Hong Kong uses a territorial tax system — only income from Hong Kong sources is taxable. Salaries Tax is progressive from 2% to 17%, but capped at a flat standard rate of 15% of net income. There is no capital gains tax, no dividend tax, no VAT, and no inheritance tax. Hong Kong is consistently ranked as one of the world's lowest-tax developed economies.
At a glance
Key Facts
Salaries Tax (Progressive)
2% / 7% / 12% / 17% on net chargeable income
Standard Rate Cap
15% of net assessable income (flat cap)
Basic Allowance
HK$132,000 (approximately US$17,000)
Capital Gains Tax
None
Dividend Tax
None
VAT / GST
None
Territorial System
Only Hong Kong-sourced income is taxable
Official Authority
Inland Revenue Department (IRD) — www.ird.gov.hk
Introduction
Hong Kong's tax system is among the simplest and most business-friendly in the world. Unlike most developed economies, Hong Kong taxes only income earned in Hong Kong — foreign-source income is not taxable regardless of your residency status. There is no general value-added tax (VAT/GST), no capital gains tax, no dividend or interest tax, and no inheritance or estate duty. The result is one of the lowest overall tax burdens of any major financial centre.
This guide explains how Hong Kong Salaries Tax works, the personal assessment option, how the standard rate cap functions, and what expats need to know about territorial taxation, the 26-day rule, and US filing obligations in Hong Kong.
Section 01
How Hong Kong Salaries Tax Works
According to the Inland Revenue Department (IRD), Hong Kong's Salaries Tax applies to income arising in or derived from Hong Kong from an office, employment, or pension. The tax is assessed individually — not on a household basis.
Progressive Tax Rates (2024/25)
Net Chargeable Income (HKD)
Rate
First $50,000
2%
Next $50,000
7%
Next $50,000
12%
Remainder
17%
Net chargeable income = total income minus allowable deductions minus personal allowances.
Standard Rate Cap (15%)
The standard rate of 15% is applied to net assessable income (income after allowable expenses but before personal allowances). Tax payable is whichever is lower: the progressive rate result or the standard rate result. For high earners with few allowances, the 17% progressive top band may exceed 15% of assessable income — in which case the standard rate cap applies. Effectively, no one pays more than 15% of their gross Hong Kong employment income.
Example: Standard Rate Cap in Practice
At HK$2,000,000 income: progressive tax calculation would produce approximately HK$318,000. Standard rate: 15% × HK$2,000,000 = HK$300,000. The taxpayer pays HK$300,000 (standard rate applies). The standard rate ensures Hong Kong's effective top rate never exceeds 15% of gross employment income.
Section 02
Personal Allowances and Deductions
Hong Kong's Salaries Tax provides a generous set of personal allowances that reduce net chargeable income:
Basic Allowance: HK$132,000 per person
Married Person's Allowance: HK$264,000 (for married taxpayer assessed jointly with spouse)
Child Allowance: HK$130,000 per child (first 9 children)
Dependent Parent/Grandparent Allowance: HK$50,000 per dependent (HK$100,000 if elderly dependent lives with you)
Disabled Dependant Allowance: HK$75,000 per dependent
Single Parent Allowance: HK$132,000
Allowable Deductions
Self-education expenses: up to HK$100,000
Home loan interest: up to HK$100,000 for 20 years
Mandatory Provident Fund (MPF) contributions: up to 5% of income
Elderly residential care expenses: up to HK$100,000
Approved charitable donations: up to 35% of assessable income
These allowances mean a single person earning HK$132,000 or less pays zero Salaries Tax. A married couple with two children has allowances totalling HK$524,000 before any income is taxed.
Section 03
Territorial Tax System: What's Taxable and What's Not
Hong Kong's territorial system is one of its most attractive features. Only income arising in or derived from Hong Kong is subject to Salaries Tax. This means:
Taxable in Hong Kong
Salary paid by a Hong Kong employer for services performed in Hong Kong
Bonuses and benefits from Hong Kong employment
Directors' fees from Hong Kong-incorporated companies
Pensions from former Hong Kong employment
NOT Taxable in Hong Kong
Salary for services performed entirely outside Hong Kong (even if paid by a Hong Kong employer)
Foreign investment income (dividends, interest, capital gains from any source)
Rental income from overseas property
Business profits from overseas operations
The 'Apportionment' for Travelling Employees
For employees who work both inside and outside Hong Kong, the IRD apportions the taxable income based on the proportion of days worked in Hong Kong vs total days in the employment year. Only the Hong Kong-apportioned income is taxable. This is particularly relevant for regional managers and frequent business travellers based in Hong Kong who spend significant time in mainland China and other Asian markets.
The 26-Day Rule
Short-term visitors who spend 60 days or fewer in Hong Kong in a tax year are completely exempt from Salaries Tax on their Hong Kong-derived employment income — even if it technically arose in Hong Kong. For 61+ days, normal apportionment rules apply.
Section 04
Personal Assessment Option
Hong Kong residents can elect 'Personal Assessment' — a consolidated assessment that combines all sources of taxable income (Salaries Tax, Profits Tax on business income, and Property Tax on rental income) into a single return, and applies personal allowances against the total. This is particularly useful for:
Business owners who have both employment income and rental property income
Those with losses from one category offsetting other income
Higher earners who can claim additional deductions not available under individual tax schedules
Personal Assessment is generally more beneficial than separate filing when a taxpayer has allowances that exceed their income under one category. The IRD runs both calculations and the taxpayer pays whichever is lower. You must affirmatively elect Personal Assessment on your tax return — it is not automatic.
Section 05
Mandatory Provident Fund (MPF)
The Mandatory Provident Fund is Hong Kong's compulsory retirement savings system. Key points for employees:
Employee contribution: 5% of monthly income (up to HK$1,500/month = 5% of HK$30,000 maximum relevant income)
Employer contribution: 5% of monthly income (same cap)
Tax deduction: Employee contributions are tax-deductible up to HK$18,000/year
Funds are locked until age 65 (early withdrawal only in specific circumstances — permanent departure from Hong Kong, terminal illness, death, small balance)
Expats who plan to leave Hong Kong permanently can withdraw their MPF contributions upon departure — this is called an 'early withdrawal' exception. Employer contributions remain until normal retirement age. The MPF contribution cap means the effective mandatory contribution is relatively modest for high earners.
Section 06
Filing Requirements and Key Dates
The Hong Kong tax year runs April 1 to March 31. Filing process:
Employer files an employer's return (IR56B) for each employee
Individual Salaries Tax returns (BIR60) issued by IRD in May each year
Standard filing deadline: June 2 (extended to November for employers with 100+ employees)
Tax payable in two instalments: first provisional payment (typically January–March), final payment after assessment
Many Hong Kong employees never interact directly with the IRD — employers withhold from salary under the employer's returns process. However, individuals should file returns if requested, if they have multiple income sources, or if they want to claim deductions or allowances not accounted for by the employer.
Fines for late filing: HK$1,200–$10,000. Estimated tax assessments may be issued if no return is filed.
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Is Hong Kong Salaries Tax calculated on worldwide income?
No. Hong Kong uses a strictly territorial tax system — only income arising in or derived from Hong Kong is subject to Salaries Tax. Foreign employment income, overseas dividends, foreign capital gains, and rental income from overseas properties are completely outside the scope of Hong Kong Salaries Tax regardless of your residence status. This is fundamentally different from most developed countries (UK, US, Australia, Canada) which tax residents on worldwide income.
Q
Is there capital gains tax in Hong Kong?
No. Hong Kong has no capital gains tax. Profits from selling shares, property, cryptocurrency, or other assets are not taxable in Hong Kong (unless the taxpayer is classified as a 'trader' engaged in the systematic buying and selling of assets as a business — in which case profits may be subject to Profits Tax). The zero capital gains tax treatment is one reason Hong Kong is popular with investors and wealth managers.
Q
Do US citizens in Hong Kong still owe US taxes?
Yes — US citizens are taxed on worldwide income regardless of where they live. US citizens in Hong Kong must continue filing US federal tax returns annually. Key mechanisms to avoid double taxation: Foreign Earned Income Exclusion (FEIE, Form 2555) — excludes up to $130,000 (2025) of Hong Kong employment income from US tax. Foreign Tax Credit (Form 1116) — credits Hong Kong Salaries Tax paid against US liability. Since Hong Kong's top rate (15%) is lower than US federal rates, US residents in Hong Kong who exceed the FEIE exclusion often owe residual US tax above the exclusion. FBAR and FATCA reporting requirements apply to accounts held in Hong Kong.
Q
How does the 15% standard rate cap work in practice?
The standard rate cap means no Hong Kong employee pays more than 15% of their net assessable income in Salaries Tax. Net assessable income is income after allowable expenses but before personal allowances. For most high earners with few dependants, the progressive rate calculation (up to 17% on the highest band) would produce a higher tax bill than 15% × net assessable income — so the standard rate is used instead. Example: at HK$3,000,000 income with HK$132,000 personal allowance and no other allowances, progressive tax ≈ HK$476,000; standard rate = 15% × HK$2,868,000 ≈ HK$430,200. Taxpayer pays HK$430,200.
Q
Is Hong Kong income still taxable after leaving permanently?
Once you leave Hong Kong and cease employment there, you are generally no longer subject to Salaries Tax on new income. Income accrued or earned during your period of Hong Kong employment may still be assessed after departure. Importantly, you can withdraw MPF contributions early when permanently leaving Hong Kong — apply to your MPF trustee with proof of departure. The IRD requires a 'departure clearance' letter if you owe outstanding tax at the time of departure. Employers are obligated to notify the IRD and withhold final payments if an employee is leaving permanently.
Disclaimer:This guide provides general information about Hong Kong taxation for educational purposes only. Tax rules change frequently and individual circumstances vary significantly. Always verify current rates, thresholds, and allowances with the Inland Revenue Department (ird.gov.hk) or a qualified Hong Kong tax adviser. This is not tax advice.