Hong Kong Tax Rates – All You Need to Know

Hong Kong tax rates are among the lowest in the world

Hong Kong tax rates are among the lowest in the world, thanks to the huge fiscal reserves and GDP of the country. According to the estimates, Hong Kong financial reserves are sufficient to meet the 12-month government expenditure.

The ease of establishing business and low tax regime has made Hong Kong a favorite territory for investors and entrepreneurs to develop and expand their business operations.

Generally, taxation system of Hong Kong can be classified into two categories:

1. Direct Tax: This includes salary tax, property tax, and profit tax.
2. Indirect Tax: This includes stamp duty, Estate duty, Betting duty, and others.

This article will provide you all the essential information regarding the applicable rules and regulations for direct taxation in Hong Kong.

Salary Tax:

Salary tax is considered as income tax payable by individuals on their income generated from any employment, or pension during a tax year. Hong Kong tax rates for salaried individuals are divided into five progressive brackets i.e., 2%, 6%, 10%, 14%, and 17%.

Salaried individuals are divided into five progressive brackets i.e., 2%, 6%, 10%, 14%, and 17%.

Salaried individuals are required to file their annual tax returns with the Inland Revenue Department (IRD). The year of assessment starts from 1st April and ends on 31st March of next year. Typically, IRD issues individual tax returns by May 1st, and individuals are required to submit their returns within one month. Individuals with low or no income also need to file a return if received.

Rate of taxation for salaried income is as follows for the year of assessment of 2018/19:

To calculate the net chargeable income, use the following simple formula:

Net Chargeable Income = Total Income – Allowed Deductions – Allowances

Profit Tax:

In Hong Kong, profit tax or corporate tax is levied on the net profits of a business generating revenue from operations inside the country. All the companies and individuals running a business entity in Hong Kong are liable to pay profit tax under the law.

In the tax year 2018/19, companies have the option to choose from two different tax rates to calculate their tax liability. The first option is the traditional system, which is also known as a single-tier corporate tax system, while the other one is known as the two-tiered corporate tax system.

1. Single Tier System: Under the single-tier system, corporations are taxed at 16.5% of their assessable profits, while for unincorporated businesses, the rate is 15%.
2. Two-Tiered System: Under the two-tiered system, the following rules are defined:

• Rule1: For corporations, the first 2 million of profits earned will be taxed at 8.25% while the remaining profit will be taxed at 16.5%.
• Rule2: For incorporated businesses, the first 2 million profit earned will be taxed at 7.5% while the remaining profit will be taxed at 15%.

For simplicity, follow the table below for corporate tax rates in Hong Kong under the two-tier tax scheme:

Assessment Period for Business: For corporations, the year of assessment runs from the first day of April till the 31st of March next year. The month in which the accounting period generally ends determines the filing period for tax return. Common deadlines are:

Property Tax:

All individuals and companies who own immovable property (Home, Flat, Land, Building, Apartment, etc.) in Hong Kong are entitled to a 15% standard tax rate on the net assessable value (NAV).

NAV is calculated on the basis of rental income paid or payable to the owner by the tenant after lessening any allowable deductions like:

1. Any amount of bad debts claimed by the owner
2. Any rates paid by the owner
3. Maintenance expense incurred by the owner subject to a maximum of 20% of rental income.
4. Any other allowable deduction under the law.

The property tax can be computed in the following three steps:

1. Calculate Assessable Value (AV): Total rental income for the period less all the allowable expenses incurred during the period.
2. Calculate Net Assessable Value (NAV): Assessable value less 20% of assessable value for repairs and maintenance of the property.
3. Calculate tax: Net Assessable Value (NAV) * 15% = Property Tax

The Hong Kong tax rate and ordinance can be quite difficult to understand for laymen who rightfully require elaboration from tax experts. Our team will help you identify the correct rates, tax credits, tax deductions, and refunds to ensure accurate filing of your tax returns. Contact us now to experience the simplest and easiest tax filing process.