Contractor’s guide to contracting in Hong Kong
Let’s now turn our backs on Europe, having explored Ireland, France and Germany, and head for somewhere more exotic as an overseas contracting location -- Hong Kong, writes Kevin Austin, managing director of Access Financial.
Hong Kong is a popular destination for contractors for numerous reasons including the exciting business environment, high standard of living and relatively low levels of taxation.
While most Westerners can enter Hong Kong with ease, UK nationals may stay there for up to 183 days without a visa. The person must obtain a residence permit within 30 days of entering Hong Kong after which a Hong Kong ID card is will be issued.
To work in Hong Kong, one must either be a Hong Kong national or have a work permit. A work permit is sponsored by the employer in Hong Kong and it is also possible for a management company that has a Hong Kong company and presence to sponsor work permits for those intending to work in Hong Kong.
To work as self-employed or through a personal service company in Hong Kong, a person must already possess the legal right to work in the territory of Hong Kong, which will not be the case for most foreign nationals.
The processing time for a work permit is from 4 to 6 weeks from the date of submission of the application. A work permit is normally issued for a period of one year from the date of entry into Hong Kong. An extension of two years can be obtained, if required.
The tax year in Hong Kong is April 1st until March 31st following.
The income tax rates in Hong Kong in 2017 are:
| Tax Rates | 2017/2018 |
| First HK$45,000 | 2% |
| Next HK$45,000 | 7% |
| Next HK$45,000 | 12% |
| On the remainder | 17% |
| Standard rate | 15% |
Your net taxable income (assessable income after deductions and allowances) is charged at the progressive rates in the table above. But if what you need to pay on the basis of your net taxable income exceeds the tax charged at standard rate on your net total income (assessable income after deductions but before allowances), then you will pay the lower amount of tax. Should the total income tax, calculated using the progressive income tax table above, exceed the standard rate of 15%, the income taxes will be capped at 15%.
There are various allowances given that will affect the tax liability and these include those for married persons, children, dependent siblings, dependent parents and grandparents, single parent and disabled dependent allowances.
| Personal allowances (in HK$) | 2017/2018 |
| Basic allowance | 132,000 |
| Married Person's allowance | 264,000 |
| Child allowance | |
| For each of the 1st to 9th child | 100,000 |
| For each child born during the year, the child allowance is increased by | 100,000 |
| Dependent brother or dependent sister allowance | 37,500 |
| Dependent parent and dependent grandparent allowance | |
| For each parent or grandparent - | |
| who is 55 years old or above but below 60 | 23,000 |
| who is 60 years old or above | 46,000 |
| who is under 60 years old but eligible to claim an allowance under the Government's Disability Allowance Scheme | 46,000 |
| Additional dependent parent and dependent grandparent allowance | |
| For each parent or grandparent - | |
| who is 55 years old or above but below 60 | 23,000 |
| who is 60 years old or above | 46,000 |
| who is under 60 years old but eligible to claim an allowance under the Government's Disability Allowance scheme | 46,000 |
| Single parent allowance | 132,000 |
| Disabled dependent allowance | 75,000 |
Along with the various allowances available, one may claim other deductions, such as:
- Professional Expenses
- Approved Charitable Donations
- Expenses of Self-education
- Contributions to a Mandatory Provident Fund Scheme or Recognized Occupational Retirement Scheme
- Depreciation
- Home Loan Interest
- Interest Payments to Produce Rental Income from Properties
- Elderly Residential Care Expenses
An employer and employee must contribute 5% of the salary to the Mandatory Provident Fund (MPF). Employees who earn less than HK$7,100 (£695) per month are not required to contribute. Contributions are required on monthly income of HK$7,100 to HK$30,000, i.e. the maximum contribution is HK$1,500 per month or HK$18,000 per year. The persons also not required to join the scheme include foreigners working in Hong Kong for a period of less than 13 months or who are covered by overseas retirement schemes.
It is imperative that a contractor takes out medical insurance when living and working in Hong Kong.
When contracting, it is important not to forget that it is the contractor who ultimately bears the employer costs since the sum agreed with the agency or client is usually an all-inclusive rate and the management company cannot meet these costs from its small margin.
The employer is responsible for all the tax registrations and filings including forms IR56E & IR56 F/G. This includes withholding the last salary until tax clearance letter from the tax authorities is obtained.
The income retention is related to many factors including: the contract rate, marital status, the country in which the taxes are due to be paid according to the Double Tax Agreements (if any), allowances and business expenses claimable and the period worked in the work country.
That said, retentions in the range of 80% to 87% are achievable. Lastly please note, if the contractor remains tax resident back home, he or she will have to disclose that income to the home tax authorities where they will obtain credit for any Honk Kong taxes paid.
