Hong Kong taxes are among the lowest in the world and our tax regime is simple and predictable.
The Profits tax rate is the same for foreign and local companies - a low 16.5 percent. The actual tax bill is often even less after various deductions and depreciation allowances.
There is no capital gain tax in Hong Kong, withholding tax on dividends and interest or collection of social security benefits.
The salaries tax rate is at a maximum rate of 16 percent, imposed only on all salary income of individuals derived in or from Hong Kong. The salaries tax is demanded on a yearly basis and can be paid in two installments, usually between December and March.
The property tax applies to owners of land or buildings situated in Hong Kong. It is low by international standards: 16 percent (for 2004-5) of the rental income from the land or buildings and an allowance of 20 percent is permitted for repairs and maintenance.
There is no sales tax or VAT in Hong Kong. The limited tax base, combined with exceptionally low tax rates, makes Hong Kong 's tax incidence much lower than in virtually all other developed economies.
Hong Kong 's simple and low tax system is a great attraction to foreign investors. This low fiscal burden for all, domestic or international players, corporates and individuals alike makes Hong Kong attractive.
In fact low tax is the most cited reason for regional offices to set up in Hong Kong ! This tax regime makes Hong Kong one of the lowest tax environments among developed economies.
Hong Kong operates a territorial basis of taxation under which taxes are only imposed on profits or income with a Hong Kong source. Foreign-sourced income is not taxable even if remitted to Hong Kong.
The Inland Revenue Department is responsible for tax matters in Hong Kong. Hong Kong has a different tax regime and is treated as completely separate to the Mainland of China. Hong Kong does not remit any tax to the Mainland of China.
Hong Kong 's fiscal year runs from 1 April to 31 March.
The principal direct taxes are profits tax on business profits, salaries tax on salaries and property tax on income from property.
Hong Kong does not have any capital gains tax, withholding tax in dividends and interest, inheritance tax, value added tax and collection of social security contributions. Few items attract duty.
The following are broad insights into Hong Kong 's main direct taxes:
Double taxation agreements
Profits tax is charged only on net profits arising in or deriving from Hong Kong, from a trade, profession or business carried on in Hong Kong.
Incorporated and unincorporated businesses are taxed at different rates - incorporated businesses at 17.5% and unincorporated at 16%.
Profits tax is paid initially on the basis of profits made in the year preceding the year of assessment and is subsequently adjusted according to profits actually made in the assessment year. The fiscal year in Hong Kong runs from 1 April to 31 March.
Some general details in calculating profits tax:
Deductible items include:
All expenses incurred in the production of assessable profits
Losses of the company (can also be carried forward indefinitely)
Capital allowances on capital expenditure (varying between 4-20%) and plant and machinery, up to an immediate write off of 100%
Certain trademark and patent registration fees
Contributions to an employee retirement scheme, up to specified limits
Some costs attributable to scientific research
Items exempt from profits tax
Interest income, other than that received by financial institutions, and dividends received from corporations
There is no withholding tax on dividends paid by corporations
Groups cannot file a consolidated tax return in Hong Kong
Profits tax produces about 20% of the Government's revenue.
Salaries tax is charged on emoluments arising in or derived from Hong Kong. The basis of assessment and method of payment (including provisional payments) are similar to the system for profits tax.
Taxpayers receive their salary gross ie the tax is not deducted. Salaries tax is demanded on a yearly basis, and is normally paid in two instalments between December and March. Employees must remember to save their tax in preparation for this bill!
Foreign nationals who spend less than 60 days in Hong Kong in any year of assessment are exempt from salaries tax.
Employers will register new employees with the authorities so that the tax authorities should automatically be notified when a new tax subject is around.
Taxable income includes:
Commissions; bonuses; awards; gratuities; allowances; like housing allowance
Deductions include: allowances prescribed in the Ordinance, charitable donations and certain payments for relevant educational courses.
The earnings of husbands and wives are reported and assessed separately. However they may elect to be assessed jointly if this results in a lower tax bill or if allowances are unused.
Salaries Tax Computation
The Department has developed a simple Salaries Tax Computation Program to help you calculate your own Salaries Tax liability. All you have to do is to select the assessment year, marital status, input your income and the number of your dependants and then press the "Compute" button at the bottom of the input page. Another page will appear which shows you your exact Salaries Tax liability. Salaries tax is calculated in two ways and the taxpayer pays the lesser amount. The two methods are: tax calculated at a stepped rate on the net income figure ie after tax allowances. The stepped rates are: 2% on the first HK$30,000; 8% on the next HK$30,000; 14% on the next HK$30,000 and the balance at 20%. tax calculated at the standard rate (16%) applied to the gross income figure. Only around 40% of the workforce has to pay salaries tax
Property tax is charged at a standard rate of 16% on rentals received less rates and an allowance of 20% for repairs and maintenance.
Again the system of provisional payment of tax is similar to that for profits tax and salaries tax.
For corporations, rental income is included in their profits tax calculations so they are not subject to property tax.
Hong Kong's tax basis is territorial, therefore income derived by a resident from places outside Hong Kong will generally not face double taxation in Hong Kong. Many countries which tax their residents on a world-wide basis also provide their residents who operate businesses in Hong Kong with unilateral tax relief for Hong Kong tax paid on income derived from Hong Kong. Hong Kong also allows a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income. Hong Kong does however have two comprehensive double tax agreements. In August 2006, Hong Kong and the Mainland of China replaced the limited scope arrangement for the avoidance of double taxation with a comprehensive double tax arrangement. This is yet another example of the cross border agreements that are being developed to strengthen links between the two economies.Hong Kong has double tax arrangements for shipping and airline income with a number of countries
Double taxation arises when two or more tax jurisdictions overlap, such that the same item of income or profit is subject to tax in each.
Hong Kong adopts the territoriality basis of taxation, whereby only income / profit sourced in Hong Kong is subject to tax and that derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong. Therefore, Hong Kong residents generally do not suffer from double taxation. Many countries which tax their residents on a worldwide basis also provide their residents operating businesses in Hong Kong with unilateral tax credit relief for any Hong Kong tax paid on income / profit derived from Hong Kong. We allow a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income. Notwithstanding this, the Hong Kong Special Administrative Region Government (HKSARG) recognises that there are merits in concluding double taxation agreements (DTAs) with our trading partners. A DTA provides certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas. Therefore, it has been the policy of the HKSARG to establish a DTA network that would minimise exposure of Hong Kong residents and residents of the DTA partner to double taxation. We have actively engaged our trading partners in negotiating a comprehensive DTA (covering various types of income) with us. Due to the international nature of aircraft operations, airline operators are more susceptible to double taxation than other taxpayers. As negotiation of comprehensive DTA may take longer time, it has been Hong Kong's policy to include double taxation relief arrangements for airline income in the bilateral Air Services Agreements negotiated between Hong Kong and the aviation partners.
Shipping income is another area of concern. We have amended our legislation to provide a reciprocal tax exemption from 1 April 1998 for shipping income so that ship operators can benefit from the tax relief offered by places with similar reciprocal tax exemption legislation. In parallel, Hong Kong has entered into negotiations of double taxation relief arrangements for shipping income with other places that either do not provide reciprocal tax exemption in their legislation or, even reciprocal exemption provisions exist, prefer conclusion of a bilateral agreement.
There are also agreements that cover both airline and shipping income.
You may also raise issues relating to specific country / territory negotiation with which has been scheduled and the representation should preferably reach this Department at least 2 weeks before the scheduled negotiation date.
Trade and Customs Regulations (hk)
There are no customs tariffs in Hong Kong and goods imported or exported require minimal customs formalities. Excise duties are levied only on tobacco, liquor, methyl alcohol and hydrocarbon oil, whether imported or locally manufactured. Import/ Export declaration is required within 14 days after the importation/ exportation of any articles, other than exempted articles.
Import and export licenses, and certificates of origin are only required to enable Hong Kong to fulfill its obligations under international agreements or requirements of importing countries and for public health, safety or security reasons. Textiles and clothing products for export to certain markets are currently subject to quota restraint. Further information on the Trade and Industry Department's licensing services can be obtained at its office at Trade and Industry Department Tower, 700 Nathan Road, Mong Kok, Kowloon