How is salaries tax calculated in Hong Kong

How Is Salaries Tax Calculated in Hong Kong

Salaries tax is the lower of two calculations. The first applies progressive rates to net chargeable income. The second applies a standard rate to assessable income after deductions. The Inland Revenue Department makes this comparison automatically. You pay the lower amount.

Progressive tax rates apply to net chargeable income. This is assessable income minus all allowances and deductions. For the year of assessment 2025-26, the rates are 2% on the first HK$50,000 of net chargeable income, 6% on the next HK$50,000, 10% on the next HK$50,000, 14% on the next HK$50,000, and 17% on any remaining net chargeable income.

The standard rate applies to total assessable income after deductions but before allowances. Capped at 15%, it is used only when it produces a lower tax liability than the progressive calculation.

Salaries Tax Calculation Hong Kong

Calculate salaries tax in sequence. First, determine assessable income from Hong Kong-sourced employment. Second, deduct allowable expenses incurred in producing that income. Third, apply personal allowances to arrive at net chargeable income. Fourth, calculate tax at progressive rates and compare this with the standard rate calculation.

The formula is direct. Assessable income minus deductions minus allowances equals net chargeable income. Tax payable is the lower of net chargeable income multiplied by progressive rates, or assessable income after deductions multiplied by the standard rate.

Hong Kong Tax Rates

Salaries tax rates operate on a sliding scale. Progressive rates reach a maximum of 17% on net chargeable income above HK$200,000. The standard rate is 15% on total assessable income after deductions. Rates apply per-person, not per-family. Married couples can elect separate or joint assessment, whichever produces a lower total tax liability.

The Inland Revenue Department publishes updated rates and bands each year in the year of assessment. The rates above reflect current provisions, confirmed annually in the Budget.

Salaries Tax Formula

The salaries tax formula combines assessable income, allowable deductions, and personal allowances.

Assessable income includes salary, wages, bonuses, commissions, tips, housing benefits, share option gains, and any other emoluments from Hong Kong-sourced employment. It excludes income from work performed entirely outside Hong Kong, unless the 60-day rule applies.

Allowable deductions cover expenses wholly, exclusively and necessarily incurred in producing the assessable income, such as travel costs where public transport is not feasible. They also cover charitable donations of at least HK$100 to approved charities, mandatory MPF contributions up to the statutory cap, and self-education expenses.

Personal allowances are subtracted from assessable income after deductions to arrive at net chargeable income. These include the basic allowance (HK$132,000 for 2025-26), married person's allowance, child allowance, dependent parent allowance, single parent allowance, and disabled dependent allowance.

Hong Kong Tax Allowances

Tax allowances reduce the amount of income subject to tax. The basic allowance is HK$132,000 for every individual in the 2025-26 year of assessment. Additional allowances exist for married persons living with their spouse, for each child (HK$120,000 for the first to ninth child), for dependent parents and grandparents (HK$25,000 to HK$50,000 depending on age and cohabitation), and for a disabled dependent (HK$75,000).

Allowances are not automatic. Claim them on Form BIR60, the individual tax return. The Inland Revenue Department supplies a claim schedule with each return. If you do not claim an allowance you qualify for, the department will not apply it.

A taxpayer not entitled to the basic allowance in a year must still file. The department will issue a nil assessment if no tax is due.

Practical note: The Inland Revenue Department sends Form BIR60 to taxpayers each year. File it within one month of issue, or apply for an extension through a tax representative. Provisional salaries tax is charged alongside the current year's assessment and is offset against the following year's liability.