Hong Kong Income Tax for Non-local Employees

Tax Arrangements for non-local employees

Disclaimer: This article only talks about Salaries Tax, and the calculations are based on my personal understanding, for your reference only. Thank you for reading this article.

If you work in Hong Kong, you have to pay Hong Kong taxes.

In the mainland, your company deducts your taxes and pays to the local taxation bureau on your behalf every month, even before you receive your monthly salaries. But in Hong Kong, tax payers are responsible for the payment process ourselves.

When a fiscal year, meaning the period from Apr 1st of last year to Mar 31st of this year ends, the Hong Kong Inland Revenue Department (IRD) will start to send out Tax Return letters to tax payers. The recipients will have to write down their income details for this fiscal year in the tax return paper and send it back to the IRD.

Then the IRD will do the calculations, usually it takes 3 to 4 months, sometimes 6 months for the results to come out, and the IRD will send a tax payment demand note letter to the tax payer. If you receive the demand note, you can choose to pay a lump sum or to pay 2 instalments separately, according to the instructions on the demand note.

If you would like to see tax introductions, please visit the IRD official website yourself, I cannot explain further more, and my explanations might not be correct.

Also, if you are a non-local employee, you might want to check out the Double Taxation Relief Policy.

Currently I only work in Hong Kong and only receive salaries from a Hong Kong company, so the Hong Kong Salaries Tax is all that I'm concerned about.

Salaries Tax Calculation

Income Tax for the Year of Assessment

Let's say I'm a dishwasher working on a 996 basis, with 17k HKD of monthly salary, and 5k HKD of year end bonus, total annual income would be:

17,000*12 + 5,000 = 209,000 HKD

With MPF deducted, remaining actual income would be 209,000*95% = 198,550 HKD

The basic allowance for recent years is 132,000 HKD, because we don't have any other tax allowances for deduction, our taxable income would be:

198,550 - 132,000 = 66,550 HKD

Progressive Rate for Salaries Tax in 2021

Level	Net chargeable Income$	Rate	Tax$
First	50,000	2%	1,000
Next	50,000	6%	3,000
	100,000		4,000
Next	50,000	10%	5,000
	150,000		9,000
Next	50,000	14%	7,000
	200,000		16,000
Remainder		17%

(Not applicable to high-income class, please consult a professional for details)

So the first 50k is applied with 2% tax, the remainder 16,550 is applied with 6% rate, total would be:

50,000*2% + 16,550*6% = 1,993 HKD

It seems that the 1,993 HKD is our tax for this year, but do we really have to pay 1,993 HKD now?

Not so true! The government has a reduction for taxes, the reduction rate is 100% for the year 2021 (maximum 10k HKD), which means if your tax amount is under 10k HKD, you don't have to pay for it.

Then does that mean I don't have to pay at all?

Not so true!

Provision Tax

We just calculated the tax imposed on the net chargeable income for the year of assessment 2020/2021, the government tend to think that you will keep this level of income in the next year of assessment, so a provision tax with amount equal to the tax of this year will be charged to you, which is 1,993 HKD.

Then let's combine the tax for this year, the total is 0 + 1,993 = 1,993 HKD, do we have to pay this 1,993 HKD?

Not so true!

Back in 2020, we have paid for the provision tax for the year of assessment 2020/2021.

Let's say, I, the dishwasher got a pay rise at the end of 2020, so my income for 2020/2021 is higher than 2019/2020, the provision tax paid in last year, let's say it's 1,883 HKD, it cannot cover that in this year, the difference would be:

1,993 - 1,883 = 100 HKD

OK, this is the amount we have to pay in 2021.

But, we did all the calculations, 1,993 HKD, then 1,883 HKD, how come the final tax amount is 100 HKD?

That's because the provision tax you paid last year is for deducting taxes this year, with this year's tax being 0 HKD, it is used to deduct the provision tax. Since you had a pay rise, the provision tax this year is higher than last year, the amount you paid last year is not enough, so you have to pay 100 HKD more to cover it.

Although you only have to pay 100 HKD, the provision tax balance you have with the government is 1,993 HKD, it will be used to deduct taxes next year.

Can you see the tricks now?

File Tax Return

After you start working, in April of each year, your company calculates all the salaries paid to you from Apr 1st of last year to Mar 31st of this year, then file a return of remuneration and pensions to the IRD so that the IRD knows about your income.

Then you receive a big green letter containing the tax return paper.

If you changed jobs within this period, the companies that you worked for will file returns to IRD separately, and you will have to state salaries you received from these companies one by one in the tax return.

The envelope looks like this:

This is a special version for the 20th anniversary of Hong Kong handover~

As for the tax return, you can see a sample here.

There is a smaller green envelope inside the big one, it is used for returning the completed tax return form. You will have to use post stamps on it.

What if I do not send back the tax return form? Does that mean the IRD cannot do the tax calculations for me?

Not so true!

It is said that, if you do not send back the completed tax return form, the IRD will calculate tax based on the returns submitted by your employers, and because you do not have any tax allowances submitted, only the basic allowance will be applied, and your tax amount might go up. Sounds horrible, right?

So let's complete our forms when the big green letter comes, and send it back to the IRD before the deadline.

Pay Tax Bill

When you files a tax return, it usually takes 3 months before you receive a tax demand note, in a normal sized white envelope.

Tax payable demand note looks like THIS。

You will see tax calculations, your taxable income, tax amounts in progressive rates, your provision tax, deducted by tax reduction, then deducted by provisional tax from previous year, finally you have the amount you have to pay now.

You can choose to pay a lump sum, or to pay 2 instalments according to IRD's requirements. The government accepts various payment methods, I have tried credit card/debit card before, and FPS QR code payment recently.

And if only you are required to pay.

Tax Refund

Like I said above, if your provisional tax from previous year cannot cover the total amount of your income tax and provisional tax this year, you have to pay the difference.

But if you are unlucky like me, who had a pay cut this year, and my provisional tax from last year is more than the total of my income tax and provisional tax this year, then a tax refund happens.

The IRD will still send you a Demand Note letter, only that you will be notified in the note that you do not have to pay, and the government has issued a tax refund to you, along with a check that looks like this:

When you have the check, you can write down your bank account number and contact info on the back of the check and submit to your bank.

You might want to avoid weekends because bank counters do not process checks at that time. You can write down your information and submit to the check deposit box, it takes about 2 business days for the money to show in your account.

Notify the IRD if you move elsewhere

In order to receive paper tax return form and tax demand note, we have to let the IRD know if your home address has been changed, you may refer to the IRD's official instructions .

If you fail to pay tax because you did not receive tax return form and demand note in time, you might be subject to fines or something worse.

Contact the IRD if you have any questions and do not make yourself look bad in such difficult situations.

Conclusion

This is a long article, and I have written "tax" for so many times that I suddenly do not recognize it anymore.

Benjamin Franklin once said: "In this world, nothing is certain except death and taxes."

It might be hard to know about death, let's get to know taxes first then.

The end.