Salaries tax is how Hong Kong taxes employment income. If you pay yourself a salary, or employ anybody at all, it affects you directly.
The rules aren't complicated. The employer obligations, particularly around reporting and MPF, are what catch people out.
How it works
Salaries tax is charged on income from employment arising in Hong Kong. That includes salaries, wages, director's fees, commissions, bonuses, and the value of certain benefits provided by an employer.
Hong Kong runs a self-assessment and employer-reporting system. Employers don't deduct tax from pay. There's no PAYE. Instead the IRD issues tax demands directly to employees, based on the information employers file on the annual employer's return.
So employees receive their full salary every month and then pay their salaries tax directly to the IRD when their assessment arrives.
I worked with a founder who assumed the government was deducting tax from each payslip, his own included. He was genuinely shocked by the size of the demand that arrived in July. Anyone new to Hong Kong should be told to set money aside from day one.
Rates and allowances
Individual salaries tax is calculated two ways, at progressive rates or at the standard rate of 15% on net income, and you pay whichever produces the lower bill.
The progressive rates for 2025/26:
| Band | Rate |
|---|---|
| First HKD 50,000 | 2% |
| Next HKD 50,000 | 6% |
| Next HKD 50,000 | 10% |
| Next HKD 50,000 | 14% |
| Remainder | 17% |
Personal allowances come off taxable income before the rates apply. The basic allowance is HKD 132,000, the married person's allowance is HKD 264,000, and child allowance is HKD 130,000 per child for the first to ninth.
Most employees on moderate earnings end up paying the standard 15% on net income after allowances, because that works out lower than the progressive rates once income rises.
The employer's return
Every employer has to file the annual employer's return, BIR56A, by 30 April each year. It isn't optional.
The BIR56A reports the income of every employee earning above the reporting threshold during the preceding year, and the IRD uses that data to issue individual assessments. For 2025/26 the threshold is HKD 132,000 a year, or HKD 11,000 a month. Employees earning below it may still need reporting in some circumstances, so check the IRD's guidance for the current year.
I've seen founders miss this deadline year after year because they assumed a bookkeeper was handling it. Nobody was.
Directors count as employees
A director who receives a salary or a director's fee is treated as an employee for salaries tax purposes.
So if you pay yourself from your own company, you have to report it on the BIR56A, make sure it's recorded correctly in the accounts, and pay salaries tax on it when your personal assessment arrives. The same applies to non-executive directors receiving fees for attending board meetings.
A founder set up a new entity and paid himself HKD 500,000 as dividends rather than salary, specifically to avoid the BIR56A filing. The IRD recharacterised it as disguised salary and issued a demand plus penalties. Any remuneration paid to a director is employment income.
MPF obligations
Every employer has to enrol employees in a Mandatory Provident Fund scheme, and both sides contribute.
The standard contribution is 5% from the employer and 5% from the employee, with a maximum mandatory contribution of HKD 1,500 per month each. Relevant income means monthly income between HKD 7,100 and HKD 30,000.
Employees earning below HKD 7,100 a month don't have to contribute, but the employer still does. That one gets missed regularly.
Contributions have to reach the MPF trustee by the contribution day each month. Late payments carry surcharges, and failing to enrol employees at all is a serious breach. A founder once decided to skip contributions to save money. The MPF Authority fined him and made him backfill the lot.
Benefits in kind
Some employer-provided benefits are taxable as employment income and some aren't.
Taxable: rent-free accommodation provided by the employer, which is deemed at 10% of income or the actual rental value. Shares or share options granted to employees. School fees paid by the employer for an employee's children.
Not taxable: genuine reimbursement of business expenses like work travel, contributions to approved MPF schemes, and group medical insurance premiums.
A founder providing free lunch to the office asked whether it counted. It does, as a benefit in kind. If you're giving directors or employees anything beyond salary, check whether it's taxable employment income before assuming it's simply a deductible expense.
The short version
Hong Kong's system puts real reporting obligations on employers, even though it takes the monthly deduction work away.
Missing the BIR56A deadline, failing to enrol staff in MPF, or not reporting a leaver properly can all bring penalties. None of it is difficult with decent systems.
Set payroll up correctly from your first hire, automate the MPF contributions, and put 30 April in the calendar permanently.
Common questions
Does Hong Kong deduct salaries tax from pay automatically?
No. There's no PAYE-style deduction. Employers report income on the annual BIR56A and the IRD issues demands directly to employees.
When is the BIR56A due?
By 30 April each year, covering income paid during the preceding year.
What's the MPF contribution rate?
Employer and employee each contribute 5% of relevant income, capped at HKD 1,500 per month each.
Are director's fees subject to salaries tax?
Yes. Director's fees and salaries are employment income and must be reported on the BIR56A.
Which benefits are taxable?
Rent-free accommodation, share options and certain other employer-provided benefits. Genuine expense reimbursements and MPF contributions generally aren't.
What do I do when an employee leaves?
File Form IR56F within one month of their last day. If they're leaving Hong Kong for more than a month, notify the IRD in advance and be aware you may have to withhold their final payment.