Salaries tax and who pays it in Hong Kong

Salaries Tax Definition

If you earn employment income in Hong Kong, you need to understand what is salaries tax and who pays it. Salaries tax is a direct tax on income arising in or derived from Hong Kong from any office, employment or pension. The Inland Revenue Ordinance (Cap. 112) governs it and the Inland Revenue Department administers it. It applies to individuals receiving Hong Kong-sourced income from employment, an office, or a pension who are chargeable to tax under Part 3 of the Ordinance. The tax is collected through annual self-assessment and employer reporting.

Hong Kong Salaries Tax

Hong Kong operates a territorial tax system. It does not tax worldwide income. Only income that arises in or is derived from Hong Kong is chargeable. This includes salary, wages, commission, bonuses, gratuities, perquisites, allowances, and any other consideration received for an employment. The year of assessment runs from 1 April to 31 March. Individuals file their tax return on Form BIR60.

Who Pays Salaries Tax Hong Kong

Liability falls on any individual who earns Hong Kong-sourced income from an office, employment or pension. Directors of Hong Kong companies are taxed on director's fees as income from an office. Employees who work partly inside and partly outside Hong Kong must apportion their income; only the portion attributable to services performed in Hong Kong is chargeable. The 60-day rule provides an exemption. A person who visits Hong Kong for not more than 60 days in a year of assessment and performs no services in Hong Kong outside those visits is not chargeable.

Salaries Tax Definition Under the Ordinance

The Inland Revenue Ordinance (Cap. 112) charges salaries tax on every person in respect of income from any office or employment of profit, and pensions. Assessable income includes all sums received by or accrued to the person in respect of the employment, whether in money or money's worth. Benefits-in-kind such as accommodation, a company car, or share options are also taxable at their assessable value. Deductions are allowed for expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment.

Hong Kong Income Tax on Salary

Hong Kong income tax on salary operates on a progressive rate scale or a standard rate, whichever produces the lower tax liability. Progressive rates apply to net chargeable income after allowances and deductions. The standard rate is a flat percentage applied to net total income before allowances. This two-tiered system means most individuals pay less tax under the progressive calculation. Provisional salaries tax is charged for the following year of assessment based on the current year's income. A holdover application is available if income is expected to drop.

Employer Filing Obligations

Employers must notify the Inland Revenue Department of new employees by filing Form IR56E within three months of engagement. The annual employer's return is filed on Form BIR56A with Forms IR56B for each employee, covering all remuneration paid during the year of assessment. When an employee ceases employment, the employer files Form IR56F. For an employee about to leave Hong Kong, the employer files Form IR56G to allow the Department to settle any outstanding tax before departure. These reporting obligations apply to all employers who engage staff in Hong Kong, regardless of whether the staff member is chargeable to salaries tax.

Individual Tax Return

Every individual who receives Hong Kong-sourced employment income must file an individual tax return on Form BIR60 when issued by the Inland Revenue Department. The Department issues returns in bulk between April and May each year, covering the preceding year of assessment. Individuals must declare all assessable income, claim allowable deductions and personal allowances, and compute the tax payable. Failure to file can result in estimated assessments and penalties.