Tax in Hong Kong for Expats

Expats living in or moving to Hong Kong will need to understand both the local and international tax rules surrounding double taxation treaties or specific rules that are applicable to expats in Hong Kong.

We have created this guide to help foreign nationals living in Hong Kong and Hong Kong nationals living abroad understand their tax obligations in Hong Kong and provide the opportunity to be introduced to a trusted Hong Kong tax specialist from our network who will be able to assist with your tax matters.

Please be aware that this article is provided as a guide only and must not be used to make decisions. You must always seek professional advice regarding your tax and general financial matters.

Hong Kong tax rates and allowances:

The tax charge is the lower of:

a) the standard rate of 15% applying to net chargeable income before personal allowances;

b) the progressive rates applying to net chargeable income.

* Granted to a married person whose spouse does not have any assessable income; or to a person who, together with his or her spouse, have elected joint assessment.

Three separate income taxes are levied in Hong Kong instead of a single unified income tax.

Profits tax: Corporations – 16.5% Others – 15%. Losses can be carried forward indefinitely subject to restrictions under the anti-avoidance rules.

Property tax is charged at the standard rate of 15% on 80% of the rent receivable on noncorporate owners of real estate in Hong Kong. Corporate lessors of real properties are subject to profits tax.

Salaries tax is levied on net chargeable income (assessable income less personal deductions and allowances) at progressive rates ranging from 2% to 17%, or at a flat rate (maximum rate) of 15% on assessable income less personal deductions, whichever calculation produces the lower tax liability.

Profits tax, salaries tax and property tax are assessed separately. If beneficial, a permanent or temporary Hong Kong resident individual may elect to be assessed under personal assessment on the aggregate of his or her income or losses from all sources.

Capital gains: Not taxable

Dividends: Not taxable

No withholding tax on payment

VAT: no VAT or sales tax

Approved charitable donations: Tax deductible up to 35% of assessable profits.

The Hong Kong government has an accessible and detailed website in English covering resident and non-resident taxation obligations.

Who pays tax in Hong Kong?

Non-residents working in Hong Kong are liable to salaries tax. Salaries Tax is charged on every person in respect of their income arising in or derived from Hong Kong from any office or employment of profit and any pension.

Income includes all income, perquisites and fringe benefits from the employer or others. Residents and non-residents may also be liable to salaries tax in Hong Kong and are taxed in the same way.

Expat tax advice for Hong Kong is based on the following principles:

Income that arises in or is derived from a Hong Kong office or Hong Kong employment, or from services rendered in Hong Kong during visits of more than 60 days in any tax year, is subject to salaries tax.

Hong Kong observes a territorial basis of taxation; therefore, the concept of expat tax residency has no significance in determining tax liability, except in limited circumstances.

Only income sourced in Hong Kong is subject to Hong Kong tax. Any other income arise out of Hong Kong, whether remitted into Hong Kong or not, will not be subject to Hong Kong tax.

How is income taxed in Hong Kong?

Expatriate tax on employment income - Taxable income consists of all cash emoluments, including bonuses and gratuities. Expat’s benefits in kind are largely non-taxable, unless they are convertible into cash or specifically relate to holiday travel or the education of a child. The provision of accommodation by an employer creates a taxable benefit.

Employers can allocate part of the salaries as housing reimbursement (not housing allowance) which can be taxed at a much lower tax rate.

An expat employee is subject to salaries tax if his or her employment income is sourced in Hong Kong, even if he or she is not ordinarily resident in the territory. However, except for directors' fees, a specific statutory exemption applies if an employee renders all his or her services outside Hong Kong or if an employee renders services in Hong Kong during visits to Hong Kong not exceeding a total of 60 days in a year of assessment. In other words, if an expat stays in Hong Kong less than 60 days,, he/she will not be subject to Hong Kong salaries tax.

Conversely, if a non-resident engaged in non-Hong Kong employment renders services in Hong Kong during visits totalling more than 60 days in a year of assessment, he or she is taxed on a pro rata basis, which sometimes referred to as ‘day-in-day-out’ basis. Only a portion of the total income will then be subject to Hong Kong salaries tax. .

Self-employment and business income - Anyone carrying on a profession, trade or business in Hong Kong is subject to profits tax on income arising in or derived from Hong Kong from that profession, trade or business. Taxable income is determined in accordance with generally accepted accounting principles, as modified by the tax code and principles derived from case law. As the taxable income is modified by the tax code, it may not be the same as the accounting profit. You are recommended to seek professional advice when filing the profits tax return.

Business losses of an individual are calculated in the same manner as profits and may be carried forward indefinitely against future income in the same business or may be offset against the individual's other sources of income under personal assessment. In both cases, losses cannot be carried back.

Rental income - If an individual receives rental income but the rental activities do not constitute a business, the income is subject to property tax rather than profits tax. Property tax is charged on 80% of rent received from real estate located in Hong Kong at a rate of 15%, resulting in an effective rate of 12%.

Profits tax, salaries tax and property tax are assessed separately. If beneficial, a permanent or temporary Hong Kong resident expat may elect to be assessed under personal assessment (that is, under the salaries tax method) on the aggregate of his or her income or losses from all sources.

Investment income - Interest income not derived from investing the funds of a business and all dividend income are exempt from taxation.

No withholding taxes are levied in Hong Kong on dividends or interest paid to non-residents. However, royalties paid to non-resident individuals for the use of intellectual property rights in Hong Kong are deemed to arise from a Hong Kong business and are subject to an effective 4.5% withholding tax. The withholding tax rate is increased to 15% if the recipient is related to the payer and if the intellectual property rights for which the royalties are paid were previously owned by a person carrying on a profession, trade or business in Hong Kong.

Directors' fees - Directors' fees derived from a company that has its central management and control in Hong Kong are subject to salaries tax in Hong Kong. Otherwise, directors' fees are not taxable.

Stock options – the intrinsic value of the stock options, calculated at the market price of the date of exercise less the exercise price, forms part of the total salaries income and is subject to salaries tax. A trusted expat tax adviser should always be consulted with regards to taxation of employer-provided stock options.

Mandatory provident fund and social security for expats in Hong Kong

Social security

There are no social security/social insurance taxes in Hong Kong.

Mandatory provident fund

Employers are required to make arrangements for all employees aged between 18 and 65 normally residing and working in Hong Kong to join a mandatory provident fund (MPF) scheme.

However, exemption from the MPF requirements is available to any person entering Hong Kong for the purpose of being employed or self-employed (i.e., on a valid employment visa) for a limited period (13 months or less) or who is a member of an overseas retirement scheme.

Inheritance and estate tax in Hong Kong

There is no inheritance or estate tax in Hong Kong.

However, do not assume that just because you've expatriated to live in Hong Kong that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets.

For example, those domiciled in Britain remain liable for IHT on their worldwide estate.

If you are concerned about mitigating your IHT liability, we'd like to offer you a free introduction to a Hong Kong tax specialist in our network who will be able to determine whether they can assist.

Taxes for expats in Hong Kong: Double tax relief and tax treaties

An expat employee engaged in Hong Kong employment is exempt from salaries tax on income derived from services performed outside Hong Kong if the income is subject to tax in the foreign jurisdiction and if foreign tax has been paid on the income.

Unless provided for under a double tax agreement, no credit is given in Hong Kong for foreign taxes paid, but in certain circumstances, foreign taxes paid may be deductible for profits tax purposes under the tax code of Hong Kong. A foreign tax credit is available to Hong Kong expat residents with respect to income that is subject to double tax in all of the double tax agreements entered into by Hong Kong. Hong Kong has entered into double tax agreements with a number of countries including UK.

If you need Hong Kong tax advice, request a free introduction through Experts for Expats

We believe the above information is accurate, however tax rates and rules can change.. Therefore, please do not rely exclusively on the information to determine your liability for tax.

If you need further assistance with any aspect of Hong Kong tax, you must speak to a Hong Kong tax specialist. We can help by making an introduction to one of our trusted Hong Kong tax partners.