One of the most common questions about the world's ‘freest economy’ is whether it truly has no tax. That's not quite true, but Hong Kong tax is low - the lowest in the world - and this remains a pull for business people and businesses from all over the world.
From Boats to Bankers
Hong Kong has a long history as a tax-free city, from British opium traders who first let the city boom to the bankers and business people who call Hong Kong's skyscrapers home. Low taxes and free trade are in Hong Kong's blood.
Little has changed since the handover to China in 1997. While Hong Kong is now a part of China, the Basic Law means the city can set its own tax laws and economic policy.
Tax in Hong Kong Today - What You Need to Know
As it is, you'd need a team of sniffer dogs to try and find a tax in Hong Kong. There is no sales tax, no capital gains tax, and most importantly of all almost no VAT. It's the latter that made Hong Kong shopping such a hit for much of the 90s and 00s, and while the boom times of budget prices have waned, this is still a free port.
Income tax, or salary tax as it is known here, is set at 2% for those earning less than HK$40,000 a year. Beyond that, it's 7% for HK$40,000-HK$80,000, 12% for HK$80,000-HK$120,000 and then a top rate of 17% for anything exceeding that. That's the most you can pay. It's worth adding that expats also benefit from a generous pension scheme set up. While you have to pay into the MPF government-run pension scheme when working in Hong Kong, the government will pay you back your contribution when you leave the city.
It's this low level of taxation that brings Brits, Aussies, and Americans by land, sea, air, and camel to escape their native countries' tax regimes. Similarly, corporate tax, (or profits tax as it is known), is set at the bargain rate of 16% of assessable profits.
All in all, the government gets its hands on very little money through direct taxation. This allows SMEs to flourish and encourages would-be entrepreneurs to throw their hat into the business ring.
What About Sales Tax?
There is no sales tax in Hong Kong on any products, apart from tobacco and alcohol. Unfortunately, it's part of what makes having a pint in Hong Kong so expensive.
In a Nutshell
- No sales tax
- No capital gains tax
- Limited VAT
- The maximum salary tax of 17%
- Profit tax of 16%
Where Does the Government Get Its Money From?
Much of the money Hong Kong makes is a mixture of profit tax and the sale and rental of Hong Kong's very limited amount of land. You may not pay much tax here but buying property is very, very expensive.