Tax Facts

The Hong Kong tax system is one of the most straightforward and attractive anywhere. It is a territorial system that levies tax on income arising in or originating from Hong Kong, with a statutory rate set at 16.5 per cent for corporations and up to 17% for unincorporated business or individuals. Start-ups and smaller businesses benefit from a two-tier profits tax regime that taxes the first HK$2 million of assessable profits at 8.5% for corporations and 7.5% for unincorporated business.

There is no Hong Kong tax on dividend payments or capital gains. That applies also on dividends from foreign companies because they count as foreign-sourced income.

The tax year runs from 1st April to 31st March.

Pacific Jade’s highly-qualified expert Hong Kong tax team is happy to advise on the detail of the Hong Kong tax regime and to handle compliance work, covering issues ranging from arms-length transactions and country-by-country reporting, through to specialised sector incentives, salaries tax and statutory annual filings. We have deep experience managing the tax affairs for a range of local and international businesses, including publicly-listed companies, and can advise on individual tax matters.

The key elements of the Hong Kong tax regime for the 2022-23 tax year, announced in the February 2022 budget statement, are immediately below. Updates are shown in our blog pages.

Hong Kong 2022-23 Budget – Tax Highlights

Wednesday 23rd February 2022: New personal and corporate tax incentives are among the measures announced in the Annual Budget issued by Financial Secretary Paul Chan earlier today.

Both businesses and individuals will benefit from a proposed one-off tax rebate of 100% up to HK$10,000 for salaries tax, tax under personal assessment and profits tax. The rebates will be applied to tax levied for the current financial year, 2021/22. They will be deducted from the 2021/22 final tax assessment after 2021/22 Individual Income Tax Returns and Profits Tax Returns are filed.

Chan also proposed a tax deduction for domestic rental expenses starting from the year of assessment 2022/23 so as to ease the burden of renting a private property on taxpayers liable to salaries tax and tax under personal assessment who are not owners of domestic properties, subject to a deduction ceiling of HK$100,000 per year.

Chan proposed a waiver on Business Registration fees for 2022/23, benefitting 1.5 million Hong Kong-registered business currently facing an annual cost of HK$2,250. It means they will pay nothing in the 12 months starting this April.

Chan said the Budget placed substantial emphasis on fighting the COVID-19 pandemic by stepping up Anti-epidemic efforts, relieving individual hardship, supporting enterprises, creating jobs and issuing consumption vouchers for Hong Kong residents and new arrivals. Meanwhile, various measures were proposed for what Chan described as enhancing economic resilience, enriching industrial development, creating land, nurturing talent and building a liveable city.

With the outbreak of the fifth wave of the COVID-19 epidemic, businesses and individuals are facing considerable financial pressure. It is thus disappointing for local businesses that the Government did not propose further tax incentives such as allowing losses to be carried forward under the profits tax regime, permitting claims for leased plant and machineries used within Great Bay Area (“GBA”), or allowing enhanced R&D deductions for R&D activities carried out in GBA among other things.

A full list of the support measures that Chan did propose are listed in the highlights below.

Chan reiterated that the Government revenue is susceptible to changes in the economic environment due to a relatively narrow tax base, and reconfirmed this is neither the appropriate time to revise rates of profits tax and salaries tax. In the long run, he said, there will be further challenges in alleviating the pressure on public expenditure in the face of an ageing population. We expect that the Government will continue to explore different ways to broaden revenue sources, and will initiate in depth discussions to forge a consensus on how to sustain healthy public finances to meet the development needs of the local economy and society.

The highlights of the Budget are as follows:

I. Salaries Tax / Personal Assessment

  • A tax deduction for domestic rental expenses was proposed to ease the burden of renting a private property on taxpayers liable to salaries tax and tax under personal assessment who are not owners of domestic properties. However, no change to allowances was proposed.

    A summary of the allowances and deductions for 2021/22 and 2022/23 is shown as below:

    Allowances 2021/22
    HK$
    2021/22
    HK$
    Basic Allowance 132,000 132,000
    Married Person Allowance 264,000 264,000
    Single Parent Allowance 132,000 132,000
    Child Allowance 120,000 120,000
    For each child born during the year 120,000 120,000
    Dependent Brother or Dependent Sister Allowance 37,500 37,500
    Dependant Parent and Dependant Grandparent Allowance
    • for aged 60 or above or eligible to claim allowance under the Disability Allowance Scheme
    • for those aged 55 to 59


    50,000

    25,000


    50,000

    25,000
    Additional Dependant Parent and Dependant Grandparent Allowance
    • for aged 60 or above or eligible to claim allowance under the Disability Allowance Scheme
    • for those aged 55 to 59


    50,000

    25,000


    50,000

    25,000
    Disabled Dependant Allowance 75,000 75,000
    Personal disability allowance 75,000 75,000

    Deductions 2021/22
    HK$
    2022/23
    HK$
    Expenses of self-education 100,000 100,000
    MPF Contribution 18,000 18,000
    Home Loan Interest 100,000; 20 Years 100,000; 20 Years
    Elderly Residential Care 100,000 100,000
    Approved Charitable Donations 35% of income after deductions 35% of income after deductions
    Voluntary Health Insurance Scheme 8,000 8,000
    Annuity Premiums and MPF Voluntary Contributions 60,000 60,000
    Domestic rental expenses Nil 100,000

II. Marginal bands for salaries tax

  • No change is proposed. Tax Bands for salaries tax from year of assessment 2022/23 onwards are as follows:

    TAXABLE Income
    HK$
    Progressive tax rate Progressive tax applicable to the band
    HK$
    0-50,000 2% 1,000
    50,001-100,000 6% 3,000
    100,001-150,000 10% 5,000
    150,001-200,000 14% 7,000
    200,001 and over 17%

III. One-Off Tax Rebate

  • An one-off 100% tax rebate or HK$10,000 (whichever is lower) on 2021/22 Salaries Tax, Personal Assessment and Profits Tax has been proposed. The rebate will be deducted from the 2021/22 final tax (i.e. after the 2021/22 Individual Income Tax Returns and Profits Tax Returns are filed).

IV. Other tax concessions

The Financial Secretary also noted the following:

  • Hong Kong will continue to proactively expand its tax agreement networks.
  • The Government will propose to provide tax concessions for the eligible family investment management entities managed by single-family offices.
  • The Government will explore concrete proposals to promote the development of “Smart Port” and propose to provide half-tax concession to attract more maritime enterprises to establish a presence in Hong Kong.
  • Due to the relatively narrow tax base, there is a need to implement measures to increase revenue without affecting people’s livelihood, but this is not the appropriate time to revise the rates of profits tax and salaries tax.
  • In 2021, Hong Kong, together with more than 130 jurisdictions across the globe, pledged to implement the international tax reform proposals drawn up by the OECD to address base erosion and profit shifting (abbreviated as BEPS 2.0). As the global minimum effective tax rate under BEPS 2.0 only targets large multinational enterprise (MNE) groups with global turnover of at least 750 million euros, it will not affect local SMEs.

    The Government has been exchanging views with the affected MNEs on matters relating to the implementation of BEPS 2.0, and reaffirmed that the Government would preserve the advantages of Hong Kong's tax regime in terms of its simplicity, certainty and transparency, maintain the territorial source principle of taxation as well as minimise the compliance burden on MNEs when implementing BEPS 2.0.

    The Government plans to submit a legislative proposal to the LegCo in the second half of this year to implement the global minimum tax rate and other relevant requirements in accordance with the international consensus. At the same time, the Government will consider introducing a domestic minimum top up tax with regard to the aforesaid MNEs starting from the year of assessment 2024/25 to ensure that their effective tax rates reach the global minimum effective tax rate of 15 per cent so as to safeguard Hong Kong's taxing rights. The introduction of the global minimum tax rate in 2023 may help increase revenue from profits tax.

V. Property Owners

  • Although there will be no tax concession on property tax, property owners will enjoy waiver of rates for all four quarters in 2022/23, subject to a ceiling of HK$1,500 per quarter in the first two quarters and a ceiling of HK$1,000 per quarter in the remaining two quarters for each rateable property.

VI. Miscellaneous measures for supporting enterprises

  • The Government extends the application period of 100% guarantee low-interest loan for enterprises to end June 2023, raises loan ceiling to HK$9 million, extends the maximum repayment period to 10 years and offering the option of making partial repayment of principal over a longer period of time.
  • Rates for non-domestic properties will be waived for four quarters of 2022/23, subject to a ceiling of HK$5,000 per quarter in the first two quarters and a ceiling of HK$2,000 per quarter in the remaining two quarters for each rateable non-domestic property.
  • The business registration fees for 2022/23 will be waived.
  • 75% of water and sewage charges payable by non-domestic households will continue to be waived for eight months, subject to a monthly cap of HK$20,000 and HK$12,500 respectively.
  • 75% of the rental/fee concession will continue to be granted for eligible Government properties/short-term tenancies and waivers will be granted for six months (100% concession for those closed at the Government’s request).
  • Extend the waivers/concessions of the existing 34 groups of government fees and charges for twelve months.
  • Prohibit landlords from terminating the tenancy of or not providing services to tenants of specified sectors for failing to settle rents on schedule, or taking relevant legal actions against them. Valid for three months, and be extended for another three months, if necessary, with the legislation automatically lapsing after six months. Banks will exercise flexibility if the repayment ability of any landlord is affected owing to reduction in his rental income.

VII. Miscellaneous measures for relieving people’s burden

  • A subsidy of HK$1,000 will be granted to each residential electricity account.
  • An extra half-month allowance of standard Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance will be provided. Similar arrangements will apply to Working Family Allowance.
  • The examination fees will be paid for school candidates sitting for the 2023 Hong Kong Diploma of Secondary Education Examination.
  • The threshold for the Public Transport Fare Subsidy Scheme will be lowered to HK$200 for half a year (May to October).
  • Support for e-learning of students from grassroots families will be strengthened through the HK$2 billion set aside in the Quality Education Fund.
  • Application period of the 100% Personal Loan Guarantee Scheme for Individuals will be extended to end April 2023. The revised terms of the loan are as follows:-
    1. Loan ceiling at HK$100,000
    2. Maximum repayment period extended to ten years
    3. Maximum duration of principal moratorium extended to eighteen months

VIII. Others measures

  • HK$10,000 electronic consumption vouchers will be issued to each eligible Hong Kong permanent resident and new arrival aged 18 or above.
  • The subsidy ceiling of the Continuing Education Fund will be raised to HK$25,000 and the upper age limit will be removed.
  • The Mortgage Insurance Programme will be amended to raise the cap on the value of a property eligible for a mortgage loan of a maximum cover of 80 per cent loan to value (LTV) ratio from HK$10 million to HK$12 million. For the first time home buyers, the cap on the value of a property eligible for a mortgage loan of a maximum cover of 90 per cent LTV ratio will be raised from the existing HK$8 million to HK$10 million.
  • The rating system will be revised by introducing a progressive rating system for domestic properties to reflect the “affordable users pay” principle.

We trust you will find the above useful information. Should you have any questions, please do not hesitate to contact us on (852) 3705 0095 or [email protected].