With the end of the tax year approaching, HOWARD CLARK-BURTON, the CEO of BMP Wealth, gives us some advice for making the right decisions regarding tax in Hong Kong.
Managing your wealth tax-efficiently is one of the simplest ways to make your money work harder. By making full use of available tax allowances and reliefs before the Hong Kong tax year ends on 31 March, you could reduce unnecessary liabilities and keep more of what you earn.
With the deadline rapidly approaching, now is the time to get your finances in order and ensure that youโre making the most of HKโs favourable tax environment!
About tax in Hong Kong
Compared to other jurisdictions, such as the UK, Hong Kong is an attractive tax environment. For working professionals, only income arising or derived in Hong Kong is generally taxable, and if youโre a business owner, thereโs no VAT, Capital Gains Tax or Dividend Tax to pay. Investments are also Capital Gains Tax free, and there is no Inheritance Tax here.
Individuals are taxed on employment income based on a progressive rate from 2% to 17%, or at the standard rate of 15% โ whichever produces the lower tax liability.
Importantly, your personal allowances will be deducted from your net income before tax charges are levied. So, making full use of available allowances is crucial because they directly reduce your โnet chargeable incomeโ, which can significantly lower your tax bill.
Making the most of your annual tax allowances
Below, are eight smart things to do before the tax year ends, when many of Hong Kongโs generous tax allowances and reliefs will reset.
Note that you can claim tax allowances and deductions for the 2024/25 tax year when you file your Individual Tax Return (BIR60), which the Inland Revenue Department (IRD) will issue on the first working day of May. Most taxpayers are allowed one month from the date of issue to submit their BIR60. Late submissions may incur penalties and extra costs, even if you donโt owe tax.
#1 Identify which personal allowances youโre entitled to
Both permanent and temporary residents with a taxable income are entitled to a basic allowance of $132,000 for the 2024/25 tax year, before any Income Tax is due. This is automatically applied if youโre a single taxpayer, provided youโre not also claiming a married personโs allowance.
You may be eligible to claim additional allowances to reduce your total assessable income. According to the Hong Kong government website, these include:
- Child allowance
- Single parent allowance
- Married personโs allowance
- Personal disability allowance
- Disabled dependant allowance
- Dependant brother and sister allowance
- Dependant parent and dependant grandparent allowance
Claiming all the allowances youโre entitled to could mean that youโre able to earn a considerable amount of income before any tax is due.
#2 Top up your Mandatory Provident Fund contributions
Most employees and self-employed individuals aged 18 to 65 must contribute 5% of their relevant income to a Mandatory Provident Fund (MPF) โ subject to a statutory minimum and maximum monthly income level ($7,100 and $30,000 for 2024/2025).
Beyond your mandatory contributions, you can make TaxDeductible Voluntary Contributions (TVCs) up to $60,000 in a single tax year.
This is a straightforward and effective way to reduce your taxable income while boosting your retirement savings. Itโs worth noting that these contributions, along with mandatory contributions, are for long-term retirement planning purposes and cannot be withdrawn before age 65, except under specific statutory grounds such as ill health or permanent departure from Hong Kong.
#3 Review premiums paid into a Qualifying Deferred Annuity Policy
You can claim a tax deduction for premiums you pay into a Qualifying Deferred Annuity Policy (QDAP) for you or your spouse (or a combined policy for both of you), provided that youโre not living apart.
The person who will receive the annuity (the โannuitantโ) must be a HKID cardholder during the relevant year of assessment.
The deduction is capped at an aggregate limit of $60,000 per taxpayer per year, which also covers voluntary contributions to your MPF. In other words, you must choose which is more beneficial to you: topping up your MPF or claiming deductions for premiums paid to a QDAP. Alternatively, you could split your $60,000 allowance between the two.
If youโre a taxpayer who pays rent as a tenant in a residential flat, you may be able to claim a domestic rent deduction of up to HK$100,000 for the 2024/25 tax year.
To qualify for this tax relief, you must:
- have a taxable income (under either Salaries Tax or Personal Assessment);
- be a tenant under a stamped tenancy agreement for a domestic flat; and
- not own another residential property in Hong Kong or live in employer-provided accommodation.
If you live with your child, you may be able to claim additional deductions of up to $20,000. To qualify, your child must have been born on or after 25 October 2023 and, in most cases, they must live with you continuously for at least six months.
#5 Check whether your private medical insurance plan qualifies for tax deductions
The Voluntary Health Insurance Scheme (VHIS) allows you to claim tax deductions of up to $8,000 each tax year if you pay into a certified private medical insurance plan.
This deduction is taken off your net assessable income before tax is calculated, so the higher your marginal tax rate, the more tax you save. For example, at 15%, you could save up to $1,200 per person.
You can claim for any qualified premiums paid for yourself or your specified relatives, as long as the plan is VHIS-certified. Married couples can share who claims the deduction for the same insured person, but they cannot both claim the same premium.
#6 Consider making donations to a worthy cause
You can claim a deduction for qualifying cash donations made to charities or to the government for charitable purposes when submitting your tax return (BIR60). Your donations must be made within the period of assessment, which runs from 1 April to 31 March.
Contributing to a worthy cause before the tax year ends could not only reduce your annual tax bill but also provide much-needed funds to charity and a deep sense of personal fulfilment.
Your total donations for the tax year must be at least $100, and the deduction is capped at 35% of your adjusted income (or 35% of assessable profits for businesses).
#7 Gather evidence of payments youโve made for self-education and training
Whether continuing professional development (CPD) is an essential part of your career or youโve undertaken training to develop a new skill, self-education can be a considerable expense.
You may be able to claim deductions of up to $100,000 for the 2024/25 tax year, to cover tuition and exam fees directly related to your current or planned employment, provided you attended an approved education provider. The government website has full details of the eligibility criteria.
#8 Organise all your documents well ahead of the tax-return deadline
Take action now to make payments before the tax year ends on 31 March, and to prepare everything so you can submit your tax return accurately and before the deadline. This includes gathering all the receipts and records for your:
- MPF contributions
- VHIS Medical insurance premiums
- QDAP Annuity payments
- Rent
- Charitable donations
- Any other deductible items
Having everything organised in advance helps you meet key deadlines, avoid last-minute stress, and reduce the risk of missing out on valuable tax allowances and reliefs.
Get in touch
Our financial planners can review your finances and make sure that youโre managing your wealth as tax-efficiently as possible.
Email the BMP Wealth team at info@bmpwealth.com or call 3975 2878.
This article first appeared in Expat Living magazine in Hong Kong. You can buy the latest issue or an annual subscription or read the digital version freeย now.
