Fear no more that dreaded green envelope containing your tax return form!
Filing taxes in Hong Kong is relatively quick and easy. Tax assessment forms are sent out from Wednesday, 1 May, but actually filling in the form can linger on your “to do” list for far too long. So to help make this process as painless as possible, here are some handy hints and tips on how to get it done and submitted asap.
Read more: MPF 101: How To Make The Scheme Work For You
How does it work?
Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% on net income (i.e. income after deductions), whichever is lower.
You can use this tax calculator to work out what you owe for the year. How much you were paid (before MPF deductions) includes full, part time and casual work, and also any pensions that you have been paid. This can easily be found on the tax payment statement from your company.
Those new to the city might find they get a nasty surprise in their first tax bill. That’s because in Hong Kong we pay part of our taxes a year in advance. Basically, the government works out what you owe for Year 1 and then assumes a similar salary and tax payment for the following year (known as “provisional tax”). This isn’t an issue if you have always lived in Hong Kong and your salary has increased from leaving school or college, but can be a nasty shock if you have moved here with a big salary and are expected to pay this all in the first year.
If you have reason to think that your salary will be less the following year (e.g. a lower bonus, an uneven gratuity, going self-employed, changing jobs or taking a career break) then you can complete a form to “hold over” or put off your provisional tax.
Tips and Tricks
Go paperless with an online tax account
The easiest way to file taxes is online, it’s quick, simple and you can save your work and go back and change things if you need to before submitting (plus it’s much better for the environment). It also gives you a handy estimate of your tax bill which is always good to keep in mind, as it will be due in January and April next year.
Register here and make sure this is the year you go paper free.
Rental Reimbursement Scheme
If you are paid a salary, ask your HR department about whether it has a “Rental Reimbursement Scheme” in place. This is a great way to take advantage of the tax breaks from renting in Hong Kong. In effect you pay rent to your landlord and they reimburse you to your salary (as if you had a housing allowance). It doesn’t cost them anything and can save you money in tax.
The maximum for an apartment that you can claim is 10% of your salary (often much less than your rent is in real life) but every little bit helps.
Learning and helping
A wonderful thing about Hong Kong is that you can claim for education and donations to charity. For both of these there are some rules. The education needs to be at a recognised institution (and not be being reimbursed by your company) and charities need to be registered in Hong Kong for donations of more than $100. You can donate up to 35% of your income in Hong Kong to registered charities and get tax deductions on that, so it might be time to look for one which means something to you and get donating.
Hong Kong is pretty generous in its deduction for family commitments. In every year of assessment, you are entitled to a basic allowance. You can also claim other allowances including:
- Married person’s allowance
- Child allowance
- Dependent brother or dependent sister allowance
- Dependent parent and dependent grandparent allowance
- Single parent allowance
- Disabled dependent allowance
- Personal disability allowance
For more details and to see what you are eligible for, check out this list.
Finally, there is a deduction for your MPF. This applies to both the salaried and the self-employed. This is made up of mandatory contributions – 5% of the monthly income with a cap of $1,500 per month, and voluntary which are capped at $60,000 per annum to a Tax Deductible MPF Voluntary Contribution Account.
For ALL deductions you need to keep receipts and make sure they are accurate. You don’t need to submit receipts with your tax form, but the Tax Authority does audit these deductions at random, so you need to make sure the receipts are available just in case. There are various apps out there that can help catalogue your receipts. I use Expensify, but you also need to keep your paper receipts somewhere for six years.
Once you submit your taxes you can take a deep breath. The bill itself doesn’t actually start to arrive for a few months and payments are in general made in January (for 75% of the total) and April (for the remaining 25%) the following year.
Should I take a tax loan?
These loans are so widespread in HK, it can seem like such an easy solution. However, this is still an unsecured loan no matter how many points, miles, bonuses or coupons they offer you. When considering a loan make sure that you consider:
- How much do you really need? (banks are always trying to offer you more and more and more)
- How much is the real interest rate? (ask for the full APR, rather than some bitty convoluted monthly rate that seems artificially low)
- How much will you need to pay back a month and can you afford it?
- Do you actually need it? Most companies will trip over themselves to offer you loans and it can feel like “free” money. It isn’t. Loans can easily build up and get you into trouble if you don’t take them seriously and properly analyse if you need them.
What do you do if you think your taxes are wrong? When you get your tax bill you have a month to dispute it in writing and this can be done using a simple form online. I have done it before myself, and generally they get back to you quickly and are incredibly helpful.
What if you can’t pay them all at once? If you are struggling to manage your tax payment there are a couple of options. The first and simplest is to contact the Tax Authority and see if it will accept your payment in stages. This is very simple to do and works out much better than taking out a tax loan, as there is no additional interest. In 2018/19 there is actually a 75% discount up to a maximum of $20,000 so it’s always a good idea to check online to see how much your taxes are likely to be.
Please bear in mind that this is just an overview and that there are many and varied differences in how (and when) you are paid that will affect your taxes, especially if you are self-employed or a director of a company. The deductions are mainly relevant to salaried individuals and if in doubt, please contact a tax accountant or the IRD. In my experience the Hong Kong tax people are the friendliest and most helpful tax officials I have ever met, and they have always helped me enormously whenever I have had questions.