Simple HK Income tax saving Options
If you are paying income tax in Hong Kong, tax deductions are something you shouldn’t miss out on, especially if you are paying a 17% tax rate (taxable income over HK$200K/yr).
End-of-year is the best time to take action on tax-reduction
3 Basic Tax Reduction Schemes You Need To Know
So why is the government giving us these perks while they are not doing particularly well financially? The message is obvious if you know which three schemes they offer tax deductions on:
Voluntary Health Insurance Scheme (VHIS) - a variety of VHIS-certified personal medical insurance schemes which cover private hospitals’ in-patient expenses, removing partial pressure on public hospitals’ capacities and costs. You can purchase this coverage for yourself, your spouse, and your family members and claim tax reductions from all of these plans. The annual maximum amount of reduction for each insured person is HK$8,000. An example is as follows:
Actual tax deduction amount = Annual VHIS Premium (max. cap HK$8000) x Your Tax Rate
If you have a tax rate of 17%, and are paying HK$8000/year for yourself, your wife and your retired parents, then your actual tax deduction amount is:
($8000 x 4) x 17% = $5440
Qualified Deferred Annuity Policy (QDAP) - a long-term insurance product, where the policyholder will pay premiums to the insurance company to receive regular annuity payouts starting from a designated date or age until the expiry date specified in the contract. Only eligible QDAPs approved by the Insurance Authority (IA) are tax deductible.
How much tax can you save? The minimum savings requirement to enjoy tax deduction is HK$60K/year (for 5 years). Assuming your tax rate is 17%, you will be able to save HK$10200 tax/year (for 5 years). So imagine if I’m 30 years old, and if I continue to commit to this plan every 5 years until I get to 65 years old, I can save up a total of $357,000 tax!
And just like VHIS, you can purchase a plan for yourself and your spouse to enjoy up to HK$120k tax reduction, even if he/she is not in the workforce. If that’s the case, your actual tax deducted amount will be (assuming your tax rate is 17%):
($60000 x 2) x 17% = $20400
Tax Deductible MPF Voluntary Contributions (TVC) - MPF scheme members can open a TVC account under their chosen MPF scheme and make contributions directly to the account without involving their employer.
Same as QDAP, the maximum cap for tax reduction is HK$60000 for your voluntary pension contribution. So if you make a $60k contribution, and have a tax rate of 17%, your actual tax reduction amount is:
$60000 x 17% = $10200 (You can only claim for yourself, not for other family members)
So basically, the government is telling us that they don’t have the money to take care of us when we get old, they need to limit the support to only those really in need and don’t have the ability to support themselves or are underprivileged. So for the middle or upper working class, we’d better save up for our future health and retirement expenses. For more information on these options, click here to view the Investor and Financial Education Council website.
Best time to act - End of Year
Why is December the best time to sign up for these tax reduction options instead of right before the fiscal year ends in March? DISCOUNTS!
December is known as the year-end-closing month for most insurance companies, and they even put together premium rebates/discounts for Tax-Deductible Deferred Annuity Plans (as much as HK$9000 discount!), or other promotions for VHIS and TVC. So don’t wait and get in touch with your wealth planner for a holistic review now before it’s too late.
If you wish to know exactly how much tax you can save, feel free to book a free consultation here or email me at gc@gracechan.co .
