Hong Kong Fact-File Part 2:
Individual Business Domestic Taxation

2.3 Hong Kong Individual Income Tax Rates and Bands

The first thing to say about the tax structure for individuals in business is that the jurisdiction operates a territorial tax system, meaning that only income arising in Hong Kong is liable for taxation there; income earned overseas, even if remitted to the SAR, is not taxable.

For individuals, there are three main taxation streams: Salaries tax, profits tax, and property tax.

Salaries tax, as the name suggests, is imposed on remuneration arising from employment in Hong Kong, including salary, director’s fees, wages, allowances, fringe benefits, and various other forms of compensation.

It is calculated as the smaller of either:

Net chargeable income (defined as gross income less deductions and allowances) as charged at the progressive rates (which start at 2% for the first HKD40,000, 7% for the next HKD40,000, 12% for the next HKD40,000 and 17% for any income after that); or
Net income (gross income less deductions) charged at the standard 15% rate.

However, this is likely to be of less interest for the self-employed business person than profit tax, which is imposed (also as suggested by the name!) on the profits of a trade, profession or business being undertaken in Hong Kong.

Profits tax is imposed at 15% on the profits of unincorporated businesses, and 16.5% on profits generated by incorporated entities.

Property tax, meanwhile, is imposed at 15% (assuming the property owner is an individual) on rental income, related payments, and lump sums arising from such properties.

Should an entrepreneur find him or herself subject to both profits and property tax, they may find that they can reduce their tax liability by electing to be assessed under the Personal Assessment system, which aggregates assessable income, whilst making adjustments for the deductions. The taxpayer can elect to be assessed under this system by filling in section 6 of the individual income tax return form, or by filling in form IR76C.

Married couples can also opt to be assessed under the Personal Assessment system; their income will be assessed jointly, which can be advantageous.

In order not to have to face a big tax bill at the end of the year, all individuals subject to tax, including sole proprietors and partners in a general partnership, may purchase Tax Reserve Certificates (TRCs). Standard TRCs are now only available for purchase online. Interest is paid on all TRCs from the time of purchase until they are used for settlement of tax liabilities.
The Inland Revenue provides further information on this here: http://www.ird.gov.hk/eng/tax/trc.htm