Hong Kong’s freelance economy is booming, with more professionals than ever choosing the independence of solo entrepreneurship. Whether you’re a digital marketer, software developer, consultant, or creative professional, understanding your tax obligations is crucial for sustainable success. The good news? Hong Kong offers one of the world’s most favorable tax environments for freelancers, with the eTAX system making compliance more accessible than ever. Let’s navigate the essentials of tax compliance for Hong Kong’s solo entrepreneurs.

Understanding Your Tax Status as a Freelancer

Profits Tax vs. Salaries Tax: What’s the Difference?

One of the most common misconceptions among new freelancers in Hong Kong is confusion about which tax regime applies to them. Unlike employed individuals who pay Salaries Tax, freelancers and sole proprietors are subject to Profits Tax.

Here’s the critical distinction:

• Salaries Tax applies to income from employment, with progressive rates from 2% to 17% or standard rate of 15% on first HK$5 million and 16% on amounts above
• Profits Tax applies to business income earned by sole proprietors, partnerships, and corporations
• Some freelancers may have both employment income and self-employment income, requiring careful reporting of both

The Hong Kong Inland Revenue Department (IRD) does not recognize a separate “self-employment tax” category. Instead, if you operate as a sole proprietor or in partnership, you file for Profits Tax on your assessable profits through the individual tax return form (BIR60).

Hong Kong’s Favorable Two-Tier Profits Tax System

Hong Kong introduced a two-tier Profits Tax system to support small and medium-sized businesses, including freelancers and sole proprietors. This progressive structure is significantly more favorable for those just starting out or operating smaller ventures.

Example: If you’re a freelance web developer earning HK$500,000 in assessable profits annually, you would pay only HK$37,500 in Profits Tax (7.5% of HK$500,000). This represents one of the most competitive tax regimes globally for independent professionals.

Business Registration: Your First Essential Step

Timeline and Requirements

Before you can legally operate as a freelancer or sole proprietor in Hong Kong, you must obtain a Business Registration Certificate. This is a fundamental requirement that many new freelancers overlook, potentially exposing themselves to penalties.

How to Register Your Sole Proprietorship

The registration process is straightforward and can be completed online through the eTAX portal at GovHK:

1. Prepare Required Information:
   • Proposed business name (must not duplicate existing registered names)
   • Nature of business (detailed description of your services)
   • Business address (can be home address for home-based freelancers)
   • Hong Kong Identity Card (for residents) or passport (for non-residents)
   • Contact details (phone number and email)
2. Submit Application: Complete the online form via eTAX or submit Form IRBR1 in person at the Business Registration Office
3. Pay Registration Fee: Current fees for the period April 2024 to March 2025:
   • 1-year certificate: HK$2,200
   • 3-year certificate: HK$6,020 (approximately HK$2,007 per year, saving about HK$193 annually)
4. Receive Certificate: Your Business Registration Certificate will be issued immediately upon successful application

Navigating the eTAX System: Your Digital Tax Partner

What is eTAX and Why Use It?

eTAX is the IRD’s official online platform for tax filing and management. For freelancers, it offers numerous advantages over traditional paper-based filing:

• Automatic deadline extensions: Online filers receive an automatic one-month extension for filing deadlines
• 24/7 accessibility: File your tax returns at any time, from anywhere
• Instant confirmation: Receive immediate acknowledgment of submission
• Secure document storage: Access your tax history and documents digitally
• Real-time updates: Track the status of your tax assessments and refunds
• Eco-friendly: Eliminate paper waste and reduce your environmental footprint

Understanding Your Tax Forms: BIR60 for Sole Proprietors

As a freelancer operating as a sole proprietor, you’ll receive the Tax Return – Individuals (BIR60) form. This comprehensive form captures multiple income sources:

• Part 1: Personal particulars and residence status
• Part 2: Salary income (if you also have employment income)
• Part 3: Rental income from property (if applicable)
• Part 4: Personal allowances (married person’s allowance, child allowances, dependent allowances, etc.)
• Part 5: Sole proprietorship business details and profits/losses (critical section for freelancers)

In Part 5, you’ll report detailed information about your freelance business, including:

• Business name and registration number
• Nature of business
• Accounting period (basis period)
• Gross receipts/turnover
• Total deductible expenses
• Net profit or loss

Critical Deadlines and Filing Timeline

Initial Notification to IRD

Many new freelancers assume the IRD will automatically know when they start business operations. This is incorrect. You must notify the IRD in writing within 4 months after the end of the basis period for the year you started your business.

Example: If you started your freelance business on 1 May 2024, and your accounting year ends on 31 March 2025, you must notify the IRD by 31 July 2025 (four months after 31 March 2025).

Annual Filing Deadlines

Maximizing Deductible Expenses: What You Can Claim

The Golden Rule: Wholly and Exclusively

The IRD applies a straightforward but strict principle for expense deductibility: an expense is deductible only if it is wholly and exclusively incurred for producing assessable profits and is not capital in nature.

Let’s break this down:

• “Wholly” means the entire amount must be for business purposes. If an expense serves both business and personal purposes (like a mobile phone), you must apportion it and claim only the business portion
• “Exclusively” means the expense must be incurred solely for generating business income, not for private or capital purposes
• “Not capital in nature” means the expense must be for day-to-day operations, not for acquiring long-term assets (though specific capital allowances exist for qualifying assets)

Commonly Deductible Expenses for Freelancers

MPF Obligations for Self-Employed Freelancers

Understanding Your MPF Responsibilities

Hong Kong’s Mandatory Provident Fund (MPF) system extends to self-employed individuals, including freelancers. This retirement savings scheme is not optional—it’s a legal requirement with specific contribution obligations and benefits.

Contribution Calculations

Self-employed freelancers must contribute 5% of their relevant income to their MPF account, subject to minimum and maximum income thresholds:

Example Calculations:

• Annual income HK$80,000: No MPF contribution required (below minimum threshold)
• Annual income HK$240,000: MPF contribution = HK$12,000 (5% of HK$240,000)
• Annual income HK$600,000: MPF contribution = HK$18,000 (capped at maximum, even though 5% would be HK$30,000)

Record-Keeping: Your Legal Obligation

The 7-Year Rule

Hong Kong law requires all businesses, including sole proprietors and freelancers, to maintain complete and accurate business records for a minimum of 7 years. This obligation continues even after your business ceases operations.

Financial Statement Requirements

Personal Assessment: A Tax-Saving Strategy

When Personal Assessment Makes Sense

Many freelancers have multiple income streams—perhaps you have part-time employment income alongside your freelance business, or you earn rental income from property. In such cases, Personal Assessment can potentially reduce your overall tax liability.

How Personal Assessment Works

Under normal circumstances:

• Salary income is taxed under Salaries Tax (progressive rates: 2% to 17% or standard rate of 15% on first HK$5 million and 16% on amounts above)
• Business profits are taxed under Profits Tax (7.5%/15% two-tier rates)
• Rental income is taxed under Property Tax (15% on net assessable value)

With Personal Assessment, you elect to:

• Combine all income sources into a single aggregate income
• Deduct all applicable personal allowances (married person’s allowance, child allowances, dependent parent allowances, etc.)
• Apply Salaries Tax progressive rates (2% – 17%) to the net income, rather than the flat Profits Tax or Property Tax rates

2024/25 Tax Year Updates and Reliefs

Increased Personal Allowances

For the 2024/25 tax year, several personal allowances have been increased:

• Basic allowance: HK$132,000 (up from HK$132,000)
• Married person’s allowance: HK$264,000
• Child allowance (each): HK$130,000
• Child allowance (year of birth additional): HK$130,000
• Dependent parent/grandparent (60+): HK$50,000
• Single parent: HK$132,000

Key Deductions for Freelancers

Don’t overlook these valuable deductions:

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