Hong Kong tax system: audit, reporting and optimization of taxation of Hong Kong companies and individuals: VAT, income tax and capital gains

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

Austria, Belarus, Belgium, Brunei, Cambodia, Canada, China, Czech Republic, Estonia, Finland, France, Georgia, Guernsey, Hungary, India, Indonesia, Ireland, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, Macau, Malaysia, Malta, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom, Vietnam
   
Greenland, Denmark, Iceland, USA, Norway, Faroe Islands, Sweden


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Taxation of individuals

As a tax resident is an individual who has been in Hong Kong more than 180 days in one calendar year, or a total of 300 days in two consecutive years, in which case he/she has an obligation to pay income tax or payroll tax.

An individual may also have an obligation to pay income tax in Hong Kong if he or she complies with the "60-day rule". "The 60-day rule" applies to individuals who have been in Hong Kong for a minimum of 60 days in the current tax period. Between 60 and 180 days, the tax will be calculated on the basis of the number of days spent in Hong Kong administrative region. If the periods of stay in Hong Kong do not exceed 60 days, then no tax will be payable.

Resident individuals pay tax on all income including:

Employment income; business income; property rent and royalties; pensions.

Non-resident individuals pay tax only on income derived in Hong Kong including:

Income from employment which relates to services provided in Hong Kong;Income from business activities which are carried on through a permanent establishment in Hong Kong;Rent of immovable property situated in Hong Kong.

Income tax in Hong Kong is treated as the lower of:

(Income - tax credits) * 15%.

(Income - tax credit and deduction) * at the following progressive rate

Rate of tax
The amount of taxable income (HKD)
Tax (HKD)
2%
0 - 50 000
0
6%
50 000 - 100 000
1 000
10%
100 000 - 150 000
4 000
14%
150 000 - 200 000
9 000
17%
200 000 and over
16 000

Payroll tax is paid on a progressive scale from 2% to 17%.

Income tax

Hong Kong has a territorial principle of taxation, which means that both Hong Kong and foreign companies must pay income tax in Hong Kong on profits that are recognised as profits arising in Hong Kong or as profits from sources in Hong Kong.

The rate of income tax in Hong Kong is 16.5%.

For income up to HKD 2,000,000 (~ USD 250,000) the tax rate is 8.25%.

The rates for self-employed individuals are 15% and 7.5%, respectively.

Capital Gains Tax

Capital gains are not subject to tax. However, gains derived from the disposal of assets may be subject to capital gains tax if the transactions are not of a capital nature but are part of normal business/trade activities.

VAT

VAT is not levied in Hong Kong.

Withholding tax

Dividends and interest paid by a Hong Kong company are not subject to withholding tax.

Royalties paid or accrued to a non-resident for the use or right to use intellectual rights in Hong Kong or outside Hong Kong, if such payments are deductible for Hong Kong income tax purposes from the paying party, are taxable in Hong Kong. If the payment is made to an unrelated person, the tax base is 30% of the royalty, otherwise it is 100%. The normal rate of income tax applies.

Real estate tax

Property tax is payable annually by the owner of land or a building in Hong Kong at the standard rate of 15% on the net taxable value of these properties.

The net taxable value of a property is determined as the consideration paid to the owner for the right to use the land or building minus 20% of the value and certain charges.

Rental payments are subject to income tax.

Property tax can be offset against income tax, or an exemption from property tax can be claimed in respect of rental properties.

Mandatory provident fund (MPF) contributions

Every resident employee is required to make a monthly contribution to a special account in a licensed pension fund.

The mandatory contribution is calculated according to the following scheme: 5% of salary is to be paid by the employer and 5% by the employee. The maximum amount to be contributed each month is HKD 1,500 (approximately USD 190).

The employer is obliged to pay both parts of the contribution.

If the employee's monthly income is less than HKD 7,100, only the employer contributes to the pension fund.

Amounts paid by the employee or employer in excess of the mandatory contributions are voluntary contributions. However, in calculating income tax, a deduction is only available for the mandatory amounts paid by the employee.

Contributions by the employer are not income for the employee.

Stamp Duty

Stamp duty is payable on purchases/sales of Hong Kong shares at a rate of 0.2% of the consideration or market value of the shares if higher.

Stamp duty is levied on transactions involving the purchase or sale of immovable property. The stamp duty varies from HKD 100 to 15%, depending on whether the property is residential or non-residential, and on the amount of consideration (market value if higher).

Stamp duty is also payable on rental properties at rates ranging from 0.25% to 1% of the annual rental value depending on the length of the rental period.

In addition to stamp duty, a special stamp duty is payable on the resale of residential properties within 36 months of purchase. The charge is calculated on the transaction amount or the market value of the property, if higher, at rates of 20%, 15% or 10%. The longer the holding period, the lower the rate.

In addition to stamp duty and special stamp duty, stamp duty is levied on the purchaser if the purchaser is any person other than an individual domiciled in Hong Kong. The rate is 15% and the tax base is the transaction amount or the market value of the residential property if higher.

Double taxation treaties

Hong Kong has entered into a number of double taxation avoidance and tax information exchange arrangements:

45 DTCs: Austria, Belarus, Belgium, Brunei, Cambodia, Canada, China, Guernsey, Georgia, Hungary, India, Indonesia, Ireland, Italy, Kuwait, Latvia, Liechtenstein, Luxembourg, Qatar, Spain, UK, Vietnam, Macao, Malaysia, Malta, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, Spain, Switzerland, Thailand, UAE, Estonia, Finland, France, Japan.

7 TIEAs: Denmark, Faeroe Islands, Greenland, Iceland, Norway, Sweden, United States.

Exchange controls

There are no currency controls in Hong Kong.

Double taxation treaties

Hong Kong has entered into a number of double taxation avoidance and tax information exchange arrangements:

45 DTCS: Austria, Belarus, Belgium, Brunei, Cambodia, Canada, China, Guernsey, Georgia, Hungary, India, Indonesia, Ireland, Italy, Kuwait, Latvia, Liechtenstein, Luxembourg, Qatar, Spain, UK, Vietnam, Macao, Malaysia, Malta, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, South Korea, Spain, Switzerland, Thailand, UAE, Estonia, Finland, France, Japan

7 TIEA: Denmark, Faeroe Islands, Greenland, Iceland, Norway, Sweden, United States.

Annual fee

There is no per se annual government charge but instead there is a business registration fee payable annually by all Hong Kong registered businesses to the Commercial Registration Office of the Income Tax Authority. The fee is adjusted on an ongoing basis.

    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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