Two-Tiered Salaries Tax in Hong Kong (2024/25)
In brief
•Starting from the 2024/25 year of assessment (April 1, 2024), Hong Kong introduced a two-tiered standard rate system for Salaries Tax. High-income earners whose net income exceeds HKD 5 million now face a higher standard rate of 16%, while the first HKD 5 million continues to be taxed at 15%. This change affects approximately 12,000 taxpayers and reflects a targeted adjustment to Hong Kong's otherwise simple and flat tax system.
Two-Tiered Salaries Tax in Hong Kong (2024/25)
Salaries Tax is levied under the Inland Revenue Ordinance (Cap. 112) on income arising from any office, employment, or pension in Hong Kong. Hong Kong operates on a territorial basis — only income sourced from Hong Kong is taxable, regardless of where it is paid or where the employer is incorporated. Taxable income includes salaries, wages, directors' fees, commissions, bonuses, non-cash benefits, share awards and options upon vesting or exercise, and pension income. Exempt income includes severance payments and long-service payments under the Employment Ordinance (Cap. 57).
How Salaries Tax is Calculated
Hong Kong uses a "lower of two methods" approach. The IRD calculates your tax under both methods and charges the lower amount.
Method 1 — Progressive Rates (on net chargeable income = income − deductions − allowances)
•First HKD 50,000 — 2%
•Next HKD 50,000 — 6%
•Next HKD 50,000 — 10%
•Next HKD 50,000 — 14%
•Remainder — 17%
Method 2 — Standard Rate (on net income = income − deductions, before allowances)
•First HKD 5,000,000 — 15%
•Above HKD 5,000,000 (from 2024/25 onwards) — 16%
The standard rate acts as a cap: high earners who claim few allowances pay at standard rate. Lower-income taxpayers almost always benefit more from progressive rates.
The New Two-Tiered Standard Rate (2024/25 Change)
Prior to 2024/25, a flat 15% standard rate applied to all taxpayers regardless of income level. The 2024/25 Budget introduced a two-tiered regime targeting the highest earners.
Who Is Affected?
•The 16% rate applies only to the portion of net income exceeding HKD 5 million.
•A taxpayer with HKD 5.5 million net income pays 15% on the first HKD 5M and 16% on the remaining HKD 500,000.
•Approximately 12,000 taxpayers (0.6% of the total taxpayer base) are affected.
•The government expects to raise an additional HKD 910 million per year from this measure.
Why This Matters for Employers
•Accurately reporting all remuneration paid (cash and non-cash) via the annual Employer's Return (BIR56A / IR56B).
•Reporting share awards and options — commonly the income items that push executives above the HKD 5M threshold.
•Briefing affected high-income employees (e.g. expatriate executives) on the impact on provisional tax calculations.
Key Deductions and Allowances
Deductions (applied before standard rate calculation):
•Mandatory MPF contributions (up to HKD 18,000/year per employee)
•Self-education expenses (up to HKD 100,000/year)
•Home loan interest (up to HKD 100,000/year, max 20 years of assessment)
•Domestic rent (up to HKD 100,000/year, subject to qualifying conditions)
•Approved charitable donations (up to 35% of assessable income)
•Elderly residential care expenses
•Assisted reproductive services (up to HKD 100,000/year; new from 2024/25 — eligible for infertile couples and certain medical cases under Cap. 561)
Personal Allowances (applied only under progressive rate method):
•Basic allowance: HKD 132,000
•Married person's allowance: HKD 264,000
•Child allowance: HKD 130,000 per child
•Dependent parent/grandparent allowance: HKD 25,000–HKD 50,000 per person
Employer Reporting Obligations
Employers play a central role in the salaries tax system. Key obligations under IRO Cap. 112, s.52:
•BIR56A + IR56B — Annual Employer's Return, issued by IRD on April 1 each year; must be filed within 1 month
•IR56E — New employee notification, filed within 3 months of hire
•IR56F — Termination notice, filed 1 month before termination date
•IR56G — Departure notice for employees leaving HK, filed 1 month before departure
•Record keeping — All payroll records must be retained for at least 7 years (IRO s.51)
Employer Exposure
Non-compliance may result in penalties under IRO s.80 and s.82A. Employers who fail to notify the IRD of a departing employee risk personal liability for the employee's unpaid tax under IRO s.52(6).
Conclusion
The two-tiered standard rate is a targeted measure affecting a small percentage of HK's taxpayer base, but its implications for employers — especially those managing expatriate or executive payroll — are real. Accurate reporting of all remuneration forms, particularly share-based compensation, is more important than ever. If you are unsure whether your reporting obligations are being met, or how the new rate affects your tax position, Olive & Vine's tax team is ready to assist.
Frequently Asked Questions (Q&A)
Not necessarily. You only pay the 16% rate on the portion of net income above HKD 5 million. You also pay whichever is lower between the progressive and standard rate calculations — if your progressive tax comes out lower, you still pay that amount regardless of the standard rate.
Net income for standard rate purposes is your total assessable income minus allowable deductions (MPF, rent, home loan interest, etc.) but before personal allowances such as the basic allowance or dependent parent allowances. Personal allowances are only relevant under the progressive rate calculation.
Share awards are generally taxable as employment income at the time they vest — i.e. when the restriction on disposal is lifted. Share options are typically taxable on exercise. These amounts must be reported by your employer on Form IR56B and will form part of your assessable income for the year they are received.
Your core reporting obligations remain unchanged — you still file BIR56A and IR56B annually. However, for employees whose total remuneration (including share awards, bonuses, and non-cash benefits) may approach or exceed HKD 5 million, ensure all such items are reported accurately and completely. Incomplete reporting can lead to penalties under IRO s.80.
Provisional salaries tax is an advance payment estimated by IRD based on the prior year's assessment. For affected employees, the new 16% rate will flow through to future provisional tax calculations. Employees may apply to reduce provisional tax if their income for the year is expected to be lower — but this requires timely application and supporting documentation.
This material covers general information and does not provide solutions for any specific issues of any company or individual. Differences in legal terms may exist due to the translation into Korean to aid understanding. Olive and Vine does not assume any legal responsibility or guarantee the accuracy, completeness, or usefulness of this information. This material cannot replace legal or consulting advice; please consult with a professional if necessary.
