Salaries tax definition and who pays it

What Is Salaries Tax

Salaries tax is a Hong Kong tax charged on income arising in or derived from Hong Kong from an office, employment or pension. The Inland Revenue Department administers salaries tax under the Inland Revenue Ordinance (Cap. 112). It applies to individuals, not companies, and follows the territorial source principle: only Hong Kong-sourced employment income is chargeable.

Hong Kong Salaries Tax Explained

Salaries tax is assessed on a year of assessment basis, running from 1 April to 31 March. After the end of each year of assessment, the taxpayer files an individual tax return on Form BIR60. The chargeable income is the net assessable income after allowances and deductions. The rates and allowances are not detailed here.

How Salaries Tax Is Calculated HK

The calculation starts with gross income from employment, office or pension. Deductions are permitted for expenses wholly, exclusively and necessarily incurred in the performance of duties. The resulting net assessable income is then reduced by personal allowances to arrive at the chargeable income. Tax is computed at progressive rates or at a standard rate on the net total income, whichever produces the lower liability.

Who Pays Salaries Tax

Any individual with Hong Kong-sourced income from an office, employment or pension is liable to pay salaries tax. This includes directors, employees, and pension recipients. Liability arises regardless of the individual's residence or nationality. A person present in Hong Kong for 60 days or fewer in a year of assessment, who is not a director, may be exempt. The general rule is that the source of the income determines liability.

Form BIR60

Form BIR60 is the individual tax return issued by the Inland Revenue Department. Taxpayers use this form to report income from employment, office and pension, and to claim allowances and deductions. The taxpayer must complete and file Form BIR60 within the period stated on the return. The Inland Revenue Department then assesses the tax and issues a demand note.

Employers have filing obligations too. An employer files Form BIR56A, the employer's return of remuneration and pensions, together with Form IR56B for each employee. These forms support the Inland Revenue Department's pre-population of the individual tax return and help verify the income declared on Form BIR60.