An Introduction to Hong Kong's Tax System
Hong Kong follows a territorial source principle of taxation, meaning only income arising in or derived from Hong Kong is taxable. Compared with the tax system in Mainland China, the most notable differences are:
- Lower tax rates: Individual Income Tax in Mainland China increases progressively from 3% to 45% as income rises, whereas the highest progressive rate for Hong Kong Salaries Tax is only 17%. From the 2024/25 year of assessment onwards, the standard rate is charged under a two-tier system: the first HK$5,000,000 of net income is taxed at 15%, and any amount above HK$5,000,000 is taxed at 16%. The Inland Revenue Department will calculate Salaries Tax using the progressive rates or the standard rate, and apply whichever results in the lower tax payable.
- Filing method: In Mainland China, tax is usually withheld and remitted monthly by the employer. In Hong Kong, taxpayers are generally required to file their own returns each year.
- Provisional tax system: A Hong Kong tax demand note usually includes both the tax payable for the current year and an estimated provisional tax payment for the following year. It is wise to build up a savings habit from your first year of employment, or consider the Inland Revenue Department's Tax Reserve Certificates scheme, so that the tax season does not create unnecessary cash flow pressure.
What is Salaries Tax?
Salaries Tax is a tax charged on income arising in or derived from Hong Kong from your employment. It generally covers salary, wages, commissions, bonuses, allowances, payment in lieu of notice, and certain benefits provided by an employer, such as housing benefits.
Common Types of Income That Must Be Reported
- Fixed monthly, daily or hourly wages
- Year-end bonuses, performance bonuses and commissions
- Various allowances, such as transport, meal and housing allowances
- Payment in lieu of notice and termination compensation
- Certain benefits provided by an employer: if your company pays your rent or provides staff accommodation, this may be assessed as a rental value and included as income. In many cases, this can be more tax-efficient than receiving a cash housing allowance directly.
What is a Tax Allowance?
A tax allowance can be understood as an amount deducted before your assessable income is calculated, reflecting basic personal and family needs. Common examples include the Basic Allowance, Married Person's Allowance and Child Allowance. Whether you are eligible to claim them usually depends on your marital status, dependent arrangements and the relevant qualifying conditions.
Common Personal and Family Allowances for New Arrivals
Below are some of the common personal and family allowances for the 2025/26 year of assessment:
Allowance Item |
Eligibility |
Amount (HKD) |
Basic Allowance |
General individual taxpayer |
132,000 |
Married Person's Allowance |
For those who meet the relevant conditions for married persons |
264,000 |
Child Allowance |
For each child (1st to 9th child) |
130,000 |
An additional claim may be made in the year of assessment in which the child is born |
130,000 |
Dependent Parent / Grandparent Allowance |
Aged 60 or above, or under 60 but eligible for the Government Disability Allowance; not living with you |
50,000 |
Aged 60 or above, or under 60 but eligible for the Government Disability Allowance; living with you throughout the year |
100,000 |
Dependent Parent / Grandparent Allowance |
Aged 55 to 59; not living with you |
25,000 |
Aged 55 to 59; living with you throughout the year |
50,000 |
How Are Allowances Calculated?
Using the 2025/26 year of assessment as an example, suppose Mr Wong is a married new arrival to Hong Kong and his wife is a full-time homemaker in Hong Kong. They have one child and are currently living in Hong Kong. For simplicity, they choose joint assessment.
- Total annual household income: 800,000 HKD
- MPF mandatory contributions deductible from tax: 18,000 HKD
- Allowances claimed: Married Person's Allowance 264,000 HKD + Child Allowance for one child 130,000 HKD
Calculation steps:
- Total income: 800,000 HKD
- Less MPF mandatory deductible contributions: 800,000 – 18,000 = 782,000 HKD
- Less Married Person's Allowance and Child Allowance: 782,000 – 264,000 – 130,000 = 388,000 HKD
- Net chargeable income: 388,000 HKD
Finally, the Inland Revenue Department will calculate tax on the 388,000 HKD at progressive rates, or compare it with the standard rate and apply whichever produces the lower tax payable. Compared with not claiming any allowances at all, Mr Wong has substantially reduced his net chargeable income through reasonable tax planning.
How Much Annual Income Triggers Salaries Tax?
If your annual income, after deducting mandatory MPF contributions and other eligible deductions, is below the Basic Allowance, you will generally not need to pay Salaries Tax. Taking the 2025/26 year of assessment as an example, the Basic Allowance is HK$132,000. If your annual salary is below that amount, you will not need to pay Salaries Tax.
Under the 2026/27 tax measures that have been passed and gazetted, Hong Kong's Basic Allowance will be increased from HK$132,000 to HK$145,000 starting from the 2026/27 year of assessment. In other words, if your annual salary is below HK$145,000 for a year of assessment beginning on 1 April 2026, you will generally not need to pay Salaries Tax.
A Simple Formula
Net chargeable income = Assessable income − Total deductions − Total allowances
How Is Hong Kong Salaries Tax Calculated?
Hong Kong Salaries Tax is calculated using either the progressive rates or the standard rate. The Inland Revenue Department will compare the results and apply whichever produces the lower amount of tax payable.
1. Progressive Rates
Under the progressive rates system, tax is charged in bands based on your net chargeable income. The higher your income, the higher the rate applied to the portion in the higher band. The progressive rates for the 2024/25 year of assessment and onwards are as follows:
Net Chargeable Income |
Tax Rate |
First HK$50,000 |
2% |
Next HK$50,000 |
6% |
Next HK$50,000 |
10% |
Next HK$50,000 |
14% |
Remainder |
17% |
Example: if your net chargeable income is HK$180,000 after all allowances and deductions, the tax will be calculated in bands rather than charging the whole HK$180,000 at one single rate.
2. Standard Rate
The standard rate is charged on your net income, which means income after eligible deductions but before personal allowances are deducted. From the 2024/25 year of assessment onwards, a two-tier standard rate applies: the first HK$5,000,000 of net income is taxed at 15%, and any amount above HK$5,000,000 is taxed at 16%.
Net Income |
Standard Rate |
First HK$5,000,000 |
15% |
Remainder |
16% |
A Simple Worked Example
Suppose Mr Chan is a single taxpayer with annual income of HK$400,000 for the 2025/26 year of assessment. He also has deductible mandatory MPF contributions of HK$18,000, and the Basic Allowance is HK$132,000:
Step 1: Calculate net chargeable income
Item |
Amount |
Income |
HK$400,000 |
Less: deductions |
HK$18,000 |
Less: Basic Allowance |
HK$132,000 |
Net chargeable income |
HK$250,000 |
Calculation:
HK$400,000 − HK$18,000 − HK$132,000 = HK$250,000
Step 2: Calculate tax by bands using the progressive rates
Tax Band |
Portion of Net Chargeable Income |
Rate |
Tax |
First band |
First HK$50,000 |
2% |
HK$1,000 |
Second band |
Next HK$50,000 |
6% |
HK$3,000 |
Third band |
Next HK$50,000 |
10% |
HK$5,000 |
Fourth band |
Next HK$50,000 |
14% |
HK$7,000 |
Fifth band |
Remaining HK$50,000 |
17% |
HK$8,500 |
Total |
HK$250,000 |
— |
HK$24,500 |
Step 3: Add up the tax from each band
Item |
Amount |
Tax from first band |
HK$1,000 |
Tax from second band |
HK$3,000 |
Tax from third band |
HK$5,000 |
Tax from fourth band |
HK$7,000 |
Tax from fifth band |
HK$8,500 |
Total tax payable |
HK$24,500 |
Total tax:
HK$1,000 + HK$3,000 + HK$5,000 + HK$7,000 + HK$8,500 = HK$24,500
Therefore, before taking into account any tax reduction, provisional tax, or other additional deductible items, the Salaries Tax in the above example is about HK$24,500. The actual amount payable is still subject to the Inland Revenue Department's final notice of assessment.
What Are Deductible Items?
Deductible items are qualifying expenses or contributions that can be deducted when calculating your net chargeable income. Below are some of the common categories of tax deductions for new arrivals to Hong Kong. Whether an item is deductible, the applicable cap, and the documentary requirements are all subject to the Inland Revenue Department's latest guidance:
- Mandatory MPF contributions
- Qualifying premiums paid under a Qualifying Deferred Annuity Policy (QDAP)
- Tax Deductible Voluntary Contributions (TVC)
- Qualifying premiums paid under approved products of the Voluntary Health Insurance Scheme (VHIS)
- Self-education expenses
- Home loan interest
- Domestic rents deduction
Besides the basic allowances, new arrivals who want to save tax lawfully should also understand these three well-known tax-saving tools:
Tax Deductible Voluntary Contributions (TVC)
In addition to the statutory mandatory MPF contributions, you may also choose to open a TVC account and make extra voluntary contributions. This can help you build retirement savings while also reducing your tax burden. The deduction limit for TVC is shared with premiums paid under a Qualifying Deferred Annuity Policy (QDAP), subject to a combined cap of HK$60,000 per year of assessment.
Qualifying Deferred Annuity Policy (QDAP)
If the deferred annuity you have taken out is a Qualifying Deferred Annuity Policy (QDAP), as a Hong Kong taxpayer, the qualifying premiums paid are generally eligible for tax deductions under the salaries tax and personal assessment. The tax deduction is up to a maximum limit of HK$60,000 per year of assessment1. This is the maximum annual tax deduction per taxpayer for their qualifying deferred annuity premiums and Mandatory Provident Fund tax-deductible voluntary contributions.
PRURetirement Deferred Annuity Plan is a Qualifying Deferred Annuity Policy (QDAP). In addition to providing stable monthly annuity income for up to 10 or 20 years in the future, the plan's qualifying premiums may also be eligible for tax deductions. For more details of the tax concessions available for Qualifying Deferred Annuity Policies, please refer to the Insurance Authority website.
Voluntary Health Insurance Scheme (VHIS)
For the Voluntary Health Insurance Scheme (VHIS), tax deductions on qualifying premiums are generally calculated on a per-insured-person basis. As long as the premiums are paid for an approved plan, a Hong Kong taxpayer may take out a recognised VHIS product for themselves or specified relatives and claim a tax deduction on the qualifying premiums, up to HK$8,000 per insured person for each year of assessment, and there is no limit on the number of specified family members you can claim for tax deductions. For more information about the tax concessions available for VHIS policies, please refer to the VHIS website.
Prudential VHIS Series includes both government-certified Standard Plans and Flexi Plans, offering protection options ranging from basic to more comprehensive cover for different needs. The series also comes with a range of value-added services*, such as 24-hour worldwide emergency support, Treatment Sure service2 (second medical opinion) and Medical Green Channel service3, helping customers receive more thoughtful support from diagnosis and treatment through to recovery.
If you are not sure how much tax you need to pay, you can use an online tax calculator before filing your return to make an initial estimate. For example, the Prudential Tax Calculator allows you to enter your income, allowances and deductible items to estimate the tax payable.
How Do You File Salaries Tax?
Most employees will receive an individual Salaries Tax return during each tax filing season and must complete and submit it within the specified deadline. You may also file online through the Inland Revenue Department's eTAX platform, or return the form by post in accordance with the instructions. At the same time, you can refer to the employee remuneration information submitted by your employer, such as IR56B, or the relevant forms used on commencement or cessation of employment, to check your income details.
Tax Filing Timeline
Time |
Stage |
Action |
May - June |
Receive your tax return |
Check your physical mailbox or sign in to eTAX to view the electronic return. |
June - July |
Submit your tax return |
Submit it within 1 month of receipt. Online filing automatically gives you an additional 1 month. |
From October |
Receive notice of assessment |
Check the final tax amount and the provisional tax amount. |
January of the following year |
Pay the first instalment |
Pay most of the amount shown on the tax demand note. |
April of the following year |
Pay the second instalment |
Pay the remaining balance of tax. |
Tax Filing Process
- Organise your documents: keep your payslips, employment contract, MPF contribution records, and receipts or annual summaries for insurance, annuity and other deductible items.
- Check your income: compare your own records with your employer's information, such as IR56B, to make sure the reported salary, bonus and allowances are consistent.
- Complete allowances and deductions: claim the allowances that apply to your circumstances, such as the Basic Allowance or Married Person's Allowance, as well as eligible deductions such as approved charitable donations or self-education expenses.
- Submit on time: you may file online through eTAX or return the tax return according to the instructions. The Inland Revenue Department currently supports online tax payment, PPS, FPS, bank ATM and other payment methods.
- Check the assessment and payment dates: once you receive the notice of assessment, review the calculation and payment deadlines carefully. If provisional tax is included, make sure you also understand its purpose and how later adjustments work.
Tax Filing Points to Note
- Your tenancy agreement must be stamped: if your tenancy agreement has not been stamped, you will not be able to claim the domestic rents deduction.
- You must clear your tax before leaving for Mainland China: if you plan to leave Hong Kong, you should normally arrange tax clearance at least 1 month before departure.
- Keep your contact details updated: if you move home, remember to update your records with the Inland Revenue Department so that you do not miss important notices.
