Profits tax compared with personal assessment, plus self-employed MPF.
Lower tax outcome
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Profits tax route
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Personal assessment
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Assessable profits
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Self-employed MPF
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Your breakdown
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Two ways the taxman can assess a freelancer
If you freelance through an unincorporated business in Hong Kong, your trade income is taxable, and you face a choice that an ordinary salaried employee never has to make. By default your profits fall under profits tax. But you can elect personal assessment, which instead taxes your total income at the progressive salaries rates after giving you the basic allowance. The two routes can produce very different bills, and the cheaper one depends on how much you earn and what allowances you can use. This calculator runs both and shows the lower outcome, alongside the self-employed mandatory MPF you also owe.
This matters because freelancers often default to profits tax without checking whether election would save them money, or elect personal assessment when it actually costs more. The Inland Revenue Department lets you choose each year, so the right answer can flip as your income changes.
Profits tax, personal assessment, and self-employed MPF
The profits tax route this tool models charges an unincorporated business 7.5 percent on the first $2 million of assessable profit and 15 percent above that, with no basic allowance and no Budget reduction applied to profits tax. The personal assessment route takes your profits, subtracts deductible MPF and the basic allowance the calculator sets at $132,000, runs the result through the progressive 2 to 17 percent bands, then applies the one-off Budget reduction. On top of either, self-employed MPF is charged at 5 percent of profits within an annual floor and ceiling, which the tool caps in line with the MPFA contribution limits. Every rate and threshold here is the calculator's assumption; confirm the current figures with the IRD and the MPFA, since both review them periodically.
$600,000 of income, $60,000 of costs
Say you bill $600,000 in a year and rack up $60,000 of deductible business expenses, leaving $540,000 of assessable profit. Self-employed MPF at 5 percent on profits up to the ceiling reaches the annual cap. The two tax routes are then compared.
Here profits tax wins at $40,500, about $4,800 less than the $45,300 personal assessment figure, so this freelancer should not elect. The reason is that 7.5 percent on the whole profit beats the progressive bands once income climbs, even after the basic allowance and the $3,000 reduction soften personal assessment. The chart puts the two routes side by side.
Freelancer tax questions that come up
When does electing personal assessment actually help?
It tends to help lower earners and those with large allowances, because the progressive bands start at just 2 percent and the basic allowance and any family allowances shrink the taxable base. A freelancer with modest profit, several dependants, or deductible items can find personal assessment well below the flat profits-tax figure. As profit rises and the flat rate stops being a bargain, the advantage swings back to profits tax, which is what the example shows.
Do I really have to pay MPF if I work for myself?
Yes. Self-employed people must enrol in an MPF scheme and contribute 5 percent of relevant income, subject to the MPFA's annual floor and ceiling, unless your income falls below the minimum level. Below the floor you are exempt from contributing, and above the ceiling your contribution is capped. The mandatory portion is also deductible for tax up to the annual limit, which the calculator factors into the personal assessment route.
Is my freelance income really taxable, given Hong Kong's reputation?
Hong Kong does not tax capital gains or dividends, but profit from a trade, profession, or business carried on here is squarely taxable, whether under profits tax or personal assessment. So while an investor's gains may escape tax, your freelance earnings do not. Keep proper records of income and expenses, because the IRD can assess and audit unincorporated businesses just as it does companies.