Q And A - Hong Kong Salaries Tax

Hong Kong salaries tax is termed as personal tax of the people working in Hong Kong no matter they are related to any profession or business. Therefore, the Hong Kong salaries tax, tax rate, and income tax bill payments are easy to file and pay.

The Hong Kong salaries tax system includes many things you have to know before working as an employee in Hong kong. The salaries tax system of hong kong consists of salary tax allowances, tax rates, allowable deductions, benefits for the employment income, and the process of tax bill filing.

Before digging our noses into the answers to most asked questions, we have to get enough knowledge about what salary tax is and how it works for an employee in Hong Kong under the inland revenue ordinance.

One thing you should know which will be very beneficial for you. Hong Kong’s taxation system is very flexible, and it has low rates of pay provisional salaries tax same as the corporate taxes.

Q: What are the key features of the hong kong salaries tax?

As we have mentioned earlier, the Hong kong inland revenue department offers a meager rate of salaries tax to your income attributable. The qualities of salaries tax in hong kong is given below through which you can quickly get its knowledge.

1. You don’t have to pay the capital gains tax or dividend tax on paying salaries tax.
2. Salaries tax does not include the inheritance tax of hong kong.
3. The territorial taxation system is used in hong kong through which salaries tax is deducted from the income attributable/earned in hong kong.
4. If you elect the personal assessment to lessen your tax burden, you can do it as a hong kong resident and an individual taxpayer’s income.
5. Single persons who are getting income attributable from hong kong companies pay the salaries tax at the progressive rates under the inland revenue ordinance on Chargeable income arising, which becomes the assessable income after cutting the allowances and deductions from it.
6. The provisional salaries tax with progressive tax starts with a pay-off of 2% and ends at 17%, according to the Hong Kong company system they are working in.
7. Net chargeable income has the standard rate of 15% taxable income, which is comparatively low compared to other countries.
8. The assessable income with a year of assessment starts from April 1st to March 31st of the same year.

Q: how to calculate net chargeable income for paying tax in hong kong?

You can easily calculate the net chargeable income through some steps. First of all, it is advised to convert your dollars into hong kong dollars which is the currency of hong kong through which you can pay the salaries tax.

The foreign tax payment is only in HK dollars (1 USD = 7.8 HKD). Everything such as charitable donations, personal assessment, allowable deductions, and such services are included in calculating net chargeable income.

If your net chargeable income ranges from 0 to 50,000 HKD, you have to pay a 2% salaries tax. If it goes from 50,001 to 100,000, you will pay 6% of salaries tax. So the total net income without adding allowable deductions, the standard tax rate will be 15%.

The formula for calculating the net chargeable income is given here:

Net total income = Income – deductions – allowances. Foreign tax payments include all the basic allowance.

Q: Which things complete the total income you have to pay the salaries tax?

The total income arising includes:                                              

• commissions, bonuses, end of gratuities, payment instead of notice accrued
• Wages, director’s fees, salaries
• salaries tax paid by the employer
• Fringe benefits include cash allowances, holiday journey, education benefits, etc
• Termination payments and retirement benefits
• Pensions
• pay-in-arrears
• Stock awards, share options
• The rental value of the place you are living

Q: Which things are added to Non-assessable income arising from salary tax?

Salaries tax assessment is essential in non-assessable income arising according to the hong kong tax system. Whether you are getting annual income or monthly income, you have to pay the tax return for tax relief.

1. Jury Fees
2. Severance payments
3. extended services rendered by old employees

Q: How can I calculate the mandatory contributions under the mandatory provident fund schemes per year of assessment?

You can easily calculate it according to the amount of income arising you are getting from any hong kong company. The salary tax would be payable according to the tax return file you have made according to your hong kong employment.

Q: What should business people do if they have one mandatory provident fund scheme and many employees?

For making mandatory contributions towards employment, the company owner has to pay even if their income subject is low. However, the maximum tax payable from deductions is only 17500 HK dollars according to the year of assessment 2014/2015.

This system works out regardless of the number of your contributions to the company. The paying tax amount can be increased from 17500 dollars to 18000 dollars according to the 2015/2016 year of assessment.

Q: How can people make business trips to mainland china by working in big companies in hong kong?

If you work in hong kong, your work is equivalent according to hong kong employment. You can have to pay the salaries tax in hong kong as a local employee. If you want to make a business trip to mainland China, then your company’s accessor might accept it.

But he will accept the fact at one base that you have to pay the PRC tax in china. If you do so, you will be able to get tax relief by claiming that you have already paid the tax bill in china along with profits tax.

Q: The people who work in various countries of Asia, including hong kong, how will they pay the tax bill?

There is a simple procedure for them to follow, but you have a proper understanding before paying the tax return under the inland revenue department. Your tax payable amount will be calculated based on how many days you are in hong kong.

First of all, you will claim the full annual income earned and full or partial exemption so that you can pay the provisional salaries tax and salaries tax separately. Moreover, you should make sure that you have been qualified in the year of assessment.

Hong Kong employment, whether you are a hong kong resident or not, you have to pay the hong kong tax for sure. The non-hong kong employer will also follow the tax regulations in the hong kong salaries tax system.

In this case, you will submit the file of your tax returns, your travel schedule, and the related company contract. Additionally, the leave pay attributable under hong kong salaries tax serves as subject to tax liability. Then you will pay the separate taxation for days in hong kong.

The process is long, but you have to go through it because you are working in a foreign country, Hong kong.

Q: How often should one report their income to the inland revenue department?

Salaries tax assessment starts from April 1st to March 31st, known as the year of assessment in hong kong. The inland revenue ordinance and the department are responsible for tax treatment, tax credit, tax returns, and tax-deductible from your income.

The services rendered to some companies in hong kong must be reported in the year of assessment for sure. The provisional tax return should be payable even if you are doing non-hong kong employment.

Under normal conditions, you have to pay the provisional salaries tax once you have received the tax return file. However, suppose your income level becomes low than a certain standard amount. In that case, you have to tell the inland revenue ordinance department so that your salary tax in hong kong can be reduced.

Q: Which allowances are regarded as to add in salaries tax payments in hong kong?

It includes child allowance, married person’s allowance, depreciation allowances, and charitable donations. It also includes the basic allowance you get from the company. The tax payable can be reduced if your company approves charitable donations after reporting in the year of assessment.

Q: What is the method for separate taxation or joint total income system for a married couple in hong kong?

Even under non-hong kong employment, the married couple has to pay the salaries tax with separate individuals. Therefore, your tax credit could be reduced if your company elects you to work as a married couple in the same company for joint assessment.

Married person’s allowance and child allowance if you have any kids will be deducted according to salaries tax in hong kong. You can claim the home loan interest and services rendered by the company.

Q: Which allowances are included under personal assessment and salaries tax?

1. Expenses and outgoings
2. Depreciation allowances for bringing plants and machinery which will be able to generate assessable income in future
3. Dependent grandparent allowance
4. occupational retirement schemes
5. elderly residential care expenses
6. recognized occupational retirement schemes
7. government’s disability allowance scheme
8. home loan interest
9. self-education benefits

Q: What type of income will be considered earnings done in hong kong?

The hong kong salaries tax is imposed only on the employee’s income derived in hong kong, whether he is living in hong kong or not—the services rendered by employees of the company matter a lot.

If you live in a foreign country for work such as hong kong offers you work there, then the income you will arise from hong kong will be considered chargeable to the salaries tax of hong kong.

But the government of hong kong enables all employees to get the full or partial exemption of tax and income for relief. But you can do this only if you have to report these given below circumstances in IRD of hong kong:

• If you are working outside of hong kong during the year of assessment, you can get exempt from paying salaries tax in that particular year.
• During the year of assessment, if you have paid the salaries tax in another country, then you can claim the partial exemption of income.
• For this purpose, you have to furnish evidence of foreign country tax payment to the hong kong IRD.
• If you have worked in hong kong for some time as an overseas employee, then your salary tax will be based on income attributable to the services rendered in hong kong employment.

Q: What are the tax treatment benefits for employers?

Most of the benefits you get while working in hong kong employment are chargeable when you pay the salaries tax. Taxable benefits you get are many, and they can be in the form of bonuses, allowances or money, etc. It includes:

• Meal allowance
• company gifted car
• education benefits for your kids
• housing allowances
• holiday journey allowances
• share options and awards

Q: What is a capital gain tax or estate duty? Is the inheritance tax is also the same?

The capital gains in hong kong are referred to as investment income, which arises in terms of stocks, real estate, and bonds. The best part about hong kong’s taxation system is that they impose no tax on capital gains at all.

On the other hand, the inheritance tax credit, or estate duty, is a type of tax on the total market value of a person’s assets, including cash and non-liquid assets. These assets are chargeable to tax till those assets are included in their life till death.

Hong Kong’s employment system abolished the taxes over inheritance in Feb 2006 under the inland revenue ordinance. So same, the case is forwarded with estate duty because both of them are the same.

Q: When does the inland revenue hong kong department send the tax returns to the first-time taxpayers?

For the first time tax-paying as a hong kong employee, the IRD of hong kong takes some time to send back the tax returns filed to the taxpayers with maximum deduction if you have a lot of allowances in the company.

The year of assessment ends in march, and then you will get your tax return file in may because of all the processes of the provisional salaries tax system. The whole process seems very easy, but the system works very hard for this purpose.

Moreover, you have to remember that there is no fixed date for sending back the tax files to the taxpayer, even if you are a new payer or old in hong kong. Usually, the IR department of hong kong sends back the file after five months of filing the process.

You could get a notification of rechargeability once your tax return file is processed from the IR department of hong kong if your company approved charitable donations.

Q: For reporting the income on the tax return, which documents should people send as proof?

No, there is no specific need to send your employment income proof to the IR department of hong kong. However, if you are working under a non-hong kong employment center, then you have to send the income proof to the IR department of hong kong.

But it is advised by the professionals who already worked in hong kong that you should keep your income proof record every year of assessment minimum of six years at least. So You can get tax relief even if you don’t live in hong kong for work.

Additionally, it is a good habit to keep the records organized which will help you in legal issues in the future.

Q: What should I do if my employer doesn’t provide a copy of the IRD notice about my income?

If you don’t get the notice of your employment income from IRD, you should pay your tax return on time. Whether you don’t have the full records of your income under hong kong’s company, you are aware of your income records in your mind.

So take an estimate of your income, fill it in the form, and submit it to the IR department. When you get your employment copy notice, you can then offer that to the department.

Conclusion:

The well-managed and straightforward tax system of hong kong makes it the perfect location to work even as an employee and a business professional. In addition, the low personal income tax rates boosted hong kong’s reputation in the business world.

Hong Kong is considered the best and most attractive location for professionals and locals. On the other hand, the western nations require capital gains tax which is entirely free in hong kong.

The policies and taxation system Hong Kong has made should be an example for all other countries as they attract massive numbers of people from different countries for work.