include income from salaries, business income from sole proprietorships in Hong Kong, and rental income for properties located in Hong Kong.
Which income does not need to be declared to the IRD?
Capital gains, such as making money from share investments
Income from limited companies in which you are an owner or director,
Rental income from properties located outside of Hong Kong
The progressive and ‘flat’ tax system
Hong Kong has a progressive tax system with rates ranging from 2% to 17%, depending on the level of taxable income after tax deductions and allowances. However, individuals also have the option of paying a standard "flat" rate of 15% of their income.
The progressive rates are 2%, 7%, 12%, and 17%, whereas the “flat” rate is charged at the income after tax deductions but without the allowances. They will pay the lower of the two options. (and never more than 15% of their income in taxes).
The 2024-25 Hong Kong Budget introduced a new two-tiered tax rate for high-income individuals. Instead of the 15% standard rate, amounts above HK$5,000,000 are calculated at a higher standard rate of 16%. This change affects an estimated 12,000 taxpayers, which is 0.6% of taxpayers chargeable to salaries tax and is estimated to increase Hong Kong’s revenue by HK$905 million.
Reduce the tax bill using allowances and deductions
Allowances and deductions can significantly reduce assessable income and lower tax liability. Here are some of the most common ones:
Basic allowance and married person’s allowance
Everyone is entitled to a basic non-taxable allowance of HK$132,000, which is automatically deducted from taxable income. If married, they may be able to claim a married person’s allowance of HK$264,000. This allowance is available to couples where at least one spouse has income assessable to salaries tax (we go into more detail in the FAQs below).
Child Allowance
Parents can claim a child allowance of HK$130,000 per year per child. This applies to up to nine children. For each child that is born during the year, your child allowance increases by a further HK$130,000.
Dependent Family (Sibling, Parent, and Grandparent) Allowance
If supporting brothers, sisters, dependent parents or grandparents, an allowance is available that varies based on circumstances such as whether they live in Hong Kong, their age, and whether they have a disability. Here are the amounts of allowances for 2023/24 onwards:
| Dependent | Allowance (HKD) |
|---|---|
| Brother or sister | $37,500 |
| Parent or grandparent aged 55–59 | $25,000 |
| Parent or grandparent aged 60+ | $50,000 |
| Parent or grandparent under 60 (eligible under the Disability Allowance Scheme) | $50,000 |
| Disabled dependant | $75,000 |
Domestic Rent Deduction
If the taxpayer is living in rented accommodation, they can claim a deduction for rental expenses up to a maximum of HK$100,000 per year.
The amount has to be reduced if you live with tenants; the amount is proportional to the number of tenants. Additionally, the amount is reduced if the period of your tenancy only covers a part of the tax year.
For married individuals, you and your spouse can combine your deduction amounts up to the HK$100,000 limit. You can also add up deductions if you rent multiple spaces.
Note that if you also use the place to live or for other purposes, the deductible amount is an amount that is reasonable for your unique circumstances.
Home Loan Interest Deduction
Interest on a home loan can be claimed as a deduction for the interest paid, up to a maximum of HK$100,000 per year. This applies to their residence, not to investment properties.
If you own multiple places of residence, you can claim deductions for all of them up to the limit. If you are married, only you or your spouse can claim the deduction.
Charitable Contributions Deduction
A deduction is available for the amount donated to registered Hong Kong charities as a charitable contribution. The minimum deduction of approved donations must be at least HK$100 and should not be above 35% of your income after expenses.
Mandatory Provident Fund (MPF) Contributions
Mandatory provident fund (MPF) contributions are deductible up to HK$18,000 per year. Voluntary contributions to specific tax-deductible accounts can be deducted up to a maximum of HK$60,000 per year.
The Inland Revenue Department also provides a clear allowance, deduction and tax rate table.
Personal and Salaries Tax FAQ
Here are some questions we are asked frequently as tax advisors.
What is the Personal Assessment for income tax in Hong Kong?
The Personal Assessment is a different way of calculating taxes for individuals who are subject to profits or property tax. Instead of calculating each liability separately, all types of income are combined, and deductions and allowances are subtracted from the total. This can reduce the overall tax liability.
It's best to work with a professional tax advisor to determine if the Personal Assessment would be beneficial.
For the 2024-25 Budget, the government introduced a one-off reduction of the salaries tax for the tax year 2023/24. Salaries tax is reduced by 100%, with a maximum of HK$3,000. This effectively means that individuals who earn an annual income of HK$200,000 and below pay no salaries tax.
Should my spouse and I file taxes separately or jointly for income tax in Hong Kong?
Generally, each taxpayer in Hong Kong gets a basic allowance of HK$132,000. If only one spouse works, that spouse can claim the married allowance of HK$264,000. If both spouses work but one makes less than their basic allowance (i.e., less than HK$132,000 per year), it makes sense to file jointly so the other spouse can "absorb" the unused allowance. Filing jointly can also sometimes make sense when electing for the Personal Assessment.
Is there a home office deduction for income tax in Hong Kong?
No, there is no home office deduction in Hong Kong, but employees may be able to claim deductions for work-related expenses that are directly related to their jobs.
Can we deduct work clothing expenses, such as a suit, for income tax in Hong Kong?
Simply put, no, work clothing expenses are not deductible in Hong Kong. There are some exceptions, such as steel-capped boots or a hard hat when working in construction.
How are Share Options taxed?
Some employers grant their employees share options, which allows them to buy the company's shares below market price. However, in Hong Kong, when the employee exercises the share option by purchasing the shares, the difference between the price of the share option and the market price on that day is taxable.
Here is an example:
If the company's share price is HK$100 and the employee elects to purchase 1,000 shares at a reduced rate of HK$30 each, the calculation would be:
1,000 shares x (HK$100-30) = HK$70,000 is taxable as income.
It's important to note that the employee did not receive any cash, so it's essential to set aside some money to pay taxes when exercising share options.
How does the Housing Reimbursement work?
Many employers in Hong Kong provide housing to their employees, such as renting an apartment or reimbursing the employee for rent paid. This can reduce an employee's tax liability, as the amount of rent is not taxable when certain conditions are met. Instead, employees are taxed on the "rental value," which is 10% of their total net income.
In a practical sense, this means:
The employee makes HK$100,000, and the rent is HK$30,000; the employee will be taxed at (HK$100,000 - HK$30,000) x 1.1 = HK$77,000 instead of the full HK$100,000.
However, the employer must meet certain conditions, such as having a policy in place for this, inspecting rental receipts regularly, and properly reporting this on the employer's return. If these conditions are not met, the full amount (i.e. HK$100,000 above) will be taxed as income.
Misunderstandings can occur when the employee thinks they have been reimbursed for housing (which is eligible for tax benefit), but the employer merely intends to provide a generic “housing allowance” (which is not eligible for tax benefit). It's crucial to communicate properly with your employer to avoid any misunderstandings.
Is there a tax deduction if tax is also paid in another country?
Working in Hong Kong often gives rise to cross-border taxation issues. In order to ensure tax is filed on the correct amount of income and double taxation issues are kept to a minimum, we recommend assisting such employees with tax advice.
For example, when your employees are temporarily sent to Hong Kong from abroad, they may have to be careful to avoid double taxation, or they may be able to enjoy a reduced tax basis in Hong Kong.
Take care to understand tax obligations
Finally, make sure to digest tax obligations in Hong Kong. This includes filing tax returns on time, paying any tax owed, and keeping accurate records. Failure to meet tax obligations can result in penalties and interest charges.
We hope this information will help you to assist your employees in navigating the salaries tax system in Hong Kong.
If you have further questions about employee tax or other tax inquiries for your business, you can contact us or refer to the Inland Revenue Department for guidance.
