Hong Kong limited scope of individual income tax

Unlike a comprehensive income tax regime in Europe and the US, in which income from whatever sources will be brought into charge of income tax, Hong Kong’s schedular income tax system only levies taxes on employment income under Salaries Tax ("薪俸稅"), business profits under Profits Tax ("利得稅") and property rental income under Property Tax ("物業稅"). Any income that is not within any one of these schedules or categories is not subject to tax.

Normally, the individual pays the taxes above separately. However, if the taxpayer is eligible for the Personal Assessment ("PA"), the taxpayer can elect PA by consolidating the employment income, business profits, and property rental income.

Therefore, most passive income (except for the property rental income from real estate in Hong Kong) is tax-free as they are not subject to Salaries Tax, Profits Tax, and Property Tax, including dividends, interest, and capital gain.

In addition, Hong Kong adopts the territorial source principle, meaning that only salaries, profits, and income arising in or derived from Hong Kong are chargeable to tax. Offshore salaries, profits, and property income are 0% tax in Hong Kong.