Hong Kong Tax: Salaries, Profits and No Capital Gains Tax

Hong Kong has long relied on its low tax rates and simple tax system as a core pillar of its international competitiveness. For those considering relocating to Hong Kong, the tax system is a factor that cannot be ignored — it affects not only net income from working in the city, but also asset allocation, estate planning and the design of corporate structures. This article takes seven key indicators as its starting point and compares Hong Kong’s tax system internationally with those of Singapore, Australia, the United Kingdom and the United States.

§1 Salaries Tax: Two-tier vs Progressive System

Hong Kong’s salaries tax adopts a two-tier system (2024/25 assessment year): the first HK$5,000,000 of chargeable income is taxed at the standard rate of 15% (or the progressive rates of 2%–17%, whichever is lower); the portion exceeding HK$5,000,000 is taxed at 16%. The effective top marginal rate is 16–17%.

International comparison:

• Singapore: top marginal rate of 22% (on income above S$1,000,000, from 2024)
• Australia: top marginal rate of 45% (on income above A$190,000, plus a 2% Medicare levy)
• United Kingdom: top marginal rate of 45% (on income above £125,140)
• United States: top federal marginal rate of 37% (on income above US$609,350, plus state tax of 0–13.3%)

Hong Kong’s salaries tax burden ranks among the lowest in the world at most income levels.

§2 Profits Tax: Territorial Source Principle

Hong Kong’s profits tax rate is 16.5% (for corporations) and 15% (for unincorporated businesses), and it applies the territorial source principle of taxation — only profits arising in or derived from Hong Kong are chargeable to tax. Offshore profits, even if received in Hong Kong, are generally not taxed.

This is the most fundamental difference between Hong Kong’s tax system and those of most countries. Singapore similarly applies the territorial source principle, but Australia, the United Kingdom and the United States all tax their tax residents on their worldwide income (though double taxation agreements are usually in place to prevent the same income from being taxed in two jurisdictions).

§3 No Capital Gains Tax

Hong Kong does not impose a capital gains tax. Profits from the sale of assets such as shares, bonds, property (unless classified as trading profits of a “speculative” nature) and cryptocurrencies are generally exempt from tax in Hong Kong. This has made Hong Kong a major asset management and family office hub in Asia.

Singapore likewise does not impose a capital gains tax (except for the seller’s stamp duty on short-term property resales), whereas Australia (a 50% discount for assets held over 12 months), the United Kingdom (residential property capital gains tax of up to 24%) and the United States (long-term capital gains of up to 20% plus 3.8% NIIT) all impose a capital gains tax.

§4 No Estate Duty

Hong Kong abolished estate duty in 2006 and is one of the few jurisdictions worldwide that imposes no estate tax in any form. Singapore has likewise abolished estate duty; however, the United Kingdom (estate tax of 40%, with a threshold of £325,000), the United States (federal estate tax of up to 40%, with an exemption of US$13,610,000) and Japan (up to 55%) still levy comparatively high estate taxes.

§5 No Value Added Tax (VAT/GST)

Hong Kong imposes no value added tax, goods and services tax or sales tax. This is a notable difference between Hong Kong and most developed economies — Singapore’s GST is 9% (from 2024), Australia’s GST is 10% and the United Kingdom’s VAT is 20%.

§6 Dividend Income Exempt from Tax

Dividend income received in Hong Kong (whether from a Hong Kong company or an overseas company) is not subject to salaries tax or profits tax. This holds significant tax appeal for high-net-worth individuals whose primary source of income is dividends.

§7 The Impact of Seven Years’ Residence on Tax Resident Status

Acquiring Hong Kong permanent resident status (after seven years of residence) does not automatically change an individual’s tax resident status — Hong Kong’s definition of a tax resident is based on being “ordinarily resident in Hong Kong” or having “stayed in Hong Kong for more than 180 days”, and bears no direct relation to whether one holds a permanent identity card.

However, after becoming a Hong Kong permanent resident, one’s tax relationship with the place of original residence may change — for example, some countries (such as Australia and Canada) tax their citizens / permanent residents on their worldwide income, and such individuals, if they also become Hong Kong permanent residents, may need to review the applicability of double taxation agreements.

This article is independent editorial research and does not constitute legal advice or tax advice. For actual tax planning, please consult a licensed Hong Kong tax adviser or accountant.