Hong Kong – Budget Offers One-Off Relief on Salaries Tax

Hong Kong – Budget Offers One-Off Relief on Salaries

This GMS Flash Alert reports on several of the key measures for individuals in this year’s Hong Kong Budget.

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The new Financial Secretary, the Hon. Paul MP Chan, has presented his first Hong Kong Budget speech1 a little over one month into his new role.  The Budget measures affecting individuals, including those on international assignment and their employers, featured a reduction of Salaries Tax, Profits Tax, and tax under personal assessment payable for 2016-17 by 75 percent, subject to a ceiling of HKD 20,000.

For a full analysis of the Budget, see “Hong Kong Budget Summary 2017-2018,” a publication of the KPMG International member firm in Hong Kong.2  Also, visit the Hong Kong member firm’s dedicated Budget site.

In this GMS Flash Alert, we focus on the Budget proposals affecting individuals – including those on international assignment – and their multinational employers.  

WHY THIS MATTERS

The proposed one-off reduction will be welcomed by many taxpayers, who will see their tax burdens lighted (at least for this tax cycle).  Employers should take steps in regards to their tax equalized assignees and, in particular, those who have departed Hong Kong during the year of assessment 2016-2017.

International assignment cost projections and budgets for assignments to and from Hong Kong made prior to the Budget proposals should still remain relevant.  

Salaries Tax, Personal Allowances, and Deductions

The Financial Secretary has proposed a one-off reduction of 75 percent of Salaries Tax (and tax under personal assessment) for 2016-17, subject to a ceiling of HKD 20,000.  The reduction will be reflected in the final tax payable for 2016-17.

The tax charge for 2016-17 and 2017-18 is the lower of the:

(a) net assessable income less charitable donations and allowable deductions at the standard rate; or

(b) net assessable income less charitable donations, allowable deductions, and personal allowances, charged at the progressive rates. 

The Financial Secretary has proposed widening the progressive rate bands from HKD 40,000 to HKD 45,000.

2016-17 Rate HKD
2017-18 Rate
HKD
First HKD 40,000 2% 800 First HKD 45,000 2% 900
Next HKD 40,000 7% 2,800 Next HKD 45,000  7% 3,150
Next HKD 40,000 12% 4,800 Next HKD 45,000 12% 5,400
Balance 17%   Balance 17%  

 

The standard rate of Salaries Tax for 2016-17 and 2017-18 is 15 percent.

The Financial Secretary has proposed changes to two personal allowances under Salaries Tax and personal assessment.  The disabled dependant allowance will be increased to HKD 75,000 and the dependent brother/sister allowance to HKD 37,500.  Personal allowances are considered when calculating the tax payable at the progressive rates.  The personal allowances for 2016-17 and 2017-18 are set out below.

    2016-17 HKD 2017-18 HKD
Personal allowances (basic) 132,000 132,000
(married) 264,000 264,000
Single parent allowance   132,000 132,000
Child allowances 1st to 9th child (each)    
- Year of birth 200,000 200,000
- Other years 100,000 100,000
Dependent parent allowance
(aged 60 or above)

46,000

46,000
(aged between 55 and 59) 23,000 23,000
Additional dependent parent and grandparent allowances
(aged 60 or above)

46,000

46,000
(aged between 55 and 59) 23,000 23,000
Disabled dependant (spouse/child/parent/ grandparent/brother/sister)    66,000 75,000
Dependent brother/sister allowance   33,000 37,500


Applying the above Salaries Tax rates and allowances, a family of four will have to earn more than HKD 4,619,000 in 2017-18 before paying tax at the standard rate.

The standard rate of Salaries Tax for 2016-17 and 2017-18 is 15 percent.The Financial Secretary has proposed changes to two personal allowances under Salaries Tax and personal assessment.  The disabled dependant allowance will be increased to HKD 75,000 and the dependent brother/sister allowance to HKD 37,500.  Personal allowances are considered when calculating the tax payable at the progressive rates.  The personal allowances for 2016-17 and 2017-18 are set out below.

Tax Deductions

The following items are deductible in determining a person’s Salaries Tax liability:

Home Mortgage Interest – Interest payments are deductible against income subject to Salaries Tax.  Owner-occupiers may claim a deduction for mortgage interest payments up to a maximum of HKD 100,000 per year for one property. The Financial Secretary has proposed extending the period the deduction can be claimed to 20 years.

Self-Education Expenses – A deduction is available for self-education expenses. The deduction is available in respect of fees for training courses run by approved institutions.  The Financial Secretary has proposed increasing the maximum amount of deductible expenses for 2017-18 to HKD 100,000 (previously HKD 80,000).

Contributions to Retirement Schemes – A deduction up to the maximum of the mandatory annual contributions payable under the Mandatory Provident Fund (MPF) scheme is available for contributions made by employees to recognized retirement schemes and MPF schemes.  The maximum amount of deductible contributions for the year of assessment 2017-18 is HKD 18,000.

Care of Dependent Parent or Grandparent – As an alternative to the allowance for maintaining a dependent parent/ grandparent, a deduction is available for the expenses incurred in maintaining a dependent parent/grandparent in residential care.  The maximum deduction for the year of assessment 2017-18 is HKD 92,000.

Charitable Donations – A deduction of up to a maximum of 35 percent of assessable income is available for approved charitable donations.

Purchase of Regulated Health Insurance Products – To encourage the use of private health-care services, the Financial Secretary indicated that a tax deduction will be introduced for the purchase of regulated health insurance products.  No further details or an indication of timing were provided.

Property Tax

The standard rate remains at 15 percent for 2017-18.

Property Rates

Rates on properties throughout the territory remain at 5 percent of the rateable value.  However, rates for all four quarters will be waived in 2017-18, subject to a ceiling of HKD 1,000 per quarter for each rateable property.

Stamp Duty

Property Transactions

No changes were proposed to the Stamp Duty rates and banding on property transactions in the Budget.

Sales/Transfers of Stock

No changes were announced to the rate of Stamp Duty payable in respect of transfers of Hong Kong stock.  This remains at an aggregate ad valorem rate of 0.2 percent of the actual consideration or the value of the stock as at the transfer date, whichever is higher.  The trading of all exchange-traded funds remains exempt from Stamp Duty.  

Profits Tax

Persons conducting business in Hong Kong are liable to Profits Tax on profits arising in or derived from Hong Kong.

The Financial Secretary did not change the Profits Tax rates and allowances for 2017-18.  As in previous years, a ‘one- off’ reduction of 75 percent of the Profits Tax payable for 2016-17 has been proposed, with a ceiling of HKD 20,000. 

The reduction will be reflected in taxpayers’ final tax payable for 2016-17.

The Profits Tax rate for corporations will remain at 16.5 percent for 2017-18, and, for unincorporated businesses, it will remain at 15 percent.

The rate of deeming assessable profits from royalty type payments for the use of intellectual property will remain at 30 percent or 100 percent of the payment, as the case may be.  Therefore, the effective tax rate on such payments will remain at 4.95 percent or 16.5 percent for 2017-18.

KPMG NOTE

Legislative proposals – as contained in this Budget speech – do not generally become law until their enactment and may be modified by the Legislative Council before enactment.

FOOTNOTES

1  For the text of the Budget speech, click here

2  For Budget comments by KPMG China tax partner Charles Kinsley speaking on CNBC's "Rundown," click here.

 

HKD 1 = GBP 0.1055

HKD 1 = EUR 0.122

HKD 1 = USD 0.129

HKD 1 = JPY 14.66

CONTACTS

For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with the KPMG International member firm in Hong Kong:

 

Barbara Forrest

Tel. +852 2978 8941

barbara.forrest@kpmg.com

 

Murray Sarelius

Tel. +852 3927 5671

murray.sarelius@kpmg.com

 

David Sieuw

Tel. +852 2143 8785

david.sieuw@kpmg.com

The information contained in this newsletter was submitted by the KPMG International member firm in Hong Kong.

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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