Hong Kong is home to the lowest tax regime in Asia and also one of the lowest rates in the world. The territory’s tax structure is simple and uncomplicated and its reputation as a tax heaven makes it one of the most preferred investment destinations in the world.
Hong Kong has low personal and corporate tax rates along with no capital gains tax, no sales tax or value added tax, no withholding tax on dividends and interest and no estate duty. This low tax regime has contributed greatly to making Hong Kong a choice destination for expat relocation.
Tax in Hong Kong is only levied on income that is earned in or derived from Hong Kong and for salaries tax, this includes not just wages but also commissions, allowances and bonuses, and other perks in your package such as the company-paid accommodation, tax paid by employer, share options and retirement benefits. Severance pay and long service bonuses, on the other hand, are not taxed as they are not considered payments for services rendered.
Salaries tax is calculated on a sliding scale, with rates from 2-17% or at a standard rate of 15% on net income (income less deductibles) whichever is lower.
Permitted deductibles include allowances for single parents, married couples and dependent children along with allowances for aged dependents who reside with the tax payer. Additionally there are also deductions for approved charitable donations, self-education expenses and contributions to the Mandatory Provident Fund scheme, the territory’s social security system.
Hong Kong’s taxation system is based on the territorial principle which means that if a person carries out a business in Hong Kong but derives profits from another place, he/she is not required to pay tax in Hong Kong on those profits. No taxes are levied on profits arising abroad, even if they may be remitted to Hong Kong. This is however quite an ambiguous and requires much clarification.
The Inland Revenue Department’s website (http://www.ird.gov.hk), offers an automatic tax computation system to help you calculate your estimated taxes and also provides provisions for electronic filing of taxes (http://www.gov.hk/en/residents/taxes/etax/services/filing_of_tax_return_bir60.htm).
Further details on the levels and types of tax can be found on the following pages