港台中产 · 2025-12-07

How to Calculate Salaries Tax: Allowances, Deductions, and Progressive Rates Demystified

For the tax year of assessment 2025/26 (filing due by 2 June 2025 for paper returns, 2 July 2025 for e-filing), the Inland Revenue Department (IRD) has maintained the progressive tax rates and allowances set in the 2024/25 budget, but with a significant structural shift: the marginal tax rate for the top band of net chargeable income exceeding HKD 5,000,000 has been raised to 17% (from the standard 15% rate that previously capped all bands). This change, announced in the 2025-26 Budget Speech (February 2025), directly impacts high-income earners and self-employed professionals who previously relied on the standard rate cap. For the typical Hong Kong middle-class taxpayer earning between HKD 300,000 and HKD 2,000,000 annually, the progressive rate structure remains largely unchanged, but the interplay between allowances, deductions, and the new top band creates a more complex calculation than the simple “15% of net assessable income” rule of thumb. Understanding the precise mechanics—from the basic allowance of HKD 132,000 per person (2024/25 rate) to the child allowance of HKD 130,000 per child and the self-education deduction cap of HKD 100,000—is essential to avoid overpaying or missing legitimate reliefs. This article demystifies the calculation step-by-step, using the official IRD tax return form (BIR60) logic and the Inland Revenue Ordinance (Cap. 112) sections governing each allowance and deduction.

The Progressive Rate Structure: How the IRD Calculates Your Tax Bill

Hong Kong’s salaries tax operates on a dual-track system: the taxpayer pays the lower of (a) tax calculated at progressive rates on net chargeable income, or (b) tax calculated at the standard rate (15% for 2024/25, unchanged) on net assessable income. This is codified in Section 13(2) of the Inland Revenue Ordinance (Cap. 112). For most middle-class taxpayers, the progressive rate produces a lower bill.

The Five Bands for 2024/25 (Applicable to 2025/26 Filing)

The IRD publishes the following progressive rate bands annually in the Board of Inland Revenue’s annual report and the IRD’s “Tax Rates” webpage. For the 2024/25 tax year (return due 2025/26):

Net Chargeable Income Band (HKD)	Marginal Tax Rate
First HKD 50,000	2%
Next HKD 50,000	6%
Next HKD 50,000	10%
Next HKD 50,000	14%
Remainder (above HKD 200,000)	17% (up from 15% in prior years for amounts above HKD 5,000,000)

Source: IRD, “Tax Rates of Salaries Tax and Tax Under Personal Assessment,” 2024/25.

The 17% Band for High Earners: The 2025-26 Budget introduced a new marginal rate of 17% for net chargeable income exceeding HKD 5,000,000. For income between HKD 200,001 and HKD 5,000,000, the rate remains 17% (previously this was the single top band). The change only applies to the portion above HKD 5,000,000. For a taxpayer with net chargeable income of HKD 6,000,000, the tax on the first HKD 5,000,000 is HKD 850,000 (17%), and the next HKD 1,000,000 is taxed at 17% as well—so the effective top rate for that taxpayer is still 17% on everything above HKD 200,000. The budget change is largely symbolic for all but the highest earners.

The Standard Rate Safety Net

For taxpayers with very high income but few allowances, the standard rate (15% of net assessable income, before allowances) may be lower than the progressive rate. The IRD automatically applies the lower of the two. For a taxpayer earning HKD 1,000,000 with no allowances, the progressive rate calculation would be: (HKD 50,000 × 2%) + (HKD 50,000 × 6%) + (HKD 50,000 × 10%) + (HKD 50,000 × 14%) + (HKD 800,000 × 17%) = HKD 1,000 + HKD 3,000 + HKD 5,000 + HKD 7,000 + HKD 136,000 = HKD 152,000. The standard rate: HKD 1,000,000 × 15% = HKD 150,000. The taxpayer pays HKD 150,000. This is the standard rate floor in action.

Allowances: The Deductions That Reduce Your Chargeable Income

Allowances are deductions from net assessable income to arrive at net chargeable income. They are governed by Section 31 to Section 32 of the IRO. The 2024/25 allowances (unchanged from 2023/24) are as follows:

Basic Allowance and Single vs. Married

Basic Allowance: HKD 132,000 per person. Every taxpayer receives this unless they claim married person’s allowance.
Married Person’s Allowance (MPA): HKD 264,000 (combined). Claimable if both spouses are living together and not separated. If one spouse has no income, the other can claim the full MPA. If both have income, they must elect to file jointly (Section 10(2) of the IRO) to claim MPA, which may result in a lower combined tax than filing separately.

Practical Trap: If both spouses earn income, filing jointly often results in a higher tax bill because the combined income pushes both into higher marginal bands. The IRD allows separate assessment (Section 41 of the IRO) for married couples. A common optimisation is for the lower-earning spouse to file separately, claiming their own basic allowance, while the higher-earning spouse claims only their own allowance. The IRD’s online tax calculator can model both scenarios.

Child Allowance

First to Ninth Child (each): HKD 130,000 per child.
Additional Allowance for Each Child (year of birth): HKD 130,000 (total HKD 260,000 in the year of birth).

The allowance is claimable in the year of birth and each subsequent year until the child turns 18, or until they complete full-time education (up to age 25). The IRD requires the child’s Hong Kong Identity Card number or birth certificate number on the tax return (BIR60, Part 6.1).

Dependent Parent/Grandparent Allowance

Dependent Parent/Grandparent (aged 55-59): HKD 25,000 per person (if living with taxpayer) or HKD 12,500 (if not living with taxpayer).
Dependent Parent/Grandparent (aged 60 or above): HKD 50,000 per person (living with) or HKD 25,000 (not living with).
Additional Allowance (if the parent/grandparent resides in a residential care home): HKD 50,000 per person (for those aged 60+) or HKD 25,000 (aged 55-59).

The parent must be “ordinarily resident” in Hong Kong (Section 31A of the IRO). The IRD has clarified that this does not require 365-day physical presence, but the parent must maintain a place of abode in Hong Kong. For taxpayers with parents living in Mainland China or Macau, the allowance is not available unless the parent holds a valid Hong Kong Identity Card and maintains a residence in Hong Kong.

Single Parent Allowance

HKD 138,000 per year. Claimable by a taxpayer who has sole or predominant care of a child under 18 and is not married, or is separated/divorced with custody. This is in addition to the child allowance.

Other Allowances

Disabled Dependent Allowance: HKD 75,000 per person (Section 31B of the IRO).
Working Family Allowance (not an IRD allowance but a separate government scheme): Not deductible for salaries tax purposes.

Deductions: Reducing Your Assessable Income Directly

Deductions are subtracted from total income to arrive at net assessable income. They are governed by Section 12(1)(a) to (h) of the IRO.

Mandatory Provident Fund (MPF) Contributions

Employee’s Mandatory Contribution: 5% of relevant income, capped at HKD 18,000 per year (i.e., cap applies to monthly income above HKD 30,000). For 2024/25, the maximum deductible MPF contribution is HKD 18,000.
Voluntary Contributions: Not deductible for salaries tax purposes (only mandatory contributions are).
Self-Employed Persons: Must contribute 5% of their assessable profits, capped at HKD 18,000 per year, and this is deductible as a business expense under profits tax (Section 16(1)(f) of the IRO).

Self-Education Expenses

Maximum Deduction: HKD 100,000 per year.
Qualifying Courses: Must be prescribed under the IRO (Section 12(1)(e)) and include courses leading to a degree, diploma, or certificate from a recognised institution (including universities, the Vocational Training Council, and approved professional bodies). The course must be related to the taxpayer’s current or prospective employment.
Non-Qualifying Expenses: Travel, accommodation, and living costs are not deductible. Only tuition fees and compulsory examination fees qualify.

Charitable Donations

Maximum Deduction: 35% of net assessable income (before deducting donations).
Minimum Donation: HKD 100 per donation.
Qualifying Charities: Must be approved under Section 88 of the IRO. The IRD publishes a list of approved charities on its website. Donations to political parties, religious organisations not registered under Section 88, or overseas charities (unless they have a Hong Kong branch) are not deductible.

Home Loan Interest

Maximum Deduction: HKD 100,000 per year, for up to 20 years of assessment (Section 26E of the IRO).
Qualifying Loan: Must be secured against a property in Hong Kong that is the taxpayer’s principal place of residence. The loan must be used to acquire the property (not for refinancing or home improvement).
Joint Borrowers: The deduction is shared proportionally. If two taxpayers jointly borrow HKD 500,000 and each pays HKD 50,000 in interest, each can claim up to HKD 50,000 (subject to the HKD 100,000 cap per person).

Elderly Residential Care Expenses

Maximum Deduction: HKD 100,000 per year per dependent parent/grandparent (Section 26D of the IRO).
Qualifying Homes: Must be registered under the Residential Care Homes (Elderly Persons) Ordinance (Cap. 459). The IRD provides a list of approved homes.

Voluntary Health Insurance Scheme (VHIS) Premiums

Maximum Deduction: HKD 8,000 per year per taxpayer (for policies taken out after 1 April 2019).
Qualifying Policies: Must be certified under the VHIS. The deduction is available for the taxpayer, their spouse, and their dependent children/parents. The IRD’s “Tax Deduction for VHIS Premiums” webpage (updated annually) lists qualifying insurers and policies.

Annuity Premiums and MPF Voluntary Contributions (Tax-Deductible)

Maximum Deduction: HKD 60,000 per year (combined limit for both).
Qualifying Products: Must be issued by an authorised insurer under the Insurance Ordinance (Cap. 41). The deduction is available for premiums paid for a qualifying deferred annuity or for tax-deductible MPF voluntary contributions (TVC). The IRD’s “Tax Deductions for Annuity Premiums and Tax-Deductible MPF Voluntary Contributions” webpage provides the full list.

Step-by-Step Calculation: From Gross Income to Final Tax Payable

We will use a hypothetical taxpayer, “Mr. Chan,” for the 2024/25 tax year (filing in 2025/26).

Mr. Chan’s Profile:

Single, no dependents.
Salary: HKD 600,000 per year.
MPF mandatory contributions: HKD 18,000 (capped).
Charitable donations: HKD 5,000.
Self-education expenses: HKD 30,000 (tuition for a professional accounting course).

Step 1: Compute Net Assessable Income

Formula: Total Income – Deductions (MPF, donations, self-education, etc.) = Net Assessable Income.

Total Income: HKD 600,000
Less: MPF (mandatory): HKD 18,000
Less: Charitable donations: HKD 5,000
Less: Self-education: HKD 30,000
Net Assessable Income: HKD 600,000 – HKD 53,000 = HKD 547,000

Step 2: Compute Net Chargeable Income

Formula: Net Assessable Income – Allowances (basic, child, parent, etc.) = Net Chargeable Income.

Net Assessable Income: HKD 547,000
Less: Basic Allowance: HKD 132,000
Net Chargeable Income: HKD 547,000 – HKD 132,000 = HKD 415,000

Step 3: Calculate Tax Under Progressive Rates

Apply the five bands to HKD 415,000:

Band	Amount Subject to Band	Rate	Tax
First HKD 50,000	HKD 50,000	2%	HKD 1,000
Next HKD 50,000	HKD 50,000	6%	HKD 3,000
Next HKD 50,000	HKD 50,000	10%	HKD 5,000
Next HKD 50,000	HKD 50,000	14%	HKD 7,000
Remainder (HKD 415,000 – HKD 200,000)	HKD 215,000	17%	HKD 36,550
Total Progressive Tax			HKD 52,550

Step 4: Calculate Tax Under Standard Rate

Formula: Net Assessable Income × 15% = Standard Rate Tax.

HKD 547,000 × 15% = HKD 82,050

Step 5: Apply the Lower Amount

Progressive Rate Tax: HKD 52,550
Standard Rate Tax: HKD 82,050
Tax Payable: HKD 52,550

Step 6: Apply Tax Reduction (if any)

For 2024/25, the government announced a one-off tax reduction of 100% of the tax payable, capped at HKD 3,000 (Budget 2025-26, para. 43). This reduction applies to salaries tax, tax under personal assessment, and profits tax.

Tax Payable Before Reduction: HKD 52,550
Less: Reduction (capped at HKD 3,000): HKD 3,000
Final Tax Payable: HKD 49,550

Note: The reduction is applied after the lower-of test. It does not apply to the standard rate calculation if that is the lower amount.

Common Mistakes and Optimisation Strategies

Mistake 1: Claiming Married Allowance When Separate Filing is Cheaper

Many married couples automatically tick “Joint Assessment” on the BIR60. For Mr. Chan (HKD 600,000) and his hypothetical spouse (HKD 300,000), filing jointly would produce a combined net chargeable income of HKD 900,000 – HKD 264,000 (MPA) = HKD 636,000. The progressive tax on HKD 636,000 is HKD 94,620. Filing separately: Mr. Chan pays HKD 52,550 (as above), spouse pays (HKD 300,000 – HKD 132,000 = HKD 168,000; tax = HKD 1,000 + HKD 3,000 + HKD 5,000 + HKD 14,000 (HKD 100,000 × 14%) = HKD 23,000). Total: HKD 75,550. Separate filing saves HKD 19,070.

Mistake 2: Ignoring the “Living with” Requirement for Parent Allowance

The IRD requires that the parent “ordinarily resides” with the taxpayer for at least six months in the year. A common error is claiming the higher allowance (HKD 50,000) for a parent who lives in a separate flat, even if the taxpayer pays the rent. The IRD may disallow the claim and impose penalties (Section 80(2) of the IRO).

Mistake 3: Overlooking the MPF Cap for Self-Employed Persons

A self-employed professional earning HKD 500,000 in net profits must contribute 5% (HKD 25,000) to MPF, but the deductible cap is HKD 18,000. The excess HKD 7,000 is not deductible. Many self-employed persons mistakenly deduct the full 5% on their tax return.

Optimisation: Timing of Self-Education Expenses

If a taxpayer expects to be in a higher tax bracket next year (e.g., a promotion), they may defer payment of self-education fees to the following year to claim the deduction against higher marginal income. However, the IRD requires the expense to be incurred in the year of assessment (Section 12(1)(e)), so the payment date, not the course start date, determines the deduction year.

Actionable Takeaways

Run the joint vs. separate assessment calculation every year — the IRD’s online tax calculator (available at gov.hk) models both scenarios in under two minutes.
Maximise the HKD 60,000 combined limit for annuity premiums and tax-deductible MPF voluntary contributions — this is the single largest deduction available to most middle-class taxpayers after MPF and self-education.
Keep receipts for all self-education expenses exceeding HKD 100,000 in total — the IRD may request proof of payment and course enrolment (Section 51(1) of the IRO).
Review your parent/grandparent’s residence status annually — if they move to a care home, you may qualify for the higher HKD 50,000 allowance under Section 26D.
File by the 2 July 2025 e-filing deadline to avoid the automatic penalty of HKD 1,200 (or 5% of the tax due, whichever is higher) under Section 80(1) of the IRO.

本文不構成稅務建議。涉及個人稅務情況請諮詢持牌會計師或稅務師。 This does not constitute tax advice. Consult a licensed CPA or tax advisor for your specific situation.