Hong Kong is of course a magnet for international investment with among other things, its low and simple tax structures. This simplicity of taxation also extends to individuals, with personal tax rates starting as low as 2 percent, and capping out at 17%. Add to that no capital gains tax, no tax on overseas income, and no tax on dividends, you have a very straightforward and attractive tax system.
With this simplicity, however, comes the danger of perhaps being a little laissez-faire with one’s personal tax affairs — after all, with things so easy, why bother looking further for extra tax reductions?
It’s important to know that you can actually still reduce your personal tax even further, and without much relative effort at all. Let’s take a look at 9 ways you can reduce your personal tax in Hong Kong.
Home Loan Interest Allowance
Individuals in Hong Kong are able to claim $100,000 home loan interest (HLI) allowance for 15 years on their properties. You can also make the same deduction for car parks if they are part of that property.
- Individuals must be the property owner.
- The property must be at least in part a place of residence.
- The property must be rateable under the Ratings Ordinance in Hong Kong.
- There must be a mortgage under an approved, prescribed lender.
You can go to the Hong Kong Government website to find out more about the deduction for home loan interest.
Deduction for Housing
This is a deduction you won’t see widely advertised, and could save you a lot of money overall.
If your employer gives you a housing allowance, you can easily reconfigure that allowance to save you money once it comes to tax time. Ordinarily Inland Revenue will tax housing at 10 percent of your income, rather than your actual rental costs — that rate of 10 percent is often less than what you pay for rent.
That means Inland Revenue will tax your housing benefit as income, which probably works out as more than the amount you pay in rent. There is a way around this, however.
All you have to do is to ask your employer to repack your housing allowance as a monthly reimbursement.
From there, you pay your rent to your landlord, and your employer still gives you your housing allowance, but in the form of a reimbursement in your pay package.
Here what it could look like once you change your housing allowance to an employer reimbursement:
- You earn $100,000 per month, and your rent is $20,000 per month.
- When your housing allowance is repurposed as a reimbursement, you subtract the actual rent from your income ($100,000 – $20,000 = $80,000).
- Your housing benefit is 10 percent of the new $80,000 in income ($80,000 x 10 percent = $8,000).
- You are then taxed on only $88,000 of your income, instead of the original $100,000.
Related Read: How can foreigners get a job in Hong Kong?
You Can Choose Your Tax Rate
Of course you can’t choose any tax rate, but Inland Revenue will allow you to choose to be taxed at the flat rate of 15 percent, or a progressive rate that goes up to 17 percent after your deductions, allowances, etc.
As a rule of thumb, if you are in a low to medium income bracket, you will be better off with the progressive rate that goes up to 17 percent. If you are a high earner however, you will probably want to go with the flat tax rate of 15 percent.
Get Deductions for Your Donations to Charitable Organisations
Hong Kongers can get 100 percent tax exemption on donations or registered charities. The only caveat is that the total donation is not more than 35 of your total assessable income.
You can go to the Hong Kong Government website to find out more about Charitable Donations and Tax-Exempt Charities.
Deduct Your Mandatory Provident Fund (MPF) From Your Income
This one is both quick and easy and will save you a substantial sum of money. Assuming you are on the flat tax rate of 15 percent, you can deduct your MPF contributions from your income to a maximum of $14,500, which would result in savings of $2,175.
Have a Family
Having children can provide considerable tax relief for individuals in Hong Kong. In the first year after your child’s birth, you can claim $126,000, and $63,000 for each and every subsequent year.
While only one parent can claim this per family, you can make claims for up to nine children per family.
IRD Can Hold Over Your Provisional Tax
Hong Kongers who are expecting to earn less than 90% of what they did in the last tax year, you can apply to IRD to hold over some or even all of your provisional tax for the current year. This is handy if your sole trader business is projected to make less revenue, or if you are set to retire.
You can go to the Hong Kong Government website to find out more about holding over of provisional tax.
Ask IRD for a Personal Assessment
Anybody can ask IRD for a personal tax assessment, but it can be particularly beneficial to individuals who pay both property and profits tax. A personal assessment allows a combined assessment of an individual’s income chargeable to property, profits, as well as salaries.
The purpose of this is to for example claim on loan interest on rental properties or offset a business loss.
There isn’t really much to lose either, as if IRD finds you receive no benefit through your personal assessment, they will just tax you as if you hadn’t asked for that personal assessment.
Break up Your Tax Payments
As it stands, Inland Revenue does deduct your tax per month or per quarter — rather it is done at the end of the year. This can result in a large lump tax some at the end of the financial year that might be a bit daunting.
To mitigate any end of tax year shock, you can elect to make regular payments throughout the year with tax reserve certificates which are set against your tax bill. You can also automate your regular tax payments with your bank.
Moving Forward With Reducing Your Personal Tax in Hong Kong
We’ve listed 9 ways to lower your personal tax bill in Hong Kong, with the aim of helping you go above and beyond the savings you’d already make with Hong Kong’s generous tax system.
If you’d like any advice about what we’ve listed here, we have a team of income tax experts who are more than happy to help you navigate your tax needs. Tax in Hong Kong shouldn’t be a burden, so we’re here to demystify the system for you.
If you have any questions about how to find a trustworthy partner to help lower your income tax bill in Hong Kong, please do contact us — it’s both our job and pleasure to assist.
- What are Hong Kong’s personal income tax rates?
- With a rather attractive tax frame in Hong Kong, personal income tax rates start as low as 2% and caps out at only 17%, much lower as compared to other countries.
- Can I choose my tax rates in Hong Kong?
- Yes, you can choose but not simply any tax rate. Hong Kong’s Inland Revenue will allow you to choose to be taxed at the flat rate of 15 percent, or a progressive rate that goes up to 17 percent after your deductions, allowances, etc.If you are in a low to medium income bracket, you will be better off with the progressive rate that goes up to 17 percent. If you are a high earner however, you will probably want to go with the flat tax rate of 15 percent.
- How do I file my personal income tax in Hong Kong?
- In Hong Kong, usually during the first working week in the month of May, an Individual Tax Return Form (BIR60) is issued. Upon completion of the form, you will need to send it back to IRD within 1 month from the issued date. You may also file your tax electronically by opening an account with the IRD’s eTax services.
- Can I reduce my personal income tax in Hong Kong?
- Yes, you can. Here are 9 simple ways you can do so:
- Home Loan Interest Allowance
- Deduction for Housing
- Choosing Tax Rates
- Deduction for Donations
- Mandatory Provident Fund Deduction
- Having a Family
- Holding of Provisional Tax by IRD
- Retrieving a Personal Assessment from IRD
- Breaking up Tax Payments
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