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Hong Kong – Budget Offers Relief from Salaries Tax, Other Measures

Hong Kong – Budget Offers Relief from Salaries Tax,

This report covers several tax measures impacting individuals and their employers in the recently released Hong Kong Budget.

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The Hong Kong financial secretary announced a large estimated fiscal surplus in his Budget speech on Wednesday, 28 February 2018.1  This large surplus enabled him to propose a number of measures aimed at reducing the tax burden on individuals.   

With respect to Salaries Tax – which is charged on income arising in or derived from Hong Kong from an office or employment or a pension – these measures include a one-off reduction, increases in several personal allowances, and the widening and adjusting of the progressive rate bands.  The Financial Secretary also provided details of the deduction for medical contributions mentioned in last year’s Budget.2   

For a full analysis of the Budget see “Hong Kong Budget Summary 2018-2019,” a publication of the KPMG International member firm in Hong Kong.  Also visit the Hong Kong member firm’s dedicated Budget site

WHY THIS MATTERS

The proposed relief measures for 2018-19 and the tax reduction for 2017-18 will reduce the tax payable by employees in Hong Kong.  This could mean lower international assignment costs for employers.  

The proposals may necessitate adjustments to tax equalisation and tax protection calculations for 2017-18 and estimates for 2018-19.

International assignment cost projections and budgets for assignments to and from Hong Kong may need to be reconsidered in light of the changes in the budget, once they come into effect.   

One-Off Reduction in Salaries Tax 2017-2018, 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 2017-18, subject to a ceiling of HKD 30,000.  The reduction will be reflected in the final tax payable for 2017-18.

The tax charge for 2017-18 and 2018-19 is the lower of the:

  • Net assessable income less charitable donations and allowable deductions at the standard rate; or
  • Net assessable income less charitable donations, allowable deductions, and personal allowances, charged at the progressive rates. 
2017-18 Rate HKD 2018-19 Rate HKD
First HKD 45,000 2% 900 First HKD 50,000 2% 1,000
Next HKD 45,000 7% 3,150 Next HKD 50,000 6% 3,000
Next HKD 45,000 12% 5,400 Next HKD 50,000 10% 5,000
Balance 17%   Next HKD 50,000 14% 7,000
      Balance  17%  

[HKD 1 = EUR 0.104 | HKD 1 = USD 0.1275 | HKD 1 = GBP 0.0916]

 

The standard rate of Salaries Tax for 2017-18 and 2018-19 is 15 percent.

The Financial Secretary proposed increases to the child allowance and to the dependent parent / grandparent allowances.  He also proposed introducing a personal disability allowance for eligible taxpayers.  Personal allowances are considered when calculating the tax payable at the progressive rates.

The personal allowances for 2017-18 and 2018-19 are set out below:

    2017-18 HKD 2018-19 HKD
Personal allowance Basic  132,000 132,000
Married 264,000 264,000
Single parent 132,000 132,000
Disabled - 75,000
Child allowance 1st to 9th child (each)    
Year of birth 200,000 240,000
Other years 100,000 120,000
Dependent parent / grandparent allowance Aged 60 or over 46,000 50,000
Aged 55 to 59 23,000 25,000
Additional dependent parent / grandparent allowance Aged 60 or over 46,000 50,000
Aged 55 to 59 23,000 25,000
Disabled dependant (spouse / child / parent / grandparent / brother / sister) allowance   75,000 75,000
Dependent brother / sister allowance   37,500 37,500

 

Applying the above Salaries Tax rates and allowances, a family of four would have to earn more than HKD 5,184,000 in 2018-19 before paying tax at the standard rate.  

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

  • A deduction is available for self-education expenses.  The deduction is available in respect of fees for training courses run by approved institutions.  The maximum amount of deductible expenses that can be claimed for 2018-19 is HKD 100,000.
  • Home mortgage 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 deduction can be claimed for 20 years of assessment.
  • As an alternative to the personal 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 Financial Secretary has proposed increasing the maximum deduction to HKD 100,000.
  • 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 recognised retirement schemes and MPF schemes. The maximum amount of deductible contributions for the year of assessment 2018-19 is HKD 18,000.
  • The Financial Secretary indicated that the tax deduction proposed in last year’s Budget for eligible health insurance products will be capped at HKD 8,000 per insured person.  Further details of the Voluntary Health Insurance Scheme are to be provided shortly.
  • A deduction of up to a maximum of 35 percent of assessable income is available for approved charitable donations.

Next Steps

Legislative proposals 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 (in English), and related documentation and videos, click here

2  For coverage of last year’s budget, see GMS Flash Alert 2017-046 (8 March 2017).

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

© 2018 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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