The answer first
A freelancer or consultant working on their own account in Hong Kong is usually carrying on a business as a sole proprietor. That means registering the business, keeping records and paying profits tax on business profits, not salaries tax. Many freelancers discover these obligations only when the Inland Revenue Department writes to them.
Business profits are taxed at 7.5% on the first HK$2 million and 15% above (unincorporated business rates), unless personal assessment gives a better result. Self-employed persons aged 18 to 64 must enrol in MPF and contribute, subject to the income thresholds.
At a glance
- Business Registration
- Within 1 month of starting business
- Tax rates
- 7.5% on the first HK$2 million; 15% above
- Records
- Keep for at least 7 years
- MPF
- Self-employed aged 18 to 64, subject to thresholds
- No return received?
- Notify chargeability within 4 months after the basis period ends
Employee or self-employed?
| Pointer | Suggests employment | Suggests self-employment |
|---|---|---|
| Control | The client controls how and when work is done | You decide how and when |
| Equipment | Provided by the client | Your own |
| Financial risk | None; paid regardless | You bear profit and loss |
| Clients | One, integrated in the organisation | Several, on your own account |
The label in the contract is not decisive; the real relationship is. If you are in substance an employee, the employer has obligations too.
Your obligations
| Obligation | Detail |
|---|---|
| Business Registration | Within 1 month of commencement; renew every 1 or 3 years |
| Records | Keep income and expense records for at least 7 years |
| Tax return | Report business profits when the Inland Revenue Department issues your return; notify chargeability if no return is issued |
| Tax rates | 7.5% on the first HK$2 million, 15% above, for unincorporated businesses |
| MPF | Enrol within the permitted period and contribute 5% of relevant income, subject to thresholds |
Notify chargeabilityIf you are chargeable to tax and have not received a return, you must inform the Inland Revenue Department in writing within 4 months after the end of the basis period. Failure to do so can lead to penalties.
When a limited company makes sense
- Your profits are growing and you want separate legal liability.
- Clients prefer or require contracting with a company.
- You plan to hire staff or bring in partners.
- You want to reinvest profits within the business.
Key takeawayA limited company brings extra costs, including audit, company secretary and Annual Return, so the decision should be based on your figures and risks.
Self-check: where do you stand?
| Question | If the answer is no |
|---|---|
| Have you registered your business? | Apply for Business Registration |
| Do you keep records of income and expenses? | Start a simple ledger and receipts file |
| Have you set aside money for tax? | Reserve a share of each payment |
| Are you enrolled in MPF as self-employed? | Enrol now |
| Have you checked whether a limited company would suit you better? | Review with us |
How DBMS Global can help
- Business Registration and tax return preparation for sole proprietors.
- Simple bookkeeping set-up.
- Advice on whether and when to incorporate.
In summary
- Freelancing is usually a business for tax purposes.
- Register, keep records and file.
- Consider incorporation as you grow.
Official references
- Business Registration Ordinance (Cap. 310)
- Inland Revenue Department: profits tax for unincorporated businesses, www.ird.gov.hk
- Mandatory Provident Fund Schemes Authority: self-employed persons, www.mpfa.org.hk