Hong Kong Salaries Tax and the Double Taxation Arrangement: A Complete Guide
Hong Kong is famous for its simple, territorial tax system, and salaries tax is one of the three direct taxes charged under the Inland Revenue Ordinance (Cap. 112). For anyone earning employment income in Hong Kong — especially cross-border workers commuting between Hong Kong and Mainland China — the biggest concern is usually the same: will I be taxed twice on the same income? The answer is generally no, thanks to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income (the “DTA” or “Arrangement”). This guide explains how Hong Kong salaries tax works, what the Arrangement does, and how the two systems fit together. For more background on how Hong Kong taxes work in general, visit the GCT Guide homepage.
1. What Is Hong Kong Salaries Tax?
Salaries tax is charged under section 8 of the Inland Revenue Ordinance on income arising in or derived from Hong Kong from any office or employment. The taxable categories include wages and salaries, director’s fees, bonuses, commissions, leave pay, allowances, and most perquisites such as housing benefits, share awards, and employer-paid school fees. The tax year, called the year of assessment, runs from 1 April to 31 March. Employees are usually issued a tax return (Form BIR60) by the Inland Revenue Department (IRD), while employers must report employment details on Employer’s Returns (Forms BIR56A/B).
2. Who Pays Salaries Tax? The Territorial Source Principle
Hong Kong taxes on a territorial basis: only income with a Hong Kong source is chargeable. Employment income is treated as derived from Hong Kong when the employment is exercised in Hong Kong, regardless of where the employer is based. Three practical rules follow:
- Services rendered wholly outside Hong Kong: no salaries tax is charged on that income.
- The 60-day rule: if you visit Hong Kong to render services for no more than 60 days in the basis period, and your employer is not a Hong Kong resident or has no Hong Kong place of business, the income is fully exempt under section 8(1A)(b)(i) of the Ordinance.
- Foreign-sourced income: income from employment exercised and paid outside Hong Kong is generally outside the salaries tax net.
These rules are the first layer of protection against double taxation, and they interact closely with the DTA for cross-border workers.
3. Salaries Tax Rates and Allowances for 2024/25
Salaries tax is calculated at progressive rates on your net chargeable income (assessable income minus deductions and allowances). The total is capped by the standard rate of 15% applied to net assessable income before allowances — you pay whichever is lower. The progressive bands for the year of assessment 2024/25 are:
| Net chargeable income (HKD) | Tax rate | Tax on band (HKD) |
|---|---|---|
| First 50,000 | 2% | 1,000 |
| Next 50,000 | 6% | 3,000 |
| Next 50,000 | 10% | 5,000 |
| Next 50,000 | 14% | 7,000 |
| Remainder | 17% | — |
| Alternative cap: standard rate | 15% | of net assessable income |
Key allowances for 2024/25 include the basic allowance of HK$132,000, the married person’s allowance of HK$264,000, the single parent allowance of HK$132,000, and the child allowance of HK$130,000 for each of the first to ninth child. Employees’ mandatory provident fund (MPF) contributions are deductible up to HK$18,000 per year, and other deductions cover self-education expenses and home-loan interest (see the IRD allowances and deductions table). If your net chargeable income is nil after allowances, you pay no salaries tax. For the 2024/25 year, the Budget proposed a one-off 100% reduction of salaries tax, capped at HK$3,000 per case (DLA Piper budget summary).
4. What Is a Double Taxation Arrangement?
A double taxation arrangement is an agreement between two tax jurisdictions that allocates taxing rights and provides relief so that the same income is not taxed twice. Hong Kong has signed comprehensive DTAs with dozens of jurisdictions. The most important for local workers is the Arrangement with Mainland China, signed on 11 February 1998. It follows the OECD-style framework: it defines who is a “resident” of each side, allocates the right to tax each type of income, and sets out how relief is granted. The IRD publishes a full explanation of how these arrangements work in its DTA frequently asked questions.
5. The Employment Income Article and the 183-Day Rule
Under the Arrangement’s employment income article, salaries and wages are taxable only in the side where the employee is a resident, unless the employment is exercised in the other side. If the employment is exercised in the other side, that other side may tax the income — except where all three of the following conditions are met:
- The employee is present in the other side for not more than 183 days in the relevant fiscal year (the calendar year);
- The remuneration is paid by, or on behalf of, an employer who is not a resident of the other side; and
- The remuneration is not borne by a permanent establishment that the employer has in the other side.
In practice, a Hong Kong resident who commutes to work in Mainland China, stays fewer than 183 days there in a calendar year, and is paid by a Hong Kong employer will typically remain taxable only in Hong Kong under the Arrangement. Conversely, a Mainland resident working in Hong Kong can rely on the same test to determine whether Hong Kong may tax the income.
6. How Double Taxation Is Avoided: Tax Credit vs Exemption
Where both sides technically have taxing rights, the Arrangement grants relief through the tax credit method. If a Hong Kong resident earns income sourced in Mainland China and pays PRC tax on it, the Hong Kong tax charged on the same income is reduced by a credit for the PRC tax paid, subject to the Hong Kong tax attributable to that income (this mirrors the unilateral relief already available under section 50 of the Inland Revenue Ordinance). For Mainland residents taxed in Hong Kong, the PRC side gives a corresponding credit against individual income tax. The practical result: you pay the higher of the two jurisdictions’ taxes, never the sum of both. Because Hong Kong’s standard rate (15%) is generally lower than Mainland marginal rates, cross-border workers often end up with a Hong Kong tax bill that is fully absorbed, or a top-up tax due in Mainland.
7. Practical Tips for Cross-Border Workers
- Track your days. Keep a diary of days physically present in Hong Kong and in Mainland China — both the 60-day rule (Hong Kong internal law) and the 183-day test (DTA) turn on precise counts.
- Check who pays you. Whether your employer is a Hong Kong entity, a PRC entity, or an overseas entity changes which rules apply and whether the employer bears the remuneration.
- File in both places if required. Even if the DTA means no tax is ultimately due in one side, you may still need to file a return to claim the relief.
- Claim credits properly. Keep tax assessment notices and payment receipts from both jurisdictions as evidence for the foreign tax credit.
- Watch the calendar. Individual tax returns are generally due by early June (extended to early July for e-filing); late filing can bring penalties.
- Get professional advice if your situation involves share awards, secondment, or permanent establishment issues — the rules get complex quickly.
8. Frequently Asked Questions (FAQ)
Do I pay salaries tax if I live in Shenzhen and work in Hong Kong?
Possibly. Your Hong Kong-source employment income is chargeable to salaries tax, but the Arrangement may allocate the taxing right to Mainland China if you meet the 183-day test, are paid by a non-Hong-Kong employer, and the cost is not borne by a Hong Kong permanent establishment. If Hong Kong does tax you, a credit is available for any PRC tax paid on the same income.
What is the difference between the 60-day rule and the 183-day rule?
The 60-day rule is an internal Hong Kong exemption: if your Hong Kong visits do not exceed 60 days in the basis period and your employer is not a Hong Kong resident, your income is fully exempt from salaries tax. The 183-day rule comes from the DTA and allocates taxing rights between Hong Kong and Mainland China for residents of either side. They are separate tests that apply in different situations.
Can I claim a foreign tax credit for PRC tax paid?
Yes. If you are a Hong Kong resident who paid PRC tax on income that is also chargeable to salaries tax in Hong Kong, you can claim a credit under the Arrangement (and under section 50 of the Ordinance) for the foreign tax, capped at the amount of Hong Kong tax attributable to that income.
Is salaries tax the same as profits tax?
No. Salaries tax is charged on employment income; profits tax is charged on profits from a trade, profession, or business carried on in Hong Kong. A person who is both an employee and a business owner may be liable under both heads, though personal assessment can combine them.
Do I need to file a return if my income is below the basic allowance?
If you receive a tax return from the IRD, you should still complete and file it even if your income is below the allowance threshold — the IRD will assess that no tax is payable. You cannot simply ignore the return.
Sources
Figures and rules in this guide are drawn from official sources: the GovHK salaries tax rates page, the IRD double taxation relief FAQ, the IRD allowances, deductions and tax rate table (PAM61), and the DLA Piper summary of the 2025-26 Budget. Tax rules change, so always confirm the current position with the IRD or a qualified tax adviser.