Hong Kong

Basic taxes (briefly)

Personal tax 2-17%
Corporate tax (in detail)
Capital gains tax. Details
VAT. Details
Other taxes Capital duty, Real property tax, Social security contribution
Government fee No
Stamp duty Yes

International tax agreement

   


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TAXES

Personal tax

The Hong Kong personal income tax (salaries tax) covers all income arising in or derived from Hong Kong from an office, employment or pension. Personal income is taxed at progressive rates ranging from 2% to 17%, with a standard rate of 15%.

Corporate tax

The Hong Kong tax system is territorial in nature, with tax levied on income arising in or derived from Hong Kong. Profits tax is levied at a rate of 16.5% on the Hong Kong source profits of businesses carried on in Hong Kong. In determining the source of profits, Hong Kong generally adopts ‘operations test’, which involves identifying activities that are most important in generating the profits and the place at which these activities are carried out.

Capital gains tax

Capital gains are not taxable. However, gains on the disposal of assets may be subject to profits tax if the disposal constitutes a transaction in the nature of trade (a factual determination).

VAT

Hong Kong does not levy VAT.

Withholding tax

There is no withholding tax on dividend distribution or interest payments from a Hong Kong company.
Royalty payments are deemed to be taxable in Hong Kong if made to unaffiliated non-residents for the use of, or the right to use, intangibles in or outside Hong Kong where the royalty payments are deductible for profits tax purposes. The amount deemed taxable is 30% of the gross amount of the royalties paid, resulting in the effective rate of 4.95% (16.5% x 30%). If a royalty is paid to an affiliated non-resident and the intangibles were owned by a person carrying on business in Hong Kong, 100% of the royalty is deemed taxable resulting in an effective rate of 16.5%.

Other taxes

Capital duty levied at 0.1% of the increase in authorized share capital (subject to a cap of HKD 30,000)
Real property tax property owners are taxed on rental income derived from property in Hong Kong. The tax is charged at the standard rate of 15% of the net assessable value of the property as determined by rent, service charges and fees paid to the owner, less an allowance of 20% for repairs and maintenance. A company deriving rental income from property is subject to profits tax and may deduct the amount of property tax paid from the amount of profits tax due.
Social security contributions for employees whose monthly income is HKD 5,000 or more, the employer is required to deduct 5% as the employee’s contribution to the Mandatory Provident Fund scheme and then pay an additional 5% as its own contribution. Self-employed persons also contribute 5% of their relevant income and may choose to contribute on a monthly or annual basis. The maximum deduction is HKD 1,000 per month.

Stamp duty

Stamp duty is charged on documents connected with the lease, sale or transfer of immovable property in Hong Kong, and the sale of shares. If the above are transferred at less than a market value, stamp duty may be imposed based on the market value at the date of transfer. The rate on the lease of immovable property ranges from 0.25% of the total rent payable for a short-term lease (1 year or less); 0.5% of the annual or average annual rent for a 1 to 3-year lease; and 1% of the annual or average annual rent for a lease exceeding 3 years. The maximum duty on the sale and conveyance of property is 3.75% of the value of the property transferred. The stamp duty on the transfer of Hong Kong shares is 0.2% of the value of the shares transferred, which is shared equally between the buyer and the seller.

Foreign exchange control

There is no foreign exchange control in Hong Kong.

Government fee

There is no annual government fee per se, but there is a business registration fee which is due annually to the Business Registration Office of the Inland Revenue Department by every registered business in Hong Kong. Fees are often changed, till March, 2013, it is set at 250 HKD.

ACCOUNTS

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually.
Each year the company registered in Hong Kong must prepare and submit to the Companies Registry an annual return containing, in the case of a private company having a share capital, the details of all shareholders, directors, registered office and share capital and any changes thereof. This information is available to public. In case of non-compliance, the Registrar of Companies may strike the company off the register. In the case of a private company with a share capital, the annual return shall be completed within 42 days after the most recent anniversary of the date of incorporation of the company and the company shall forthwith forward to the Registrar a copy of the return signed by a director or the secretary of the company.

Financial statements

Every Hong Kong company must also annually submit to the Inland Revenue a profits tax return accompanied by the audited financial statements for the relevant period (financial statements will not be publicly available). The auditor must be a member of the Hong Kong Institute of Certified Public Accountants and hold a current practicing certificate. If the company had no operations during the tax period no financial statements have to be filed, but only a ‘Nil’ return declaring the company had no business activities, which return does not need to be certified by an auditor.
Financial statements must be fulfilled in both English and Chinese on paper or in electronic version. All accounting books must be kept for 7 years since the end of a financial year. It is a serious violation if a company does not keep accounting books. Documents which must be kept include invoices, checks, bank payments and contracts. Losses can be transferred to the next periods without limitations.

Tax returns

Profits tax returns are normally issued to companies by the Inland Revenue Department on 1 April, the day after the tax year ending on 31 March. For newly registered company, the first profits tax return will be issued 18 months after the date of incorporation or commencement of business. The basis period for the first profits tax return should not be more than 18 months from the date of commencement of business to the accounting date selected by the company. Generally, a tax return should be completed and submitted to the Inland Revenue within one month from the date of issue.
Hong Kong companies make two payments of profits tax during the tax year. The first payment consists of 75% of the provisional tax for the current year plus 100% of the final payment for the preceding year. The second payment equals 25% of the provisional tax for the current year. The timing of payments is determined by assessment notices, sent generally during November to April of the tax year.
Failure to submit a return within time stipulated by the notice, apart from government authorities’ sanctions against the company itself, entails sanctions against its directors: they will be liable to a fine of HKD 10,000 and a further fine of treble the amount of the undercharged tax.

    Taxes of Hong-Kong

    Min. rate for corporate tax 0%/16,5%
    Capital gains tax No
    VAT No
    Withholding tax 0%/0%/30%
    Exchange control No
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