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Hong Kong Tax Guide

Author: Source: Date:2015/8/31 21:32:19 Click:31 TAGS:Hong Kong Tax Guide

Hong Kong is a hot choice especially for its easy tax system. There are several reasons as to why foreign investors and entrepreneurs choose Hong Kong as their preferred jurisdiction for establishing and expanding their business operations. Some of the top factors include:

1. Ease of setting up and operating a business in Hong Kong

2. Proximity to Mainland Chinese market

3. Highly attractive tax regime – low personal and corporate tax rates, no capital gains tax, no VAT or sales tax, no withholding tax on dividends and interest or collection of social security benefits

 

Current Tax Rates in Hong Kong

Tax Rates for Companies

INCOME                                              TAX RATE

Tax rate for corporations                         16.5%

Tax rate on capital gains                          0%

Tax rate on shareholder dividends         0%

Tax rate on foreign-sourced income       0%

 

Tax Rates for Individuals

INCOME (IN HKD CURRENCY)                                                 TAX RATE

1 – 40,000 HKD                                                                                2%

40,001 – 80,000 HKD                                                                      7%

80,001 – 120,000 HKD                                                                   12%

Above 120,000 HKD                                                                         17%

Tax rate on capital gains                                                                  0%

Tax rate on income earned overseas                                            0%

Tax rate on dividends from a Hong Kong company                    0%

 

Hong Kong Tax: Key Facts

1. Currency

The Hong Kong currency is called Hong Kong Dollar (HKD) – the 9th most traded country in the world. HKD is closely pegged to the US dollar at approximately 1 USD = 7.8 HKD.

 

2. Foreign Exchange Control

There are no foreign exchange controls in Hong Kong.

 

3. Tax Jurisdiction

Taxes in Hong Kong are levied on the “territorial principle”. In other words, taxes are only levied on income “derived from or arising in” Hong Kong and not on income sourced outside Hong Kong. In simple terms, this means that a person who carries on a business in Hong Kong but derives profits from another place is not required to pay tax in Hong Kong on those profits. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong. The questions of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong are largely questions of fact. However some guidance on the principles applied can be found in cases which have been considered by the courts in Hong Kong and in other common law jurisdictions.

 

4. Single-Tier Tax System

Hong Kong follows a single-tier tax system i.e. there is no dividend tax.

 

5. Capital Gains Tax

There is no capital gains tax in Hong Kong. Capital loss expenses are correspondingly not allowed as deductions.

 

6. Dividend Tax

Dividend income, whether from Hong Kong or overseas, is not taxable. Dividends paid to either a resident or non-resident of Hong Kong are not subject to any withholding tax.

 

7. Corporate Tax

Hong Kong has an attractive corporate tax regime highlighted by low tax rates. The corporate tax rate is a flat 16.5% on assessable profits. For further details, refer to Hong Kong Corporate Income Tax guide. Tax incentives are available for specific industries.

 

8. Personal Tax

Individuals are taxed at progressive rates on their net chargeable income (i.e.assessable income after deductions and allowances) starting at 2% and is capped at 17%; or 15% of net income (i.e. income after deductions only), whichever is lower. For further details, refer to Hong Kong Personal Income Tax guide.

 

9. Withholding Tax

Royalties and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong are subject to withholding tax on their assessable profits. There are no withholding taxes levied on dividends and interest. For further details, refer to Hong Kong Withholding Tax Guide.

 

10. VAT Tax

Also known as Goods and Services Tax (GST tax) in some countries, there is no VAT or Sales tax imposed in Hong Kong.

 

11. Double Tax Treaties

Hong Kong has established a DTA network (37 treaties) that minimises exposure of Hong Kong residents and residents of the DTA partner to double taxation. For further details, refer to Hong Kong DTA Guide.

 

12. Accounting Standards

Since 1st January 2005, Hong Kong has adapted a Financial Reporting Standards (FRS) framework that has been modelled on International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).

 

13. Tax Year

The tax year in Hong Kong is 1 April – 31 March. Profits earned during an accounting year ending within the tax year will be deemed to be the profits for that tax year.

 

14. Property Tax

Property tax is charged on the owners of land and/or buildings in Hong Kong and is computed at the standard rate of 15% on the net assessable value of the property (i.e. property’s rental income).

 

15. Estate Duty

Also known as death tax or inheritance tax in some countries, estate duty has been abolished since February 10, 2006.

 

16. Stamp Duty

Stamp duty is chargeable on certain documents (relating to stock & shares and immovable property) specified in the First Schedule to the Stamp Duty Ordinance, which imposes fixed duty on some documents and an ad valorem duty on others. Fixed duties vary from HKD 3.00 to HKD 100 whereas ad valorem duties range from 0.1% to 4.25%

 

17. Customs and Excise Duty

Hong Kong is a free port. There is no tariff on general imports. However, there is duty on liquors, tobacco, hydrocarbon oil and methyl alcohol. For tobacco, hydrocarbon oil and methyl alcohol, duties are charged at specific rates per unit quantity. For liquors, duty is assessed at different percentages of their values on the basis of three different categories defined broadly according to alcoholic strength. There is no tax or excise duty on exports from Hong Kong.

 

18. Hotel Accommodation Tax (HAT)

This tax is imposed on the proprietors who provide hotel and guest house accommodation. Effective from 1 July 2008, the Government waived the charge of HAT. The rate of tax is reduced to 0% (the tax rate was at 3% for the period up to 30 June 2008) on all accommodation charges paid by the guests.

 

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