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- HONG
KONG SALARIES TAX
- HONG KONG ESTATE DUTY
- HONG KONG GIFTS TAX
- HONG KONG PROPERTY TAX
- HONG KONG SOCIAL INSURANCE
- HONG KONG STAMP DUTY
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.
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.
The
salaries tax rate is the lower of either:
Recent Developments
Recent
budgets have introduced several personal tax
relief measures.
The
Revenue Bill 2006, tabled in the 2006/7 budget,
lowered the marginal rates of the second, third
and top tax bands by 1% from the existing levels
of 8%, 14% and 20%. These were lowered to 7%,
13% and 19% for 2006/7 and to their present
levels from the 2007/8 tax year. The Revenue
Bill 2007 widened each marginal tax band from
HKD30,000 to HKD35,000. Each band was widened
to HKD40,000 from the 2008/9 tax year
In
the 2007/8 budget further relief was announced:
50% of the 2006-07 salaries tax or tax charged
under personal assessment was waived subject
to a ceiling of HKD15,000 per assessment. This
measure was intended to be a 'one-off,' but
its has been extended in subsequent budgets
thus:
-
For 2007/08, 75% of the final tax payable
under salaries tax and tax under personal
assessment would be waived, subject to a ceiling
of HKD25,000 per case;
-
For
2008/09, 100% of the final tax payable under
salaries tax and tax under personal assessment
would be waived, subject to a ceiling of HKD8,000
per case; and
-
For
2009/10, 75% of the final tax payable under
salaries tax and tax under personal assessment
would be waived, subject to a ceiling of HKD6,000
per case.
The
tax concession available for 2009/10 has been
extended to 2010/11 after Hong Kong’s Legislative
Council passed the Inland Revenue (Amendment)
(No. 3) Bill 2011 in June 2011, which implements
the government’s concessionary revenue measures
announced as part of its 2011-12 Budget. Tsang
had initially left this measure out of the 2011/12
budget, announced in the previous month, but was
forced to change his mind after an outcry from
taxpayer representatives disappointed at the budget's
lack of tax cuts with tax revenues soaring. In
addition, every Hong Kong permanent resident aged
18 or over will get a cash grant of HKD6,000 (USD770),
a measure which replaces the original proposal
in the 2011/12 budget to inject HKD6,000 into
individual Mandatory Provident Fund accounts.
As of June 2011, the government has yet to work
out the details of this proposal however.
Other
recent tax cuts include the following:
-
The
Revenue Bill 2006 extended the limit for deduction
for home loan interest from seven to 10 years,
subject to the maximum annual deduction of
HKD100,000.
-
The
Revenue (No.2) Bill 2007 provided additional
personal tax relief in the 2007-08 year: an
increased child allowance under salaries tax
from HKD40,000 to HKD50,000 for each child;
an additional child allowance of HKD50,000
in the year of assessment in which the child
was born; and an increased maximum salaries
tax deduction for self-education expenses
from HKD40,000 to HKD60,000.
- Salaries
Tax was cut from 16% to 15% in 2008/9 as a result
of Hong Kong Special Administrative Region (HKSAR)
Chief Executive, Donald Tsang's Policy Address
to the Legislative Council in October 2007.
He also announced a cut in profits
taxes for 2008-09.
Tsang
also proposed in the 2007 Policy Address to:
-
Waive rates (property taxes) for the first
two quarters of 2009-10, subject to a ceiling
of HKD1,500 (HKD193) per quarter for each
rateable tenement;
-
Introduce a 20% rental reduction for most
government properties and short-term tenancies
of government land for three months which
will benefit more than 17,000 tenants; and
-
Extend the freeze on government fees and charges
related to people's livelihood until March
31, 2010.
The
Salaries Tax Concession
The
following explains the process for claiming the
75% salaries tax reduction announced in the 2010/11
budget:
Individuals
having business profits or rental income, if
eligible, can enjoy the reduction by electing
personal assessment. These taxpayers can make
the election to make a personal assessment when
completing their 2009/10 tax returns. Individuals
having salaries income only, but no business
profits and rental income, are not required
to elect personal assessment.
Under
the salaries tax reduction scheme, the ceiling
of HKD6,000 per case is applied on an individual
taxpayer basis. For couples electing to be jointly
assessed, the ceiling is applied on each couple.
Under personal assessment, single taxpayers
will each be subject to the ceiling. Married
couples must make their personal assessment
election together and the ceiling will therefore
apply to each couple.
According
to the Hong Kong Inland Revenue Department,
the tax reduction will be reflected
in the tax bill for the coming year.
Taxpayers must file their tax returns
as usual. The Hong Kong IRS began issuing
tax returns in May 2010. Taxpayers need
not make any application to obtain the
reduction. Most taxpayers will receive
their tax bills, with the reduction
duly reflected, starting from the third
quarter in 2010. As in previous years,
salaries tax will generally fall due
in January 2011.
The
one-off reduction will only apply to
the 2009/10 final tax, but not to the
provisional tax of the same year. For
most taxpayers, the second installment
of their 2009/10 provisional tax will
fall due in April 2010, which should
be paid on time despite the proposed
reduction. The provisional tax paid
will, in accordance with the Inland
Revenue Ordinance, be applied in payment
of the final tax for 2009/10 and provisional
tax for 2010/11. Excess balance, if
any, will be refunded.
2009/10
tax bills issued before enactment of
the relevant legislation will not reflect
the tax reduction. The Inland Revenue
Department will revise them after the
enactment. Excess tax paid will be refunded
from late July 2010 onwards. Taxpayers
are not required to apply for such refund
or make phone enquiry in this regard.
A
simple Salaries Tax computation tool
is provided by the Hong Kong Inland
Revenue Department
Vehicle
Registration Tax
The
tax on first registration of cars in
Hong Kong is high relative to many other
countries, and on June 15, 2011, the
Legislative Council approved further
increases this tax.
Under the new
measures, first-registration tax rates
will be 40% of the taxable value of
cars for the first HKD150,000 (USD19,200),
increased from 35%; 75% on the next
HKD150,000, up from 65%; 100% on the
next HKD200,000, increased from 85%;
and 115% on the remainder, a rise of
15%.
On the other
hand, tax concessions for environmentally-friendly
petrol cars will also rise from the
current level of 30%, subject to a cap
of HKD50,000 per car, to 45%, subject
to a cap of HKD75,000 per car.
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Tax
and Residence
-
Income
paid in Hong Kong but which relates to services
rendered outside the islands is exempt from
salaries tax if the fiscal authorities are
satisfied that tax has already been paid on
that income in a foreign jurisdiction.
-
An
individual with Hong Kong source employment
who works abroad but renders services in Hong
Kong for less than 60 days in any tax year
is exempt from salaries tax in the jurisdiction.
-
An
individual with Hong Kong source employment
who works abroad but renders services in Hong
Kong for more than 60 days in any tax year
is assessed to tax on that proportion of his
income as is represented by the number of
days he worked in Hong Kong as a proportion
of 365.
-
Tax
is not payable on that proportion of income
earned in relation to work done outside Hong
Kong by the Hong Kong based employee of a
non resident corporation on a contract governed
by the laws of a foreign jurisdiction, where
the employees are paid outside Hong Kong and
where the employee's activities are not limited
to working within the territory.
Benefits
In Kind
The following benefits in kind provided by an
employer are deemed taxable emoluments:
- Where
the employer provides housing this is assessed
as an emolument which has a value of 10% of
the employee's wage for salary tax purposes;
- Capital
gains on realised share options;
- Payments
in connection with an employee's children;
- 'Benefits
capable of being turned into money by the recipient'.
Thus a medical insurance policy or an air ticket
would not be taxable under this heading since
they are not assignable at a price.
Allowances
and Deductions
For
the 2009/10 year of assessment, the following
allowances are deductible from assessable
income for salaries tax purposes:
- Charitable
contributions representing up to 35%
of an individual's income after allowable
expenses and depreciation allowances or assessable
profits.
- A
residential care allowance in respect
of a parent or grandparent of up to HKD60,000
per annum.
- Home
loan interest deductions from 2003/4
of up to HKD100,000 in any one year of assessment.
- A
current pension allowance of
up to HKD12,000 for each year of assessment,
not including contributions made by a self-employed
person in respect of his employees.
- Depreciation
allowances on all plant and machinery
essential to the production of income subject
to salaries tax.
- A
single person's allowance of
HKD108,000 (2009/10).
- A
married persons' allowance of
HKD2165,000 (2009/10).
- Child
allowances of HKD50,000 for each dependant
on the 1st to the 9th child (2009/10).
- Dependent
parent, grandparent,sister, brother sibling
(to include more than one where necessary)
- allowances HKD30,000 each (2009/10).
- Dependent
disabled person's allowance of HKD60,000
(2009/10).
- Education
allowance of HKD60,000 for any course
which educates or assists an employee in his
profession.
The
Revenue (Abolition of Estate Duty) Ordinance
2005 ["the Ordinance"] came into effect
on February 11, 2006. No estate duty affidavits
and accounts need to be filed and no estate
duty clearance papers are needed for the application
for a grant of representation in respect of
deaths occurring on or after that date. The
estate duty chargeable in respect of estates
of persons dying on or after July 15, 2005 and
before February 11, 2006 ("transitional
estates") with the principal value exceeding
HKD7.5 million will be reduced to a nominal
amount of HKD100.
The
old law is set out in the Estate Duty Ordinance.
Estate duty had the following characteristics:
-
It
was based on the territorial principle and
was thus only levied on property situate in
Hong Kong. The deceased's nationality, residence
or domicile were completely irrelevant in
determining whether or not an estate duty
charge arose. The following examples show
when a charge arose and when a charge did
not arise:
-
Bank
accounts: A charge arose if the bank account
was located in the territory.
-
Contract
Debts: A charge arose on monies owing
to the deceased by way of a contract debt
if the debtor resided in Hong Kong.
-
Registered
Shares: Registered shares were located
in Hong Kong if the share register is
situated there.
-
Bearer
Instruments: were located at the place
in which they were physically present
at the time of death.
-
Patents
and Trademarks: were located in the jurisdiction
in which they can be transferred according
to the law under which they were created
or registered.
-
Estate
Duty Tax Rates: The tax was levied at progressive
rates with no estate duty being payable where
the value of the estate situate in Hong Kong
was less than HKD962,000 and a maximum rate
of 15% being levied on the value of assets
exceeding HKD1,350,000.
-
Controlled
Company Legislation: A deceased shareholder
could be assessed to estate duty on the value
of Hong Kong situate assets owned by a resident
or non resident company in which the deceased
had a shareholding provided the company was
deemed a "controlled company". The
purpose of this legislation was to prevent
avoidance of estate duty by the misuse of
the corporate structure.
-
Quick
succession relief was available and meant
that lower rates of estate duty were payable
where assets changed hands frequently as a
result of several deaths closely connected
in time (under 5 years).
-
Penalties
for delayed payment are severe and include
an interest rate of 8% per annum and the doubling
of the rate of estate duty payable.
-
For
estate duty purposes no deduction was allowed
for debts owing by the deceased except where
those debts were contracted in Hong Kong to
a person ordinarily resident in Hong Kong
or alternatively charged on property situate
in Hong Kong.
-
Assets
which passed up to 3 years prior to death
by way of an inter-vivos gift are deemed to
be part of the estate for estate duty purposes.
However such gifts were exempt from estate
duty if either:
-
Their
value was less than HKD26,000 or
-
The
gift was made in consideration of marriage
or
-
The
gift was part of the deceased normal expenditure.
-
The
following were exempt from an estate duty
assessment:
-
The
deceased's matrimonial home was not included
in the computation where he left the same
to a surviving spouse.
-
The
proceeds of any life insurance policy
paid out in Hong Kong were considered
a separate estate in themselves. Thus
if the value of the life insurance payment
was less than HKD962,000 no estate duty
is payable on it irrespective of the value
of the other assets comprising the estate.
-
Assets
which were located outside the territory
of Hong Kong;
-
Assets
which were disposed of for a charitable
purpose more than one year before death.
-
Any
property passing on death and held by
the deceased as a trustee under a trust
formed more than 3 years before death.
Alternatively any property passing on
the death of the deceased and held by
the deceased under a trust not formed
by the deceased.
-
Property
consisting of a pension, annuity, lump
sum gratuity, or other similar benefit
passing on the death member of a recognized
occupational retirement scheme under the
terms of that scheme.
Legislation
that sought to abolish estate tax in Hong Kong
was gazetted in May, 2005.
According
to a government spokesman, the move was seen as
vital in attracting and retaining foreign investment
in Hong Kong, and was supported by the majority
of respondents to a public consultation on the
proposals, carried out in 2004.
"In
recent years, global financial services have experienced
phenomenal growth. The financial markets in the
Asia-Pacific region have also quickened the pace
of their development. Hong Kong is looking at
unprecedented opportunities in this sector, but
at the same time faces increasing competition,"
the spokesman observed, continuing:
"A
number of countries in the region, including India,
Malaysia, New Zealand and Australia, have abolished
estate duty over the past 20 years. Hong Kong
must not lose out in this race.
"The
abolition will encourage people, including overseas
investors, to hold assets in Hong Kong through
a Hong Kong corporate vehicle or trust. Those
who currently avoid the tax through overseas investments
will also be encouraged to transfer their investments
back to Hong Kong.
"The
further development of the high value-added asset-management
industry will foster growth in a number of professional
services, and other industries will also benefit,
bringing significant economic benefits to the
community as a whole.
"Apart
from attracting or retaining capital to promote
the development of Hong Kong's financial services
industry, the proposed abolition of estate duty
will also reduce the time taken for obtaining
the grant of probate or letters of administration,
thereby helping to ease cash-flow problems heirs
to an estate currently face, particularly for
operators of small and medium enterprises."
It
is estimated that the abolition of estate duty
will cost the Government annual tax revenues of
around $1.5 billion. However, the abolition of
estate duty is expected to encourage investments
in both financial assets and the property market
in Hong Kong, thereby contributing additional
revenue from stamp duty and other taxes.
Hong Kong Gifts Tax
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.
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Hong Kong Property Tax
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. Property tax,
which is governed by the provisions of the Inland
Revenue Ordinance, has the following characteristics
for individuals:
-
The
annual assessment to property tax is based
on 100% of the annual rental income of the
property less any rates paid, any bad debts,
a repairs and outgoings allowance constituting
a maximum of 20% of the annual rental income
(irrespective of whether or not more was actually
spent) and other allowable deductions. In
determining "rental income" the
Inland Revenue will include any premiums,
service charges, management fees, rates, repairs
and outgoings paid by the tenant either to
the owner or on behalf of the owner under
the terms of the lease. In order to assist
the inland revenue to assess the rental income
the owner is obliged to keep records for up
to 7 years and inform the tax authorities
of the actual sums received.
-
Property
tax is based on the territorial principle
and is levied on buildings, parts of buildings,
wharves, piers and other structures located
in Hong Kong. The fact that the owner is non
resident, non domiciled or a national of a
foreign country is completely irrelevant and
does not exempt him from having to pay this
tax.
-
The
tax rate is 15% (from 2008/9) of the assessed
annual rental income.
-
Property
tax is levied on a provisional assessment
basis which takes into account the previous
year's rental income with a tax credit being
granted where the previous year's rental income
exceeds the current year's rental income.
Relief is also given where part of the assessed
rental income is a bad debt.
-
It
is advisable for properties to be owned by
Hong Kong corporate entities since property
tax does not make allowances for either depreciation
or interest costs on a loan to finance the
purchase, while such costs are deductible
for corporate profits tax purposes.
Rates are levied annually and are payable by
the occupier of premises (although the owner
retains legal responsibility for payment of
the same in the event of default by the occupier).
The value of a property is based on its rental
value. The annual rates tax is 4.5% of the annual
value of the premises as determined under the
Rating Ordinance.
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Hong Kong Social Insurance
Social
insurance payments in Hong Kong are in the nature
of a private arrangement. However, in 2000 the
government passed the Mandatory Provident Fund
Ordinance. As from December 1, 2000 all employees
and self employed individuals earning more than
HKD4,000 per month had to contribute a minimum
of 5% of their salary up to maximum amount.
Sums
paid in are tax deductible for the purposes
of profit tax where paid in by the employer
and tax deductible for the purposes of salaries
tax where paid in by the employee.
Currently
payments to retirement schemes registered under
the Occupational Retirement Schemes Ordinance
can be made and are tax deductible so long as
they do not exceed 15% of the taxable remuneration
of the employee. Lump sum contributions are
tax deductible on a straight-line basis over
a 5 year period.
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In
November 2010, Financial Secretary Mr John C
Tsang proposed to introduce a Special Stamp
Duty (SSD) on residential properties as part
of the the government's attempts to curb speculation
and cool the property market (see below).
The
laws on stamp duty are set out in the Stamp
Duty Ordinance. Stamp duty is either a fixed
fee or is calculated ad valorem depending on
the nature of the transaction. As far as individuals
are concerned, it is payable on:
-
Leases,
assignments and conveyances of immovable property.
-
The
transfer of shares or marketable securities
-
The
transfer of bearer instruments (being instruments
under which ownership is transferred through
physical delivery).
Immovable Property Stamp Duty Rates
2
separate rates of stamp duty are payable on
immovable property:
-
The
Conveyance of a Freehold or the Assignment
of a Leasehold: The rate of stamp
duty is progressive and varies from HKD100
to 3.75% if the value of the transferred interest
is more than HKD6,720,000. The
2007 Finance bill reduced the stamp duty rate
on transactions of properties with a value
between HKD1 million and HKD2 million from
0.75% to a fixed amount of HKD100.
-
The
Granting of a Short-Term Lease:
The stamp duty rate is progressive and varies
between 0.25% and 1% of the annual rental
value depending on whether the lease is for
less than one year or more than 3 years. Any
agreement which increases the rent reserved
by a chargeable stamped lease is itself chargeable
to stamp duty in respect of the additional
rent which it makes payable.
The
following immovable property transactions are
exempt from stamp duty:
-
Non-Residential
Property: Instruments transferring
"non residential property" are exempt
from stamp duty. Non-residential property
is defined as property which may not by law
be used at any time for residential purposes.
-
Gifts
to Charitable Institutions or Public Trusts:
Instruments transferring immovable property
by way of gift to a charitable institution
or public trust are exempt from stamp duty.
-
Approved
conveyances on sale to diplomatic or consular
bodies.
-
Mortgages:
Mortgages are free of stamp duty.
Immoveable Property Stamp Duty Anti-Avoidance
Provisions
There
are elaborate anti avoidance provisions in place
aimed at deterring speculation. Thus where the
beneficial owner of real estate executes an
instrument in favor of a third party under which
he undertakes to hold the real estate on trust
for the third party duty is payable on this
instrument as if a conveyance had taken place.
Likewise stamp duty is payable where under an
uncompleted contract of sale the vendor is deemed
by law to hold on trust for the purchaser.
Stamp
Duty Payable on Shares & Marketable Securities
Stamp
duty of 0.1% is payable on the transfer of shares
or marketable securities, unless the transfer
is a voluntary disposition inter vivos in which
case the rate is double.
Securities
Transactions Exempted from Stamp Duty
The
following transactions are exempt from stamp
duty:
-
Loan
capital transactions, bills of exchange, promissory
notes, certificates of deposit, exchange fund
debt instruments and Hong Kong multilateral
agency debt instruments.
-
Transactions
involving debentures, loan stocks, funds bonds
or notes that are not denominated in Hong
Kong currency except to the extent that they
are redeemable in that currency.
-
Stock
donated to charitable bodies or public trusts
which are exempt from taxation in Hong Kong.
Stamp
Duty Payable on Bearer Instruments
The
amount of stamp duty payable is 3% of the value
of the instrument transferred.
Special
Stamp Duty (SSD) on Residential Properties
Following
a significant inflow of hot money, leading to
substantial increases in asset prices in Hong
Kong, the Financial Secretary, Mr John C Tsang,
announced new anti-property speculation measures
in November 2010. Among them was the SSD on residential
properties, charged on top of the current ad valorem
property transaction stamp duty.
Any
residential property acquired on or after November
20, 2010, - either by an individual or a company,
listed or unlisted, and regardless of where it
is incorporated - and resold within 24 months
will be subject to the proposed SSD.
The
SSD will be payable jointly and severally by both
the buyer and the seller in the resale transaction,
and will be calculated based on the consideration
for the resale transaction at regressive rates
for different holding periods.
It
will be charged at 15% if the property is held
for six months or less; 10% if the property is
held for more than six months but for 12 months
or less; and 5% if the property is held for more
than 12 months but for 24 months or less.
It
is also proposed to disallow deferred payment
of stamp duty, including SSD, for residential
property transactions of all values, while, to
deter non-compliance, the existing statutory sanctions
will be extended to cover the SSD. Any person
who fails to pay the SSD by the deadline for payment
shall be liable to penalties up to 10 times the
amount of the SSD payable.
Not
long after Tsang's announcement, Secretary for
Transport and Housing, Eva Cheng, told the Legislative
Council that it will introduce additional
measures to cool the property market if the
stamp duty and other curbs on speculative buying
are not successful.
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