Hong Kong Salaries Tax: What Employers and Directors Need to Know
INTRODUCTION
Salaries tax is how Hong Kong taxes employment income. If you pay yourself a salary or employ anyone in your company, this system directly affects you.
The rules are not complicated. But the employer obligations, especially around reporting and MPF contributions, catch a lot of directors off guard.
Here is what you need to know.
How Salaries Tax Works in Hong Kong
Salaries tax is levied on income from employment arising in Hong Kong. This includes salaries, wages, director’s fees, commissions, bonuses, and the value of certain benefits provided by an employer.
Hong Kong uses a self-assessment and employer-reporting system. Employers do not deduct tax from salaries like a PAYE system. Instead, the IRD issues individual tax demands directly to employees based on information filed by employers on the annual employer’s return.
This means employees receive their full salary each month. We once worked with a founder who assumed the government deducted tax from each paycheck. He was shocked to receive a large tax demand in July.
They then pay salaries tax directly to the IRD when their assessment is issued.
Salaries Tax Rates and Allowances
Individual salaries tax is calculated at either progressive rates or the standard rate of 15% on net income, whichever results in a lower tax liability. [a]
Progressive rates for 2025/26 include: first HKD 50,000 at 2%, next HKD 50,000 at 6%, next HKD 50,000 at 10%, next HKD 50,000 at 14%, and remainder at 17%. key personal allowances reduce taxable income before rates are applied.
Basic allowance is HKD 132,000, married person’s allowance is HKD 264,000, and child allowance is HKD 130,000 per child (first to ninth). Most employees with moderate earnings pay the standard rate of 15% on their net income after allowances.
This is lower than the progressive rates at higher income levels.
The Employer’s Return (BIR56A): Your Annual Obligation
Every employer in Hong Kong must file the annual employer’s return (BIR56A) by 30 April each year. This is not optional.
Salaries tax is part of a larger bookkeeping challenge. We cover what to track and how to organize payroll records in our post on bookkeeping.
The BIR56A reports the income of every employee earning above the reporting threshold during the preceding year. The IRD uses this data to issue individual salaries tax assessments to employees.
For 2025/26, the reporting threshold is HKD 132,000 per year (HKD 11,000 per month). We have seen founders miss this deadline every year because they assumed a bookkeeper was handling it. Nobody was. Employees earning below this threshold may still need to be reported in certain circumstances.
Check the IRD’s guidance notes for the current year.
Directors Are Employees for Salaries Tax Purposes
A director of a Hong Kong company who receives a salary or director’s fee is treated as an employee for salaries tax purposes.
If you pay yourself a director’s fee or salary from your company, you must report it on the annual BIR56A employer’s return. ensure the payment is correctly recorded in the company’s accounts and pay salaries tax on the income when the IRD issues your personal assessment.
One founder created a new entity and paid himself HKD 500,000 in dividends instead of salary to avoid the BIR56A filing. The IRD recharacterised it as a hidden salary and issued a tax demand plus penalties. The same applies to non-executive directors receiving fees for attending board meetings.
Any remuneration paid to a director is employment income subject to salaries tax.
MPF: Mandatory Provident Fund Obligations
Every employer in Hong Kong must enrol employees in a mandatory Provident Fund (MPF) scheme. Both employer and employee contribute.
The standard contribution is employer 5% of the employee’s relevant income, employee 5% of their relevant income, with a maximum mandatory contribution of HKD 1,500 per month from each party. Relevant income means monthly income between HKD 7,100 and HKD 30,000.
Employees earning below HKD 7,100 per month are exempt from making contributions, but the employer must still contribute. A founder once assumed he could skip MPF contributions to save money. The MPF Authority fined him and forced him to backfill contributions.
How long you need to keep payroll records is non-negotiable. The IRD has strict requirements; read our post on record retention timelines.
Contributions must be paid to the MPF trustee by the contribution day each month.
Late contributions carry surcharges and failure to enrol employees in MPF is a serious breach.
Employment Benefits and Benefit-in-Kind
Some employer-provided benefits are taxable as employment income. Others are not.
Taxable benefits include rent-free accommodation provided by the employer (deemed 10% of income or actual rental value), shares or share options granted to employees, and school fees paid by the employer for an employee’s children. Not taxable are genuine business expense reimbursements (e.g. travel expenses for work), contributions to approved MPF schemes, and group medical insurance premiums.
One founder provided free office lunch to all employees and wondered if it was taxable. It is, as a benefit-in-kind. If your company provides benefits to directors or employees, check whether they constitute taxable employment income before assuming they are deductible expenses.
Final Thoughts
Hong Kong’s salaries tax system places significant reporting obligations on employers.
Missing the BIR56A deadline, failing to enrol staff in MPF, or not reporting a departing employee correctly can all result in penalties. The obligations are manageable with proper systems.
Get your payroll set up correctly from the first hire, automate MPF contributions, and put the April BIR56A deadline in your calendar every year.
Employer obligations getting complicated?
ABLE Hong Kong handles payroll, MPF administration, and employer’s return filings for Hong Kong companies. Book a free consultation.
FAQ
Does Hong Kong deduct salaries tax from employees’ pay automatically?
No. Hong Kong does not use a PAYE-style deduction system. Employers report income via the annual BIR56A return, and the IRD issues tax demands directly to employees.
When is the employer’s return (BIR56A) due?
By 30 April each year. It covers income paid to employees during the preceding year.
What is the current MPF contribution rate?
Both employer and employee contribute 5% of relevant income, with a maximum mandatory contribution of HKD 1,500 per month each.
Are directors’ fees subject to salaries tax?
Yes. Director’s fees and salaries paid to directors are treated as employment income and must be reported on the BIR56A.
What benefits are taxable under Hong Kong salaries tax?
Rent-free accommodation, share options, and certain other employer-provided benefits are taxable. Genuine expense reimbursements and MPF contributions are generally not.
What must I do when an employee leaves the company?
File Form IR56F within one month after their last day. If they are leaving Hong Kong for more than one month, notify the IRD in advance and be aware of the potential withholding obligation on their final payment.
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