Hong Kong Tax Guide for New Arrivals: Salaries Tax, Profits Tax and MPF
Hong Kong is one of the world’s most tax-friendly jurisdictions for individuals and businesses alike. New arrivals are often pleasantly surprised: no capital gains tax, no VAT/GST, no withholding tax on dividends, no inheritance tax, and some of the lowest income tax rates among developed economies. Understanding how the system works lets you make informed decisions about your financial life in Hong Kong from day one.
Hong Kong’s Territorial Tax Principle
The foundational rule that makes Hong Kong tax so attractive: Hong Kong only taxes income arising in or derived from Hong Kong. This is called the territorial source principle.
What this means in practice:
- Income you earn from work performed in Hong Kong is taxable
- Income from overseas employment, overseas investments, or offshore businesses is not subject to Hong Kong tax
- A Shenzhen-based company paying you a salary is generally not HK-taxable
- Dividends from overseas stocks and rental income from overseas properties — not taxable
This makes Hong Kong particularly advantageous for international professionals with cross-border income streams, freelancers serving global clients, and business owners with operations in multiple jurisdictions.
Salaries Tax: How It Works
Who Pays Salaries Tax
Any individual who receives income from employment, office, or pension in Hong Kong is liable for salaries tax. “Arising in Hong Kong” is determined by where the services are performed — not where the employer is based.
Tax Rates
Hong Kong salaries tax uses progressive rates up to 17%, but in practice most people pay significantly less due to generous allowances.
Progressive Rates (on assessable income after allowances):
| Net Chargeable Income | Rate |
|---|---|
| First HK$50,000 | 2% |
| Next HK$50,000 | 6% |
| Next HK$50,000 | 10% |
| Next HK$50,000 | 14% |
| Remainder | 17% |
Standard Rate cap: Tax cannot exceed 15% of net income before allowances (for high earners, whichever is lower applies).
For context: the effective tax rate for someone earning HK$600,000/year (roughly HK$50,000/month) is typically around 8-10% after standard allowances — far lower than equivalent income tax in the UK, Australia, or Canada.
Personal Allowances
These deductions reduce your taxable income:
| Allowance | Amount (2025/26) |
|---|---|
| Basic Personal Allowance | HK$132,000 |
| Married Person’s Allowance | HK$264,000 |
| Child Allowance (1st–9th child) | HK$130,000 per child |
| Dependent Parent Allowance (each) | HK$25,000–50,000 |
| Elderly Residential Care Expenses | Up to HK$100,000 |
| Self-Education Expenses | Up to HK$100,000 |
| Home Loan Interest | Up to HK$100,000 |
| MPF Voluntary Contributions | Up to HK$18,000 |
The basic personal allowance alone means anyone earning under HK$132,000/year pays zero salaries tax.
Tax Year and Filing
Hong Kong’s tax year runs 1 April to 31 March (not the calendar year). The Inland Revenue Department (IRD) issues tax returns in May each year for the previous year’s income. First-year new arrivals often receive a “provisional tax” assessment — this is an advance payment toward the following year’s tax, not double taxation.
Profits Tax: For the Self-Employed and Business Owners
If you operate a business in Hong Kong (including freelancing, consulting, or sole proprietorship), your business income is subject to profits tax rather than salaries tax.
Rates
| Entity | Profits Tax Rate |
|---|---|
| Unincorporated business (first HK$2M profits) | 7.5% |
| Unincorporated business (above HK$2M) | 15% |
| Corporation (first HK$2M profits) | 8.25% |
| Corporation (above HK$2M) | 16.5% |
The two-tier rate system introduced in 2018 benefits small businesses significantly — 8.25% on the first HK$2 million of corporate profits is remarkably low by international standards.
Offshore Profits Exemption
Profits derived from business activities conducted entirely outside Hong Kong can be exempt from profits tax (offshore claim). This is a legitimate and widely-used structure — but requires proper documentation that the relevant activities (negotiations, contracts, decision-making) genuinely occurred offshore. The IRD scrutinises offshore claims carefully since 2023 under new FSIE (Foreign-Sourced Income Exemption) rules.
Mandatory Provident Fund (MPF): The Hong Kong Pension System
The MPF is Hong Kong’s compulsory retirement savings scheme. Both employer and employee must contribute.
Contribution Rates
| Party | Contribution | Cap |
|---|---|---|
| Employee | 5% of relevant income | Max HK$1,500/month |
| Employer | 5% of relevant income | Max HK$1,500/month |
Relevant income cap: Contributions are calculated on income up to HK$30,000/month. Above that, you still pay the fixed maximum HK$1,500 (not more).
Minimum income threshold: Employees earning less than HK$7,100/month are exempt from employee contributions (employer must still contribute).
MPF for New Arrivals
- You are enrolled in MPF once you start employment (within 60 days of employment start)
- Exemptions: Foreign domestic helpers, expatriates on contracts under 13 months (may apply for exemption), civil servants with their own pension scheme
- MPF funds are locked until age 65 (or early withdrawal in limited circumstances: terminal illness, permanent departure from HK, small balances)
Voluntary MPF Contributions (Tax Deductible)
You can make additional voluntary contributions to your MPF account beyond the mandatory 5%, up to HK$18,000/year, and deduct this from your assessable income for salaries tax — an easy and immediate tax saving.
Property Tax
If you own rental property in Hong Kong, rental income is subject to property tax at 15% of the net assessable value (after a 20% statutory deduction for repairs and outgoings). Property owners who are also salaries taxpayers can elect to be assessed under personal assessment, which may reduce overall tax if they have sufficient allowances.
No Wealth, Capital Gains or Estate Taxes
Confirming the popular perception: Hong Kong genuinely does not have:
- Capital gains tax (profits from selling stocks, properties, or other assets are not taxed)
- Dividend withholding tax (dividends from HK companies paid to non-residents are not taxed)
- Estate duty / inheritance tax (abolished in 2006)
- Goods and Services Tax (GST) or Value Added Tax (VAT)
Double Taxation Agreements
Hong Kong has Comprehensive Double Taxation Agreements (CDTAs) with over 45 jurisdictions including China, the UK, Japan, France, and the Netherlands. If you have income taxed in another country that is also technically HK-sourced, these agreements prevent you from being taxed twice.
Practical Tips for New Arrivals
Keep pay slips and tax records from day one. The IRD may request documentation going back several years, especially if you have mixed HK and overseas income.
Understand your employment contract structure. Expat packages often include housing allowances, school fees, and other benefits — these are generally also assessable for salaries tax.
Consider a tax advisor for year one. Hong Kong’s system is simple, but the first-year provisional tax calculation and partial-year residency rules can be confusing. A qualified Hong Kong CPA for the first year is typically worthwhile.
Summary
| Tax Type | Rate | Key Notes |
|---|---|---|
| Salaries Tax | 2%-17% progressive / 15% standard | Territorial; generous allowances reduce effective rate |
| Profits Tax (Corporate) | 8.25%-16.5% | Two-tier; offshore income potentially exempt |
| Profits Tax (Unincorporated) | 7.5%-15% | Two-tier system |
| Property Tax | 15% of net rental value | Rental income only |
| Capital Gains Tax | 0% | No CGT in HK |
| Inheritance Tax | 0% | Abolished 2006 |
| MPF | 5% employer + 5% employee | Capped at HK$1,500/month each |
This guide provides general information only. Tax rules change and individual circumstances vary — consult a qualified Hong Kong tax advisor or the Inland Revenue Department (IRD) for advice specific to your situation.