Any expat who is posted to Hong Kong by his employer needs to be aware of his or her tax liabilities. Income taxation is known here as Salaries Tax, and is levied by the Inland Revenue Department (IRD).
This tax is imposed on ‘all income arising in or derived from Hong Kong from an office or employment or any pension,’ in the words of the IRD.
‘Income’ is deemed to include the value of accommodation provided rent-free by an employer, or the excess of this value over the rent paid by the employee to his employer for the quarters. If an employer refunds all or part of the rent paid by an employee, the place of residence is regarded as having been provided by the employer either rent-free or for an amount equal to the difference between the rent paid and the amount refunded.
‘Income’ also includes any gain realized by the exercise of a right to acquire shares, whether the shares are in the employing company or in another.
Severance payments and long service payments, on the other hand, are not assessable to Salaries Tax as they are not payments for services rendered.
Basis of Assessment
Your liability to Salaries Tax is based on the income of the year of assessment. Provisional tax paid in respect of a year of assessment is applied first against the Salaries Tax payable on the income of that year of assessment. Any excess is then applied against the Provisional Tax liability for the following year.
Provisional Salaries Tax is based on the income of the preceding year, unless there was no full year’s income in the preceding year - in which event the provisional charge is based on the estimated income for the full year.
Permitted Deductions
Net assessable income is arrived at by making deductions for:
* Outgoings and expenses, other than those of a domestic or private nature;
* Depreciation in respect of plant and machinery, the use of which is essential to the production of the assessable income;
* Approved charitable donations of not less than $100;
* Losses brought forward from previous years of assessment;
* Expenses of self-education;
* Elderly residential care expenses;
* Home loan interest;
* Contributions to the Mandatory Provident Fund (MPF) scheme.
Married Couples
Each married person is individually responsible for all aspects of his or her own salaries tax affairs. However, if the overall tax liability of any married couple is greater than the amount calculated separately, they may opt for joint assessment. This choice can be made in the tax return and must be signed by both husband and wife. A joint assessment will then be issued automatically by the IRD if this is to the couple’s advantage.
Exemptions
Income attributable to services rendered outside Hong Kong is exempt from Salaries Tax if you have a source of employment outside Hong Kong.
You are exempt from Salaries Tax if you render all your services outside Hong Kong in the year in question, unless you are a civil servant, or a crew member of a ship or aircraft. Income from services rendered in Hong Kong during visits not exceeding a total of 60 days in the year is also excluded from tax.
Additionally, if you have paid tax of substantially the same nature as Salaries Tax to a territory outside Hong Kong in respect of income relating to services rendered by you in that territory, that part of your income which has already been subject to foreign tax will be exempt from Salaries Tax.
The information in this article is provided as reference only, and you should consult a professional for more specific advice. The IRD has made a salaries tax calculator available online at http://www.gov.hk/en/residents/taxes/etax/services/tax_computation.htm.
