If you run a Hong Kong company or work in one, chances are you've received a BIR60 tax return in early May and stared at it wondering what counts as assessable income, which allowances you're entitled to, and whether you're about to get hit with a surprising tax bill.

Hong Kong has one of the lowest personal tax rates in the world — but the system has quirks that regularly trip up expats, company directors, and sole proprietors. Here's what you need to know for 2026/27.

How Salaries Tax Actually Works

Salaries tax is charged on income arising in or derived from Hong Kong from an office, employment, or pension. The year of assessment runs from 1 April to 31 March — not the calendar year, which is the first thing most new arrivals get wrong.

You pay the lower of two calculations: net chargeable income (after allowances) at progressive rates, or net total income (after deductions, before allowances) at the standard rate. For most mid-range earners, progressive is cheaper. High earners hit the standard rate cap.

Progressive rates for 2026/27:

• First HKD 50,000: 2% (HKD 1,000)
• Next HKD 50,000: 6% (HKD 3,000)
• Next HKD 50,000: 10% (HKD 5,000)
• Next HKD 50,000: 14% (HKD 7,000)
• Remainder: 17%

The first HKD 200,000 of net chargeable income totals HKD 16,000 in tax. Everything above stacks at 17%.

Standard rate (two-tier since 2024/25): 15% on the first HKD 5 million of net income, 16% on the remainder. This kicks in when flat-rate taxation costs less than progressive.

The 2026/27 Allowance Hike (Legislated 22 May 2026)

The 2026-27 Budget passed in May 2026 raised most personal allowances. If you're still using last year's numbers, you're under-claiming.

• Basic Allowance: HKD 132,000 → HKD 145,000
• Married Person's Allowance: HKD 264,000 → HKD 290,000
• Single Parent Allowance: HKD 132,000 → HKD 145,000
• Child Allowance (per child, 1st–9th): HKD 130,000 → HKD 140,000
• Additional Child Allowance (born in the year): also HKD 140,000
• Dependent Parent/Grandparent (60+): HKD 50,000 → HKD 55,000

A single person earning HKD 30,000/month (HKD 360,000/year) would see their net chargeable income drop by HKD 13,000 vs last year, saving roughly HKD 2,210 at the 17% marginal rate.

What Counts as Assessable Income (and What Doesn't)

Under Section 8 of the Inland Revenue Ordinance, assessable income includes salary, wages, commissions, tips, bonuses, allowances, perquisites, payment in lieu of leave, gratuities, end-of-contract payments, and non-cash benefits like company housing or share awards.

What's not taxable:

• Dividends from a Hong Kong company — the company already paid profits tax.
• Employer MPF mandatory contributions (up to HKD 1,500/month).
• Severance and long service payments up to the statutory limit.

Pay attention to this one: director's fees. If you're a director of a Hong Kong company, your director fees are fully chargeable to salaries tax regardless of where you live. The IRD's position (DIPN No. 10) is that a director's office is located where the company's central management and control is exercised — Hong Kong, for a HK company. There's no 60-day rule or overseas exemption for director fees. If you take HKD 200,000 in fees, the full amount is assessable.

Deductions You're Probably Leaving on the Table

Before allowances, you can deduct several items from total income. The ones most people miss:

• MPF mandatory contributions: fully deductible, max HKD 18,000/year. Maximum relevant income is HKD 30,000/month, so even HKD 100k/month earners cap at HKD 18,000.
• Voluntary MPF (TVC): extra tax-deductible contributions up to a separate ceiling.
• Home loan interest: up to HKD 100,000/year for 20 years total, on a Hong Kong residence.
• Self-education expenses: skill-improvement courses, up to HKD 100,000/year.
• Approved charitable donations: up to 35% of assessable income.

Sole proprietors file under profits tax, not salaries tax, but can elect personal assessment for a lower overall liability.

Filing Deadlines You Can't Miss

• Employer's Return (BIR56A + IR56B): issued 1 April, due within 1 month. If you didn't receive one by mid-April, submit Form IR6163 — don't ignore it.
• Individual Tax Return (BIR60): issued early May, due within 1 month. E-filing gets an automatic 1-month extension. Sole proprietors get until August.
• New hires: file Form IR56E within 3 months if likely chargeable.
• Departing employees: file Form IR56G at least 1 month before departure, and withhold all payments until IRD clearance.

Common mistake: "I don't earn enough to pay tax, so I don't need to file." Wrong. If the IRD sends you a return, you must submit it on time — even if income is below the basic allowance. File late and you'll get an estimated assessment with zero allowances and deductions, so you'll pay more. You can object, but it takes months.

Provisional Tax: The Bill No One Warns You About

Every new taxpayer gets blindsided by this.

Hong Kong operates a provisional tax system. When the IRD assesses your 2026/27 tax, they also estimate your 2027/28 provisional tax based on this year's income. You pay both in the same year — usually two instalments around January and April.

Here's the catch: your first year, you get hit with a double bill. Year 1's final tax and Year 2's provisional tax are both due in Year 2. If income drops significantly, you can apply to hold over part of provisional tax — in writing, at least 28 days before the due date.

IRD penalties for under-reporting run up to 300% of the tax undercharged, plus the tax itself. For company directors, getting the employment vs. director fee distinction wrong is a common review trigger.

Need help with your Hong Kong salaries tax, BIR60 filing, or employer returns? Lemon Accountancy handles individual tax returns, employer filings, and tax planning for expats, directors, and business owners across Hong Kong and the Greater Bay Area. Email us at info@lcpa.com.cn or call 00852-55749538 for a straightforward assessment.

Disclaimer: This article provides general information only and does not constitute tax or legal advice. For specific tax matters, consult a qualified Hong Kong tax professional or the Inland Revenue Department.