Hong Kong is a Special Administrative Region of the People’s Republic of China with a unique taxation system. The territory has its own taxation system that is governed by the Inland Revenue Department. In this article, we will discuss how the taxation system works in Hong Kong, double taxation agreements, the main taxes expats need to be aware of, special tax breaks that could apply to expats, how and when to file a tax return as an expat, and tax exit procedures for anyone leaving Hong Kong to move abroad.
The Taxation System in Hong Kong
The taxation system in Hong Kong is a territorial source-based system, which means that taxes are only levied on income that is earned in Hong Kong. The tax year in Hong Kong runs from April 1st to March 31st, and taxes must be filed by June 30th of the following year.
There are several taxes that individuals and businesses in Hong Kong are required to pay. These include salaries tax, property tax, profits tax, and stamp duty.
Double Taxation Agreements
Hong Kong has signed double taxation agreements with over 40 countries, including the United States, the United Kingdom, and Canada. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.
If you are an expat living in Hong Kong and your home country has signed a double taxation agreement with Hong Kong, you may be able to avoid being taxed twice on your income. However, it is important to check the terms of the specific agreement as they can vary between countries.
Main Taxes in Hong Kong
Salaries tax
All residents in Hong Kong are required to pay salaries tax on their income earned in Hong Kong. The salaries tax rate varies depending on income levels and ranges from 2% to 17%.
Property tax
Property owners in Hong Kong are required to pay property tax on their real estate holdings. The tax rate is currently 15%.
Profits tax
Companies registered in Hong Kong are required to pay profits tax on their profits earned in Hong Kong. The tax rate is currently 16.5%.
Stamp duty
Stamp duty is levied on certain transactions, such as property purchases and stock transfers. The stamp duty rate varies depending on the type of transaction.
Special Tax Breaks
There are several special tax breaks that could apply to expats living in Hong Kong. These include:
Dependent allowance
Expats who have dependents may be eligible for a dependent allowance, which can reduce their tax liability.
Tax deductions
Expats may be eligible for tax deductions for certain expenses, including charitable donations and contributions to pension schemes.
Filing a Tax Return in Hong Kong
If you are an expat living in Hong Kong, you are required to file a tax return if you meet certain criteria. If you are a resident in Hong Kong, you are required to file a tax return if your income exceeds HKD 132,000 per year. If you are a non-resident and earn income within Hong Kong, you must also file a tax return.
The tax return must be filed annually by June 30th of the following year. The Inland Revenue Department provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.
Tax Exit Procedures for Hong Kong
If you are leaving Hong Kong to move abroad, you must complete a tax exit procedure with the Inland Revenue Department. This procedure involves filing a tax return for the year in which you leave, paying any outstanding taxes and obtaining a tax clearance certificate.
The tax clearance certificate is required to obtain a residence permit or visa in another country. Failure to complete the tax exit procedure can result in a fine and other legal consequences.
Hong Kong has a unique taxation system that is based on a territorial source-based system. Expats living in Hong Kong may be eligible for special tax breaks, and it is important to file a tax return correctly and complete the tax exit procedure if leaving the territory. It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Hong Kong.