The city of Hong Kong is often regarded as an excellent setting in which to manage a business.
In addition to being a tax haven for Hong Kong company incorporation, the country also boasts one of the most liberal economies in the world. A company may pay a salary or an honorarium to its directors.
Personal tax returns are also required in this scenario. Know the ins and outs of the tax system before you need to file your taxes. Read on to pick out 5 crucial pointers for submitting your individual tax return in Hong Kong.
1. Check Your Dates
Business tax filing in Hong Kong may be complicated due to the city’s complex tax schedule.
Taxes in the US are typically reported for the 12-month period beginning in January. A new tax year begins on April 6 and ends on April 5 in the United Kingdom.
The personal tax year in Hong Kong is from April to the following March. It is vital to remember that each country has its own tax year and to know which months of income belong to each tax year.
Investing in tax recording software that can assist prepare you for the various tax years, or hiring a professional to file your taxes for you, will help prevent confusion. Mistakes in filing for the incorrect months may have serious financial and legal repercussions.
2. Figure Out Your Cost
This tax advice is aimed at self-employed people operating in Hong Kong. Before submitting your taxes, you’ll need to calculate your appropriate tax rate.
Your effective tax rate in Hong Kong will vary according to a number of different criteria.
In order to determine your tax bracket, you must first determine whether these criteria apply to you. You may use this information to save aside cash now to pay your taxes in full come April.
Hong Kong has four progressive tax levels. Rates vary from 2% to 17%. General tax rate is 15%.
The tax rate is progressive, meaning it rises with a person’s taxable income. Here are the four progressive rates and the corresponding income brackets:
- The tax rate is 2% for those who earn between 0 and 40,000 HKD annually.
- Taxes are set at 7% for anyone earning between 40,000 and 80,000 HKD annually.
- The top rate of individual taxation is 12% for that earning between $80,000 and $120,000 HKD annually.
- Earnings above 120,001 HKD per year are subject to a 17.0% tax rate.
Your taxable income in Hong Kong is the amount left over after removing all of your allowances and deductions.
The alternative is the regular tax rate, which is now 15%. This rate is applicable if your net total income is less than your net chargeable income.
For corporate returns, the normal tax rate on net earnings is 16.5%.
3. Realize The Importance Of Your Work Environment
Only earnings made in Hong Kong are subject to taxation.
Hong Kong taxes foreign-earned income from full-time residents. Work in Hong Kong for 59 days or fewer and avoid Hong Kong taxes.
It’s possible to deduct the income taxes paid to a country other than Hong Kong. To get a tax credit from Hong Kong, you must provide evidence of having paid taxes in the foreign nation in question to the Hong Kong tax authorities.
For tax purposes, a company is required to report solely Hong Kong-sourced revenue. Foreign-earned income is exempt from U.S. taxation.
4. Verify Deductions And Exemptions.
You may lower your tax rate or the portion of your income that is subject to taxation thanks to a variety of available exemptions and deductions.
Taxes already paid in another nation may be deducted, for instance. Charity is another good example.
Hong Kong residents get a regular cost of living deduction. Hong Kong does not tax income, capital gains, or inheritance.
Finding the necessary exclusions and deductions for your firm may be tricky. Before claiming tax deductions, consult the IRD. If not, you risk underpaying your obligation and legal action.
5. Decide On A Payment Strategy
The Inland Revenue Department (IRD) collects and processes tax returns and payments in Hong Kong.
The first working day of May is traditionally when tax returns are distributed. The IRD will accept it for processing for a month after you get it.
Online tax filing lets you pay your Hong Kong business’s taxes in May from anywhere. Post your IRD return.
File taxes using the zero percent income rate even though you have no income that year.