Salaries Tax is charged for each year of assessment on individuals in respect of income arising in or derived from Hong Kong which is received or receivable during the year, irrespective of the location of payment. “Income” includes: Income from an office, employment (on a full-time, part-time or casual basis) or pension from a former employer. Income in respect of services rendered in Hong Kong relating to an office or employment of profit.

Under the Hong Kong Inland Revenue Ordinance, there are 3 types of direct taxes, namely, Salaries Tax, Profits Tax and Property Tax. Personal Assessment is not a tax levy. It is a method of computation of tax that may lighten the tax burden of certain taxpayers who are also subject to Profits Tax and/or Property Tax, aside from Salaries Tax. However, there is no merit for electing Personal Assessment if the relevant taxpayer is only liable to pay Salaries Tax.

As previously discussed in our article regarding Hong Kong Non-residents, a non-resident who carries on a trade, profession or business in Hong Kong is chargeable to Profits Tax under section 14 of the Inland Revenue Ordinance (“IRO”) in respect of profits arising in or derived from Hong Kong from such trade, profession or business. This applies to both residents and non-residents of Hong Kong.

Hong Kong Profits Tax is territorial in nature and only profits which have, or which are deemed to have, a Hong Kong source subjects to Profits Tax. If a Hong Kong company is established in such a manner that it does not carry on business in Hong Kong or if it generates profits which have a non-Hong Kong source, then the company may book its income without incurring profits tax liability in Hong Kong.

Hong Kong offers good opportunity for offshore arrangements. Hong Kong’s territorial source principle of taxation renders only those profits which arise in or are derived from Hong Kong are subject to Hong Kong tax. The residence or citizenship of a taxpayer is not relevant at all.