Tax Obligations for Non-Residents in Hong Kong with an Annual Income of USD 150,000

Hong Kong's tax system operates based on a territorial principle, meaning that only income sourced from within Hong Kong is taxable. For non-residents, only income earned from employment in Hong Kong is subject to taxation. This article will provide a detailed breakdown of how much a non-resident would pay in taxes if they have an annual income of USD 150,000 in Hong Kong, using the latest tax rates as of 2023.

Understanding the Tax System in Hong Kong

The tax system in Hong Kong is based on progressive and flat rate systems. As of 2023, the progressive tax rates are as follows: 2% on the first HKD 50,000 of income 7% on the next HKD 50,000 from HKD 50,001 to HKD 100,000 of income 12% on the next HKD 50,000 from HKD 100,001 to HKD 150,000 of income 17% on any income above HKD 200,000 Alternatively, a flat rate of 15% can be applied to the net chargeable income.

Conversion of USD to HKD

As of August 2023, the exchange rate is approximately 1 USD 7.85 HKD. Therefore, an annual income of USD 150,000 converts to roughly HKD 1,177,500.

Tax Calculation: Progressive Tax Rates

Let’s break down the tax calculation using the progressive tax rates. We’ll be calculating the tax based on the annual income of HKD 1,177,500. First HKD 50,000: 2% HKD 1,000 Next HKD 50,000 (from HKD 50,001 to HKD 100,000): 7% HKD 3,500 Next HKD 50,000 (from HKD 100,001 to HKD 150,000): 12% HKD 6,000 Remaining HKD 1,027,500 (from HKD 150,001 to HKD 1,177,500): 17% HKD 174,675 Total Tax using the progressive rate system HKD 1,000 HKD 3,500 HKD 6,000 HKD 174,675 HKD 185,175

Tax Calculation: Flat Rate

Alternatively, we can use the flat rate of 15%. The net chargeable income in this case is HKD 1,177,500. Total Tax using the flat rate system 15% of HKD 1,177,500 HKD 176,625

Conclusion

You would pay either HKD 185,175 using the progressive rates or HKD 176,625 using the flat rate. Since the flat rate is lower, it would be the preferable option for most taxpayers.

Note

It is important to note that tax regulations can change. Therefore, it is always advisable to consult with a tax professional or the Hong Kong Inland Revenue Department for the most accurate and personalized advice.

Additional Notes and Information

To work in Hong Kong, you need to be a resident, but a work visa can grant you a resident ID card. You become a permanent resident after 7 years. Salaries tax in Hong Kong is around 15%, but with appropriate deductions, the amount can be significantly lower, around USD 10,000 depending on your specific deductions.

Capital gains are not taxed in Hong Kong, but income not arising from Hong Kong is typically not subject to taxes. However, the definition of Hong Kong income is broad, and it is usually better to claim that the income is from Hong Kong.

Non-residents generally do not pay social security contributions in Hong Kong. US citizens can exclude about 100,000 in earned income for living overseas, plus standard deductions, meaning they might not pay US taxes. Nonetheless, filing tax returns to claim the exclusion is necessary. Once the IRS starts an enforcement action, you cannot claim the exclusion.

The tax situation can be quite different if you have a different nationality. Local friends in the UK mention some peculiar rules that can help you save on taxes. However, I don't track these specific details.