One of the most common questions about the world’s “freest economy” is whether it really has no taxes. That’s not entirely true, but Hong Kong’s taxes are low, the lowest in the world, and this continues to be a draw for entrepreneurs and businesses around the world.
From ships to bankers
Hong Kong has a long history as a tax-free city, from the British opium traders who first let the city rise to the bankers and businessmen who call Hong Kong’s skyscrapers home. Low taxes and free trade are in Hong Kong’s blood.
Little has changed since delivery to China in 1997. While Hong Kong is now part of China, the Basic Law means that the city can set its own tax laws and economic policies.
Taxes in Hong Kong Today: What You Need to Know
As it is, you would need a sniffer dog team to try and find a tax in Hong Kong. There is no sales tax, no capital gains tax, and most important of all, there is almost no VAT. It’s the latter that made shopping in Hong Kong a success for much of the 1990s and ’00s, and while the boom times for budget prices have subsided, this is still a free port.
Income tax, or salary, as it is known here, is set at 2% for those who earn less than HK $ 40,000 a year. Beyond that it is 7% for HK $ 40,000-HK $ 80,000, 12% for HK $ 80,000-HK $ 120,000 and then a maximum rate of 17% for anything in excess of that. That is the most you can afford. It’s worth adding that expats also benefit from a generous established pension scheme. While you must pay for the MPF’s government-run pension plan when you work in Hong Kong, the government will return your contribution when you leave the city.
It is this low level of taxation that drives the British, Australians and Americans by land, sea, air and camels to escape the tax regimes of their home countries. Similarly, corporation tax (or income tax as it is known) is set at a trading rate of 16% of assessable earnings.
Still, the government makes very little money through direct taxes. This allows SMEs to prosper and encourages future entrepreneurs to throw their hat into the business circle.
What about the sales tax?
There is no sales tax in Hong Kong on any product other than tobacco and alcohol. Unfortunately, it’s part of what makes having a pint in Hong Kong so expensive.
In one word
- No sales tax
- No capital gains tax
- Limited VAT
- The maximum salary tax of 17%
- 16% income tax
Where does the government get the money from?
Much of the money Hong Kong earns is a mixture of income tax and the sale and rent of Hong Kong’s very limited amount of land. You may not pay a lot of taxes here, but buying a property is very, very expensive.