TAX

Salary tax

Tax is not deducted at source, so employees need to complete a tax return annually with details of total salary earned for the fiscal year end of 31 March, often provided by the employer, and profits earned or losses incurred. The self-employed can elect personal assessment. You may not get your first tax bill for up to 18 months, depending on when your Hong Kong employment began. When you are presented with a bill that includes not only tax for the preceding year but also the estimated provisional tax for the following year, it can come as quite a shock. An assessment notice is usually sent out by the Inland Revenue Department (IRD) in the autumn with the sum due. The first payment on the balance of the preceding year’s tax plus 75% of the provisional tax is usually due between January and March, and the second payment – the remaining 25% of the provisional tax – is due three months later.

When your tax return is issued, information in English describing how to complete it should be enclosed (see also www.ird.gov.hk/eng/tax/ind_ctr.htm for more information, or telephone 187 8022). An automatic salary tax computation service is also available on the IRD’s website.

It is important to keep the IRD up to date with changes to your address and to tell them promptly if you require special permission to delay payment, as a surcharge of 5% is automatically added to late payments. Banks offer tax loans to help defray the expense, or you can save for your tax by purchasing Tax Reserve Certificates on a monthly standing order (see www.ird.gov.hk/eng/tax/trc.htm). These are then offset against tax when it is due.

Total tax was limited to 15.5% of salary in 2003–04 and 16% since 2004. Allowances are made for single parents, married people, dependents, etc.

Residents from the UK are not subject to UK income tax on their worldwide income.

Other tax

There is no tax on capital gains, interest, dividends and offshore profit or income. Property tax on renting out property owned in Hong Kong and profits tax on unincorporated business is 16% for 2006–07; corporate profits tax is 17.5%.

For more detailed information about tax issues, contact the IRD (www.ird.gov.hk/eng/tax/index.htm; tel. 187 8088).

Mandatory Provident Fund

All full- and part-time employees and self-employed people aged between 18 and 65 and earning more than $5,000 per month are required by the government to pay into an MPF (Mandatory Provident Fund). This is a privately managed fund that functions as a government retirement scheme. Schemes are administered by designated insurance companies or banks in Hong Kong.

Every month, employees must pay 5% of their monthly salary or $1,000 – whichever is less – into an MPF. The sum is matched by an employer contribution. The employees’ mandatory contributions, subject to a maximum of $12,000 annually, are tax-deductible. You may be exempted from MPF payments if you have an overseas pension or similar plan. You can redeem your MPF before you reach 65 if you leave Hong Kong. For more information, browse the Authority website at www.mpfahk.org.

Leaving Hong Kong

All tax bills need to be settled before leaving Hong Kong. Your employer will notify the IRD that you are leaving, and will withhold your last month’s salary until you have paid your tax and been issued with a ‘Letter of Release’.