Paying 2017-2018 income tax in Hong Kong? Read this.

28.12.17
7 minute read
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If you get income from any source in Hong Kong, you’re likely to have to declare it to the Hong Kong tax authorities and pay tax on it. The approach to calculating tax in Hong Kong is a little different to that taken in much of Europe, so it’s important to understand your duties.

This overview of the Hong Kong income tax system will get you started. However, tax is a complex topic, and each person’s situation is quite unique. If you think you might derive taxable income from Hong Kong, whether that’s from a job, a rental property or a business, it’s a good idea to get professional advice to make sure you pay the right amount.

What income is taxable in Hong Kong?

Tax in Hong Kong is administered by the Inland Revenue Ordinance (IRO). The way tax is approached in Hong Kong might feel a little unfamiliar. There are different taxes for different sources of income - the tax most closely related to income tax is called salaries tax. This tax is applied on employment income, pensions, and any income you get from working as a business director in Hong Kong.

Other forms of income might still be liable to tax, and should be reported, but they might be taxed in a different way to your employment income.

If you’re new to the Hong Kong income tax system, taking professional advice is essential.

(Source, 14 December 2017)

Who has to pay income tax in Hong Kong?

While most countries have a test of residence to determine whether or not you’re liable to pay tax, Hong Kong takes a territorial approach instead. That means that any money you earn in Hong Kong must be declared and taxed in Hong Kong. Whether you're a citizen or resident of Hong Kong isn't important.

The only exception is if the earnings you have from Hong Kong were received during a visit of under 60 days to Hong Kong. In that case, they might be ignored. However, the question of how you define income derived in Hong Kong is pretty fraught. There are very strict rules about what income counts as being from Hong Kong - for example, if you work for a business based in Hong Kong, but often travel and work away. Take professional advice if you have any doubts.

(Source, 14 December 2017)

What income is considered ‘earned in Hong Kong’?

So, how do you figure out if your income is considered to be ‘earned in Hong Kong’ or not?

It’s possible to rule out some earnings straight away. Usually if the following applies, then the income will considered to have been earned outside of Hong Kong, and therefore are not taxable:

  • The contract of employment was negotiated, agreed and is enforceable outside of Hong Kong
  • The employer’s place of residence is outside of Hong Kong
  • The employee’s remuneration is paid outside of Hong Kong

However, if any of the above doesn’t apply to you, you might have to declare your income in Hong Kong.

If you’re employed by a Hong Kong company and your contract is enforceable in Hong Kong, then you certainly have to consider your income earned in Hong Kong, even if you work abroad sometimes.

On the other hand, if you’re employed by a company not based in Hong Kong, but come to Hong Kong to work, then you might have to declare only the work income from the period you were in Hong Kong. There’s a huge list of ifs and buts, which makes it pretty tricky to figure out how your income is treated if you’re an edge case. Seek professional advice to make sure you don’t get it wrong.

(Source, 14 December 2017)

In what instances do Hong Kong residents working abroad need to pay income tax?

The source of your income is the most important thing. If your income is deemed to have originated in Hong Kong, you have to declare it. This can get complicated, so talk to a tax accountant to make sure.

What are the income tax rates in Hong Kong in 2017-2018?

Hong Kong has a progressive tax system, so a progressively higher tax rate is applied based on how much you earn. Don’t forget, though, that income from different sources is declared and taxed differently, so if you have money coming in from a rental property in Hong Kong, for example, this has to be declared but will be subject to different rules.

The tax year in Hong Kong runs from 1 April to 31 March.

The most up to date rates available for resident taxpayers in Hong Kong are as follows:

Net chargeable income range Hong Kong income tax rate (%) 2017
Up to HK$45,000 2%
HK$45,000 - HK$90,000 7%
HK$90,000 - HK$135,000 12%
Over HK$135,000 17%

(Source, 14 December 2017)

What are the tax exemptions in Hong Kong?

The Hong Kong tax system has a number of exemptions, deductions and credits depending on your personal situation. You have a personal allowance which you can remove before calculating tax, and then can apply for allowances based on your expenses during the tax year, by putting them on your tax declaration.

Here are some of the exemptions, deductions and credits that you might need to know about.

Personal allowances

You get a tax free allowance, based on your personal situation. When you’re calculating tax, in effect you remove this amount from your earnings before doing the sums. The allowance depends on a number of different factors - there are different elements covering whether or not you’re married, have children, or look after dependant grandparents. Even the age of the dependant grandparents you’re claiming for makes a difference. You effectively tally up all the allowances you’re entitled to before removing this sum from your total income, to work out what income should be taxed.

Deductible items

There are different deductions available to cover some expenses, like paying into a pension, studying, or paying for residential care for a dependant relative. These are subject to maximum amounts, and you could be asked to provide evidence of what the payments covered.

(Source, 14 December 2017)

What sort of double taxation agreements are there with Hong Kong?

It’s possible for someone to be liable to pay tax in 2 countries. In that case, you have to rely on double taxation treaties to ensure that you only pay tax once on your earnings.

Hong Kong has double taxation agreements with over 100 countries including the following:

Hong Kong double taxation agreements
Austria Latvia
Brunei Liechtenstein
Bangladesh Luxembourg
Belarus Mainland of China
Croatia Mexico
Canada Maldives
Czech Republic Malta
Ethiopia Malaysia
Estonia Mauritius
Fiji Netherlands
Faroes New Zealand
Finland Norway
France Pakistan
Germany Portugal
Greenland Qatar
Guernsey România
Hungary Russia
Israel Saudi Arabia
Indonesia Seychelles
Ireland Singapore
Iceland South Africa
India Spain
Italy Switzerland
Jordan Sri Lanka
Japan Thailand
Jersey UAE
Kuwait UK
Kenya USA
Korea Vietnam
Laos

(Source, 14 December 2017)

How do I pay income tax in Hong Kong?

The Hong Kong tax authorities have made it very easy to pay your taxes, either online, at an ATM, or even on the phone. All the details can be found on the IRO website.

Paying income taxes online

You might find you need to make an international bank transfer to a bank account in Hong Kong to cover your tax bill. Because moving money across borders can be surprisingly costly, it’s important that you check any charges that will be added to the transfer, and also the exchange rate used when converting your cash.

You might find that your bank claims to offer fee-free international transfers or currency exchange - don’t be sold on that. Often banks which claim to offer fee-free transfers simply hide the charge they’re adding to your transaction. They don’t give customers the real, mid-market rate, which you’d find on Google, but instead mark up the rate by 4-5%. They keep the difference as their fee, and you pay more than you need to.

If your bank or money exchange service isn’t treating you fairly, check out whether you could get a better deal with TransferWise. TransferWise works differently than banks. They don’t use the pricey SWIFT system for making bank transfers. This brings down the costs, and the savings are passed on to the customer. Your international transfer will always be done with the real exchange rate, and just a small, upfront fee. Simple.

If you’re an expat or frequent traveller, and often have to move your money between different currencies, you might also want to check out the new TransferWise borderless multi-currency account. This account lets you hold your money in any one of dozens of different currencies, including Hong Kong dollars, and then switch between them whenever you need to. It’s easy to use and can save time and money.

Hong Kong’s tax system might be a little different to the system you’re used to. It’s really important to make sure you understand the rules and get professional advice where you need it. If you get it wrong you could be subject to fines and even criminal charges.

If you’re a foreigner paying taxes in Hong Kong, then you don’t want to pay more than you have to, because of the costs of an international bank transfer and currency conversion. If your bank or regular money exchange service is a rip-off, TransferWise might be able to help. See if you can get a better deal from TransferWise, if you find yourself needing to pay your taxes abroad.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.

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