Self-Employed Tax Filing Guide:
Profits Tax vs Salaries Tax — Which Saves More?

First, figure out: are you an "employee"
or "running a business"?

The Inland Revenue Department (IRD) decides which tax you file not by the job title on your card, but by the actual nature of your relationship with the "employer":

In reality it's often a grey area. If you're a freelancer who only works for one company, goes to their office, uses their computer and follows their working hours, the IRD may well rule you a "disguised employee" and demand back salaries tax. This is an area the IRD has been cracking down on — don't assume you can simply call yourself self-employed to pay less.

Conversely, if you genuinely run a business, you must file profits tax on your business profits — even if you don't have a business registration certificate.

Profits Tax: the two-tier system —
a lower rate on the first HK$2 million

Since the 2018/19 year of assessment, Hong Kong applies a two-tiered profits tax rate: the first HK$2 million of profit is taxed at a lower rate, the remainder at the standard rate:

Profits tax is charged on assessable profits (income minus deductible expenses). Deductible expenses include office rent, computer equipment, transport, MPF contributions (capped at HK$18,000) and marketing — i.e. your business costs are deductible. The key point: profits tax offers no basic allowance — tax starts from the first dollar at 7.5%.

Salaries Tax: progressive rates
plus a stack of allowances

Salaries tax uses progressive rates (2%, 6%, 10%, 14%, 17%), with a standard rate of 15% as a cap (you pay whichever is lower). The big difference is the long list of allowances: a basic allowance of HK$132,000, married person's allowance of HK$264,000, HK$130,000 per child, and up to HK$100,000 for supporting parents.

In other words, employees deduct all their allowances first, then apply the progressive rates to the remainder. The more allowances you have, the lower your effective tax rate.

Personal Assessment:
the tax-saving bridge most self-employed people miss

This is the thing most self-employed people don't know about. Personal Assessment lets you combine all your income — business profits + salary + rental income — and then tax the total using the salaries tax allowance system and progressive rates.

When should you choose Personal Assessment?

• You have lots of allowances (married, supporting parents, children)
• Your business made a loss, which can offset other income (e.g. your spouse's salary)
• You have both a salaried job and self-employed income

When is staying on Profits Tax better?

• Most of your net profit is within the first $2 million, so 7.5% is already low
• You have few allowances (single, no dependants, no mortgage)

Worked example:
same income, three ways — which wins?

Say you're a sole-proprietor freelance designer with annual income of HK$600,000, deductible expenses of HK$100,000, and net profit of HK$500,000:

Notice that in this example, if you're single, profits tax (HK$37,500) actually beats Personal Assessment (HK$44,560) — because your entire net profit sits within the first $2 million, where 7.5% is lower than the top of the progressive scale. But once family allowances come into play, Personal Assessment pulls ahead.

The takeaway: there is no single "best" answer — it depends on your family situation and allowances. The key is to work out both and pick whichever saves more.

Common pitfalls:
where self-employed tax filing goes wrong

Summary

The essentials of self-employed tax filing come down to three things: whether you're an employee or running a business (which decides your tax), how profits tax and salaries tax are each calculated, and the Personal Assessment option. You don't need to master the entire tax code — but you should know enough to work out both sides and pick whichever saves more.