Compared to other countries and cities in the world, Hong Kong has a straightforward and simple tax system, but there are still a few ways you can make sure you are not paying more salaries taxes than you have to.
Here are 5 ways you can lower your salary taxes
1. Ask your employer to setup a Housing Allowance policy
The most effective way to pay less taxes is if your employee sets up a Housing Allowance policy, and the best part? It costs the employer nothing.
How it works:
Housing allowances are taxed at 10% of net salary. To take advantage of this, your employer sets up your pay slips so that a portion of the salary is considered as housing rental reimbursement.
Meaning, if your salary is $50,000 a month, and your rent is $20,000 each month, setup the salary statements so that you receive $30,000 of salary and $20,000 in rental reimbursements. In this example, you end up saving almost $35,000 in taxes each year!
For more details of how this exactly works: How to Lower Your Staff’s Taxes Using Housing Allowance
2. Deducting your Monthly Rent on your tax returns
Starting in 2022, the Hong Kong IRD started implemented Tax Deductions for Domestic Rent.
How it works:
If you or your spouse pay rent for your flat, you can now deduct up to $100,000 of your rent from your taxable income.
For more details: Tax deductions for Rent Payments
3. See if you qualify as a contractor instead of an employee
Often, when your salary starts to increase, it may be beneficial for both you and your employer to explore the option of changing your status from an employee to an independent contractor. As an independent contractor, instead of paying salaries tax, you would be subject to profits tax, this means that expenses such as transportation, business related meals, expenses related to equipment, are all deductible expenses now. However, there are a few key factors the IRD looks at to determine whether you really qualify as an independent contractor.
Factors the IRD looks at to determine if you qualify as an independent contractor: Do I Qualify as an Independent Contractor?
4. Making sure you use every available allowance
To make sure you’re not paying more taxes than you need to, you should make sure to take advantage of every available deduction. Common deductions that people often over look include:
- Domestic Rent Expense deductions (as explained above)
- MPF Payments
- Interests paid on your mortgage
- The full list of allowances can be found here: https://www.ird.gov.hk/eng/tax/ind_all.htm
Allowances and Deductions | HK$ |
| Basic Allowance | 132,000.00 |
| Married Person’s Allowance | 264,000.00 |
| Child Allowance (For each of the 1st to 9th child) | 120,000.00 |
| For each child born during the year, the Child Allowance will be increased by | 120,000.00 |
| Dependent Brother or Sister Allowance (For each dependant) | 37,500.00 |
| Dependent Parent and Dependent Grandparent Allowance (For each dependant) | |
| Parent / grandparent aged 60 or above or is eligible to claim an allowance | 50,000.00 |
| under the Government’s Disability Allowance Scheme | |
| Parent / grandparent aged 55 or above but below 60 | 25,000.00 |
| Additional Dependent Parent and Dependent Grandparent Allowance | |
| Parent / grandparent aged 60 or above or is eligible to claim an allowance | 50,000.00 |
| under the Government’s Disability Allowance Scheme | |
| Parent / grandparent aged 55 or above but below 60 | 5,000.00 |
| Single Parent Allowance | 132,000.00 |
| Personal Disability Allowance | 75,000.00 |
| Disabled Dependant Allowance (For each dependant) | 75,000.00 |
| Expenses of Self-Education | 100,000.00 |
| Elderly Residential Care Expenses | 100,000.00 |
| Home Loan Interest | 100,000.00 |
| Mandatory Contributions to Recognized Retirement Schemes | 8,000.00 |
| Qualifying Premiums Paid under Voluntary Health Insurance Scheme (VHIS) | 8,000.00 |
| Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contributions | 60,000.00 |
| Domestic Rents Deduction | 100,000.00 |
| Approved Charitable Donations | |
| [(Income – Allowable Expenses – Depreciation Allowances) x Percentage ] | 35% |
5. Delay your tax payment with an application for Holdover or apply to pay in instalments
If for whatever reason, you may make less money than the year before, you can apply to either delay the provisional portion of your tax bill or you can apply to pay for it in instalments
Details on how to apply here: https://www.ird.gov.hk/eng/tax/measures.htm
Bonus:
The Hong Kong IRD has an extremely useful tool for people to estimate how much taxes they may owe:
Check and plan your tax liability with the IRD’s tax calculator
