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Salaries tax is a type of income tax that is levied in Hong Kong, chargeable on income from any office, employment and pensions for a year of assessment arising in or derived from the territory. For purposes of calculating liability, the period of assessment is from April 1 to March 31 of the following year.
Salaries tax is also charged on the unrealized capital gain of shares or options granted as part of an employee share scheme that are subject to a vesting period. Events that trigger tax are when the vesting period ends or when the employee leaves Hong Kong.
Liability to tax
Employers must report details relating to new hires to the Inland Revenue Department within three months of the commencement of employment, which will enable to IRD to send out tax returns for the year of assessment. If the employee does not receive a return, he is required to send the Department a notification of chargeability by 31 July following the year of assessment.
The tax is payable directly by the taxpayer, who is also obliged to remit provisional salaries tax by instalments based on the previous year's liability.
Income subject to tax
Liability for salaries tax arises from two separate sources:
- employment income and pensions arising or derived from Hong Kong, and
- income derived from services rendered in Hong Kong (other than from visits totalling 60 days or less in any given year), except for:
- income earned from services rendered wholly outside Hong Kong in connection with employment (except for those who work for the Government, or on board ships or aircraft), or
- income earned in any territory on which tax similar to salaries tax has been paid.
Under Commissioner of Inland Revenue v George Andrew Goepfert, the following factors must be taken into account to determine where the source of income arises for an employment (whether inside or outside the territory):
- where the contract of employment was negotiated, entered into and is enforceable;
- where the employer is resident; and
- where the employee's remuneration is paid to him.
Employment income is deemed to include the following:
- wages, salaries and other compensation (other than severance payment or long service payment on termination of employment) whether from the employer or another person,
- amounts received from a pension or provident fund connected with the employment,
- amounts received from a recognized occupational retirement scheme,
- the rental value of any place of residence provided rent-free (or any discount from the rental value from any rent paid) by the employer or an associated corporation, and
- any gain realized by the exercise of, or by the assignment or release of, a stock option.
Calculation of liability
Salaries tax is chargeable on the lower of:
- net chargeable income (total income less deductions and allowances)
- net total income (total income less deductions)
Deductions include expenses necessary for earning such income (such as professional membership dues for one association), expenses for self-education (subject to a ceiling of $80,000), charitable donations (subject to minimum and maximum limits), contributions to the Mandatory Provident Fund or other occupational retirement schemes, home loan interest (subject to a lifetime limit of 15 years) and elderly residential care expenses (subject to a ceiling of $76,000). Allowances are available for married persons, single parents and various dependents.
For the taxation year 2013/14, the rates are:
|Net chargeable income||Progressive rate||Net total income at standard rate|
|on the first $40,000||2%||15%|
|on the next $40,000||7%|
|on the next $40,000||12%|
|on the remainder||17%|
The tax payable is reduced by 75% (but such reduction cannot exceed $10,000).
- "A guide for first time salaries tax taxpayers". Inland Revenue Department.
- "Inland Revenue Ordinance, Cap. 112, s. 8 (Charge of salaries tax)". Hong Kong Government.
- Inland Revenue Ordinance, s. 8(1)
- Inland Revenue Ordinance, s. 8(1A)
- Commissioner of Inland Revenue v George Andrew Goepfert,  HKCFI 100; HCIA5/1986; 2 HKTC 210 (10 April 1987), Hong Kong Court of First Instance
- "Inland Revenue Ordinance, Cap. 112, s. 9 (Definition of income from employment)". Hong Kong Government.
- "A Guide to Salaries Tax (2)". Inland Revenue Department.
- "A Guide to Salaries Tax (1)". Inland Revenue Department.
- "A Brief Guide to Personal Assessment". Inland Revenue Department.
- "Salaries Tax - What you need to know as an employee". Inland Revenue Department.
- "Departmental Interpretation and Practice Notes No. 10 (Revised): The Charge to Salaries Tax". Hong Kong Inland Revenue Department. June 2007. Retrieved 13 September 2013.