Hong Kong has a service-oriented, free-market economy. The country is one of the world’s largest exporters of merchandise trade, ranking 6th place at the World Trade Organization (WTO). This is due to Hong Kong adopting modern British and western business practices, maximizing their trade opportunities with other countries.

Major economic hubs:

Hong Kong

Skills in demand:

IT And Telecommunications, Banking And Finance, Pharmaceuticals, Insurance

Resident Tax Information

All resident employees are taxed on their worldwide income; however, non-resident  individuals are taxable on their income derived within Hong Kong.  

However, the Hong Kong Special Administrative Region (SAR) does not impose income tax  on individuals based on their total income. Instead, the SAR imposes three income taxes  on an individual's income –  

• Income from employment, pension, or office (salary tax)
• Trading profits or business profits
• Rental income

A key factor in local income taxes is if the employment is within the Hong Kong SAR or a non-Hong Kong SAR. A non-Hong Kong employment as laid down by the Hong Kong Inland Revenue Department (HKIRD) if the following three conditions are met -

• Both parties have negotiated the employment contract, which is entered into and is enforceable outside Hong Kong.
• The office of the employer is registered outside of Hong Kong and,
• The remuneration is paid to the employee outside of Hong Kong SAR.

The income tax rates in Hong Kong are below —

* Net Chargeable Income = Income – Deductions – Allowances

Social Security

Employers must enrol their employees in the social security system of Hong Kong as a part of Mandatory Provident Funds (MPF). An employee with a maximum income of HKD 30,000 per month must contribute 5% of their gross monthly salary while an employer makes an equal contribution of 5%.  

It is not mandatory for employees earning less than HKD 7,100 per month to contribute to the MPF.  

Employers and employees earning an income above HKD 30,000 must contribute HKD 1,500.  

The employer must withhold the monthly employee contribution towards MPF.  

Any amount contributed toward the MPF is voluntary by both parties.

Statutory Benefits

The employment law lays down statutory benefits in Hong Kong and must be provided to all resident and foreign employees. The statutory benefits in Hong Kong include —

Holiday pay or 13th-month pay

It is customary to pay Holiday Pay to all employees working in Hong Kong. Employers can offer Holiday Pay on Lunar New Year or every year in December.  

Working hours and overtime pay

The working hours in Hong Kong are typically Monday (five days a week) to Friday between 9 am to 6 pm. Work hours in Hong Kong are restricted to eight hours a day and must be between 7 am to 7 pm. The maximum work hours is 48 hours a week.  There is no provision for overtime pay in Hong Kong; however, the collective bargaining agreement decides the overtime rate or must be elaborated in the employment contract.

Social security contributions

All employers and employees must contribute towards the Mandatory Provident Funds (MPF). Employers must ensure that the employee contributions are deducted from the  monthly salary

Statutory leaves

All statutory leaves must be provided by the employer. Employers may also choose to  provide additional leaves.

Fringe Benefits

Employers commonly provide fringe benefits and the compensation package provided to the employees. Fringe benefits include employee benefits and benefits-in-kind that are provided in addition to the normal employee salaries.  

Commonly provided fringe benefits include —

• Transportation expenses
• Flexible working hours
• Additional paid time off
• Business trip expenses

Exempt Benefits

Certain benefits are exempt from income taxes. These include —

• Business travel expenses
• Mandatory contributions towards retirement plan up to HKD 18,000
• Qualifying premiums up to HKD 8,000 is exempt under the voluntary health insurance schemes (VHIS)
• Elderly residential care expenses up to HKD 100,000
• Self-education expenses up to HKD 100,000
• Home loan expenses up to HKD 100,000

Long-term Incentives

The best way for an employer to show their appreciation of hard work and dedication is through long-term benefits. Employees will often be rewarded with company specific goals, such as stock options or other forms of equity ownership that provide incentives over time horizons greater than one year when they achieve certain performance milestones within the business unit/organization where employed.

Commonly provided long-term incentives in Hong Kong include —  

• Additional dental covers, group health insurance, additional premiums toward life insurance

• Employee stock options

• Performance-based incentives

• Employer pension schemes

Termination Process

Contract termination in Hong Kong may be initiated by either the employer or employee. It may take place with adequate notice from the party or through payment in lieu of notice. Notice period and pay in-lieu are dependent on whether the employee is on probation as well as contractual considerations.

Notice Period

The notice period for Hong Kong employees depends on whether they are in their probation period or not. Those under probation period will have up to 30 days of notice period while those outside have up to 3 months.

Severance Pay

Below is the calculation for severance pay in Hong Kong: