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What HK tax rates for a person who is both self-employed and an employee?

  1. #1

    Join Date
    Feb 2013
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    What HK tax rates for a person who is both self-employed and an employee?

    A close family member is currently a full time employee of a company of HK. With the concurrence of his employer, he engages in part-time work.

    It is a long (happy) story, but the income from both ends has been more lucrative than expected for the past 12 months, such that he may be expected to pay the top tax rates as an employee, on top of substantial profits tax for his part-time work.

    We know the tax rates (16% max for salaries, 8% for profits up to HKD2,000,000).

    What we are unsure about is whether there is any interplay between salaries tax and profits tax in HK, such that if you hit the top rates for either, the Government starts charging you the higher rate overall for both salaries and profits? For eg, is it possible that because he is paying 16% for his salary income, he would somehow be made to pay also 16% or a rate higher than 8% for his profits?

    Would greatly appreciate any expert insight on this.


  2. #2

    Join Date
    Dec 2009
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    Quote Originally Posted by coffeebean
    We know the tax rates (16% max for salaries).
    Standard rate is 15%.

  3. #3

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    Not sure how it works for sole traders, but it is common for companies to pay for certain allowable expenses of directors and employees - this can reduce the tax burden.

    Best to seek advice from a proper accountant - esp since you said, business is going well.

    Don't try to play the system. There are enough allowable allowances and expenses you can legally take as a company director. (Again, not sure what the lines are for sole traders).

    emx likes this.
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  4. #4

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    Salaries and profits taxes are separate. The tax rate on one does not affect the other. So even if you hit the highest tax band on your salary and if you made less than 2 million for profits tax you'd be charged at 8.25% for that portion.

    Last edited by civil_servant; 16-04-2019 at 09:25 AM.

  5. #5

    Join Date
    Dec 2018
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    Salaries are taxable income in the hands of the recipient and deductible expenses from the company's perspective. Because the salaries tax rates are banded (starting at 2% and peaking 17% subject to the standard rate of 15%) and subject to various allowances while the profits tax paid by the company was a flat rate (formerly 16.5%), in the past it made sense to pay out all the profits by way of non-executive director's fees.

    With the cut in the profits tax (first $2 million being taxed at 8.25%), I'll be paying myself non-executive director's fees up to the point where my marginal salaries tax rate is 8.25% (after applicable allowances) and the balance by way of repayment of shareholder loans. I think this minimises the amount of tax payable as long as the company's pre-tax profit is less than $2 million. If the profit exceeded $2 million, then the excess should be paid out as salary.