Firstly, it is essential that you get some professional taxation advice when residing in Hong Kong as an expat. Not every case is the same and it will be worth your while to have an expert on hand. Income tax can be extremely complicated and having a tax advisor guide you through the process may simplify matters somewhat.
Income tax in Hong Kong
The most important thing to remember is that income tax and expat taxation works slightly differently in Hong Kong, compared to other countries. Your citizenship or fiscal domiciliation may not be considered when your tax is determined. If you are going to be residing or have resided in Hong Kong for at least 60 days, then you are subject to salary tax and considered to be fiscally responsible in Hong Kong. Remember, that you will only be taxed on the work that you do within Hong Kong and on salaries received from business conducted inside the city. Your foreign income or assets will not be taxed but it goes without saying that you should make sure that you are fulfilling your tax obligations back home too. You are responsible for filing taxes in your country of residence, even if you are not earning a salary in that country. However, if you own property or have assets there, you will still need to declare these.
Normally, residents and expats are taxed progressively between 2% and 17%, depending on their income level, or a standard rate of 15% . At this time, Hong Kong does not have a capital gains tax. Fortunately, Hong Kong residents do not have double taxation, therefore you can only be taxed on money earnt in Hong Kong. Alongside this, you do not have to pay inheritance or estate tax in Hong Kong.
Tax brackets and deductions
The tax brackets in Hong Kong look something like this:
|0-40,000 HKD 2%|
|40,001-80,000 HKD 7%|
|80,001-120,000 HKD 12%|
|Above 120,001 HKD 17%|
Importantly, tax is not paid as you earn. It is done through a personal tax return. Therefore, it is highly recommended that you set aside money throughout the year in order to pay your tax bill when it arrives. This comes directly from the Inland Revenue department and you must make sure that it is completed and submitted before the deadline. The tax year runs from April 1st to March 31st of the following year.
So what do you have to report in your tax return? Pension plans, salaries, additional wages, bonuses, any tax paid by your employer on your salary, commissions, gratuities, allowances, benefits, retirement benefits, and investments, to name but a few. Non-taxable income may include severance packages, but if the employee receives a salary for working during the notice period, then this will be taxed. Payments for long service are not taxable but this amount must not be in excess of the entitlement under the Hong Kong Employment Ordinance law. It is best to have a tax advisor work this out with you, as you may escape having to pay or indeed, you may find you have to pay more.
Deductions allowed in your tax return are employment related expenses, such as client entertainment, business travel expenses, charitable donations, self-education expenses, elderly care expenses and home loan interest.
On the other hand, you may find that some of your benefits are taxable. This does not depend on if they are given to you in cash or not. These may include housing and accommodation allowance, meal allowances, education for your children, company cars, holiday allowances and share options.
Leaving Hong Kong
Once your time in Hong Kong is up, you must notify the Inland Revenue Ordinance no later than 1 month before departing. They will then decide if you need to settle any taxes before leaving.
Paying your taxes is relatively easy nowadays. You can do this electronically, by phone, Internet or at ATMs. You can also arrange to have the payments taken from your account through direct debit.