Expatriate tax ebook - Hong Kong

Facts and figures

Pre arrival procedures
Employment visas
Tax year
Tax returns and compliance
Tax rates
Sample income tax calculation

Pre arrival procedures
Expatriates who require a work visa must apply for this before taking up employment in Hong Kong. It is, therefore, important that the expatriate’s employment contract and benefit package is structured tax efficiently before the contract is submitted to the Immigration Department.

Employment visas
Under the requirements of the Immigration Ordinance, expatriates taking up employment in Hong Kong must apply for an employment visa before commencing employment. The Immigration Department places emphasis on the education level and skills of the employee and the economic benefits to Hong Kong that will flow from the expatriate’s employment.

If the expatriate’s spouse and dependent family relocate to Hong Kong, they will require dependent visas. It should be noted that spouses entering Hong Kong on dependent visas are now allowed to take up employment in Hong Kong and no longer require a separate employment visa if they wish to work in Hong Kong.

Fiscal year
The Hong Kong fiscal year runs from 1 April to 31 March.

Tax returns and compliance
There are no withholding taxes such as PAYE imposed on employment income. The employer’s reporting obligations are to notify the Inland Revenue Department (IRD) of employees commencing and ceasing employment and to file an annual return of remuneration (form IR56B) for each employee within one month of the Salaries Tax year end (31 March).

Employees have to file an individual tax return each year, usually by 31 May.

Tax rates
Employees are subject to Salaries Tax in respect of their employment income.
The rate of Salaries Tax charged for 2008/09 will be the lower of:

(a) net assessable income less allowable deductions at the standard rate of 15%; or
(b) net assessable income less allowable deductions and personal allowances at progressive rates as follows:

First HK$40,000@2%
Next HK$40,000@7%
Next HK$40,000@12%
Remainder @17%

Notes

1. The domestic residential rental costs for the employee's flat are paid for by the employer under a valid lease. The amount is treated as a housing benefit rather than a housing allowance and is subject to Salaries Tax on a deemed benefit basis. The full cost of the rent is a deductible expense for profits tax purposes for the employer.
2. If the employer contracts for and pays for the utilities provided to the employee these amounts are not taxable.
3. The employer's MPF contribution is not a taxable benefit in the hands of the employee.
4. Assuming the spouse is working and no joint election is made (i.e. spouses are taxed separately).
5. Assuming the expatriate has two children and the expatriate (rather than the spouse) claims the allowances.
6. The employee's MPF contribution is tax deductible up to a maximum of HK$12,000.
7. Salaries Tax charge will be the lower of these two calculations i.e. HK$ 164,800.


Information about Hong Kong:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities