How Hong Kong Salaries Tax Is Actually Calculated (With a Worked Example)

Ask most people in Hong Kong how their salaries tax is calculated and you'll get a shrug, or a half-remembered number from a colleague. That's understandable — the Inland Revenue Department (IRD) doesn't run one calculation, it runs two, every single year, for every taxpayer, and then bills you whichever one comes out lower.¹ Nobody explains that mechanic clearly, which is why most online "guides" jump straight to a calculator widget instead of showing the arithmetic.

This piece does the arithmetic. It walks through exactly how salaries tax is worked out for the year of assessment 2026/27 (1 April 2026 to 31 March 2027), using the actual current rates, allowances and deduction caps published by the IRD,² and finishes with two full worked examples — one for a fairly typical salaried taxpayer, and one for a high earner, because the second calculation only starts to matter once income gets large, and almost nobody shows why.

Who pays salaries tax, and on what

Salaries tax applies to income arising in or derived from an office, employment, or pension in Hong Kong — basically your salary, wages, bonuses, commissions, and most cash allowances from an employer.¹ It's charged on individuals, not companies (companies pay profits tax instead), and it's assessed on an annual basis for each year of assessment, which runs from 1 April to 31 March.

If you're an employee working for a Hong Kong company, or a director drawing a salary from one, salaries tax is almost certainly the tax that applies to you personally, separate from whatever profits tax the company itself owes on its business income.

The two-track system: progressive rates vs. standard rate

This is the part almost nobody explains clearly. Hong Kong doesn't have "a" salaries tax rate. Every taxpayer's bill is calculated two different ways, and the IRD charges whichever produces the lower amount:²

1. Progressive rates, applied to your net chargeable income — that's your income after subtracting both deductions (MPF contributions, self-education expenses, etc.) and personal allowances (basic allowance, married person's allowance, child allowance, and so on).
2. Standard rate, applied to your net income — that's your income after deductions only, before subtracting any personal allowances at all.

The standard rate exists as a ceiling. Because allowances can be substantial relative to income for most taxpayers, the progressive calculation almost always wins for low- and middle-income earners. The standard rate mostly protects very high earners from an unlimited climb up the progressive bands — more on exactly where that crossover happens below.

Progressive tax rates (2026/27, in effect since 2020/21)

These bands have applied, unchanged, since the 2020/21 year of assessment and remain in force for 2026/27.²

Standard rate (two-tiered since 2024/25)

Before the 2024/25 year of assessment, the standard rate was a flat 15% with no tiering. From 2024/25 onward, a second tier of 16% applies to the portion of net income above HK$5,000,000 — a change aimed squarely at very high earners, since anyone below that threshold still faces a flat 15% under the standard-rate track.²

Step 1: work out your net income

Start with your total assessable income for the year — salary, bonus, commission, and other employment income — and subtract allowable deductions. The most universal deduction is your own mandatory MPF contribution, capped at HK$18,000 per year for 2026/27 (unchanged since 2020/21).² Other deductions with their own annual caps include:

• Self-education expenses: up to HK$100,000
• Home loan interest: up to HK$100,000 (basic) plus an additional HK$20,000 in qualifying circumstances
• Domestic rent: up to HK$100,000 (basic) plus an additional HK$20,000
• Elderly residential care expenses: up to HK$110,000 per parent/grandparent in a residential care home
• Voluntary Health Insurance Scheme (VHIS) premiums: up to HK$8,000 per insured person
• Qualifying annuity premiums and tax-deductible MPF voluntary contributions: up to HK$60,000 (combined)
• Approved charitable donations: up to 35% of income after other deductions
• Assisted reproductive service expenses: up to HK$100,000

What's left after these deductions is your net income — and that figure is what the standard-rate calculation is applied to directly, with no further deduction for personal allowances.

Step 2: work out your net chargeable income

For the progressive-rate calculation, you take that same net income and subtract your personal allowances. These are the 2026/27 figures, verified against the IRD's own Allowances, Deductions and Tax Rate Table:²

Worth flagging: from the 2026/27 year of assessment onward, a taxpayer is entitled to an additional Child Allowance for each child in the first two years following childbirth, on top of the standard per-child allowance — a change that specifically benefits parents of newborns and toddlers.² Basic Allowance, Married Person's Allowance and Single Parent Allowance all rose from their 2025/26 levels (HK$132,000, HK$264,000 and HK$132,000 respectively) as part of the same update.²

Net income minus the sum of whichever allowances apply to you gives you your net chargeable income — the figure the progressive rate table above is applied to.

Worked example 1: a married employee with one child

Take a taxpayer who is the sole income earner in the household, married, with one child, earning an annual salary of HK$600,000 for the 2026/27 year of assessment. They make the standard mandatory MPF contribution.

Step 1 — Net income:

• Annual salary: HK$600,000
• Less mandatory MPF contribution (capped): −HK$18,000
• Net income = HK$582,000

Standard rate calculation: HK$582,000 is well under the HK$5,000,000 threshold, so the entire amount is taxed at 15%.

• HK$582,000 × 15% = HK$87,300

Step 2 — Net chargeable income:

• Net income: HK$582,000
• Less Married Person's Allowance: −HK$290,000
• Less Child Allowance (1 child): −HK$140,000
• Net chargeable income = HK$152,000

Progressive rate calculation:

Progressive tax comes to HK$9,280, versus HK$87,300 under the standard rate. The IRD charges the lower figure, so this taxpayer's salaries tax liability is HK$9,280 — before any annual tax reduction concession the government may announce for the year, which is applied afterward and separately from this calculation.²

This is the pattern for the overwhelming majority of Hong Kong employees: once allowances are subtracted, net chargeable income drops far enough that progressive rates beat the standard rate by a wide margin. The standard rate almost never bites at this income level.

Worked example 2: where the standard rate actually wins

The standard rate isn't decorative — it does bind, but only once income is high enough and allowances make up a small share of it. Take a single taxpayer with no dependants, claiming only the Basic Allowance, earning HK$3,000,000 for 2026/27, again making the mandatory MPF contribution.

Step 1 — Net income:

• Annual salary: HK$3,000,000
• Less mandatory MPF contribution: −HK$18,000
• Net income = HK$2,982,000

Standard rate calculation: still under HK$5,000,000, so flat 15% applies.

• HK$2,982,000 × 15% = HK$447,300

Step 2 — Net chargeable income:

• Net income: HK$2,982,000
• Less Basic Allowance: −HK$145,000
• Net chargeable income = HK$2,837,000

Progressive rate calculation:

Progressive tax comes to HK$464,290, against HK$447,300 under the standard rate — this time the standard rate is lower, so the IRD would charge HK$447,300, saving this taxpayer roughly HK$17,000 versus the progressive calculation.

The crossover, working through the algebra behind these two tables, sits at roughly HK$2.1–2.2 million of net income for a single taxpayer claiming only the Basic Allowance — below that, progressive rates win; above it, the standard rate takes over. The exact crossover point moves with however many allowances you're entitled to, since more allowances push the progressive calculation down without touching the standard-rate figure at all. This is the piece most calculators and guides skip entirely — they'll tell you the IRD picks "whichever is lower" but rarely show you where the line actually sits or why it moves.

Provisional tax and the annual tax reduction

Two mechanics worth knowing about, separate from the core calculation above:

• Provisional salaries tax. The IRD collects tax for the current year of assessment in advance, based on your prior year's income, then reconciles it against your actual final assessment once you've filed. This is why a first-time taxpayer's bill can look larger than expected — it often bundles the final assessment for one year with the provisional charge for the next.
• Tax reduction concessions. In several recent years, the government has announced a one-off percentage reduction in the final tax payable, subject to a cap per case, covering profits tax, salaries tax and tax under personal assessment together. For 2025/26, that concession was a 100% reduction capped at HK$3,000 per case.² Any such concession for 2026/27 would be announced separately and applied after the progressive-vs-standard comparison above, not as part of it.

Common mistakes to avoid

• Forgetting the MPF deduction cap. Only the mandatory contribution, up to HK$18,000, is deductible from income for this purpose — voluntary MPF contributions fall under a separate, larger combined cap with qualifying annuity premiums (HK$60,000).
• Assuming allowances stack without limit. Each allowance has its own eligibility conditions — the Dependent Parent Allowance, for instance, requires the parent to have actually resided with you or been maintained by you for a set period, and age brackets change the amount materially (HK$55,000 versus HK$27,500).
• Ignoring the standard-rate check entirely. Most taxpayers never need to think about it, but if your net income is in the low millions and your allowances are minimal (single, no dependants, no home loan), it's worth running both numbers rather than assuming progressive automatically wins.
• Confusing net income and net chargeable income. They're deliberately different bases for the two different tracks — mixing them up is the single most common calculation error.

Why this matters beyond the tax return

For businesses operating in Hong Kong, understanding how salaries tax actually falls on employees — rather than just knowing profits tax rates — matters for structuring remuneration packages, especially for firms in accounting and company secretarial services who handle payroll and tax filings on behalf of clients, or professional services firms advising on compensation design. Getting the mechanics right also matters for anyone doing their own tax planning: knowing which allowances you're entitled to, and roughly where you sit relative to the progressive-versus-standard crossover, is the difference between an informed estimate and a guess pulled from a generic online calculator that doesn't show its working.

Citations

1. GovHK — Tax Rates of Salaries Tax & Personal Assessment, accessed 2026-09-10

2. Inland Revenue Department — Allowances, Deductions and Tax Rate Table (PAM 61(e), August 2026 edition), accessed 2026-09-10