Wednesday, 25 July 2012

Hong Kong Salaries Tax

In Hong Kong personal income tax is known as salaries tax. Individuals are only assessed on annual employment income. Non-employment source income such as share dividends and capital gains realized on the sale of shares are not taxable in the territory. Salaries tax is governed by the provisions of the Inland Revenue Ordinance. Income received by an employee is subject to salaries tax whilst income received by a self employed person is subject to profits tax. Salary tax rates are among the lowest in the world and remain one of the major attractions of locating to the territory.

The territorial principle governs salaries tax with the consequence that salaries tax is only levied on income “arising in or derived from a Hong Kong employment”.
The definition of income includes wages, salaries, bonuses, commissions, payments by the employer into a pension fund for the employee and gratuities. It does not include either a pension from a source outside Hong Kong or compensation for loss of employment.

Hong Kong at night

The assessment to salaries tax is provisional and is based on the previous year’s income with a tax credit being given in the subsequent year in the event of the assessment exceeding the actual income. 75% of the provisional assessment is payable in the 3rd quarter with the final 25% being payable in the final quarter.

Gift tax is levied at a progressive rate. Inter-vivos gifts which are not made for valuable consideration attract stamp duty of up to 2.75% where the gift has a value in excess of HKD513,000 whereas no tax is payable if the gift is worth less than HKD128,000 or where the recipient is a charitable organization.

Hong Kong from the Peak

Property tax is levied annually on the owner or occupier of real estate located in Hong Kong. Since ownership may be split (eg an entity with a 100 year lease may grant a 50 year sublease to a 3rd party) separate assessments may be made on the same parcel of land.