Know All About Hong Kong Taxation
A prime business hub located strategically within the Asian region, Hong Kong is a country that has caught the eye of many international business investors. One of the reasons Hong Kong company incorporation is such an enticing business prospect is because of the country’s taxation system.
A simple system with low tax rates and generous tax allowances, there are many things about the Hong Kong taxation system which appeal to investors. Hong Kong’s tax system has:
- No capital gains tax
- No sales tax
- No withholding tax on dividends and interests
- No VAT
- No estate duty (also known as death tax or inheritance tax)
- Low personal tax rates
Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% on net income (i.e. income after deductions), whichever is lower.
- Low corporate tax rates under Two-tiered profits tax rate regime
With the introduction of two-tiered profits tax rate regime, Hong Kong has become one of the most attractive business destinations in the region.The two-tiered profits tax rate regime will apply to both corporations and unincorporated businesses commencing from the year of assessment 2018/19 (i.e., on or after 1 April 2018). For two or more connected entities, only one of them may elect the two-tiered profits tax rates.
YA 2008/2009 ONWARDS
YA 2018/2019 ONWARDS
|Assessable profits||Corporations||Unincorporated businesses|
|First HKD 2 million||8.25%||7.5%|
|Over HKD 2 million||16.5%||15%|
An Overview of Hong Kong’s Tax System
Hong Kong’s approach to taxation is primarily territoriality based. This means that only income or profit which is generated and sourced inside Hong Kong will be subjected to tax. Any income or profits which are derived outside the country, even by a local resident, will not be taxed in Hong Kong.
Hong Kong mainly imposes direct taxes on the following:
- Profits tax (profits from trade or business)
- Property tax (income from real estate)
- Salaries tax (salaries from office income, employment or pension)
- Hotel Accommodation Tax (HAT) in Hong Kong was reduced to 0% as of July 2008. HAT charges are paid by the guests.
The Inland Revenue Department (IRD) of Hong Kong is responsible for all tax and taxation related matters in the country. IRD will conduct tax assessments based on any income or profit which is accrued in the tax year, or the year of assessment. Year of assessments in Hong Kong runs from 1 April of one year to 31 March the following year.
Hong Kong Tax Deadlines
Deadlines for filing Profits Tax Returns in Hong Kong will vary depending on companies, as the year end date per company may differ. Any profits from tax returns will be issued by the IRD to active partnership businesses and corporations, and this will take place at the start of April each year.
If your company’s year-end date falls between April to 30 November for example, the standard deadline would be 2 May next year with no extension granted. If your year-end falls within 1-31 December, your standard deadline would be by 15 August next year with no extension granted. If your year-end deadline falls between 1 Jan to 31 March, your standard deadline would be 15 November of the same year. Extension will be granted to 31 January for companies suffering from statutory loss.
The IRD will issue the Property Tax Returns to the landlords at the start of April each year as well. All landlords must file their tax returns by the deadline, which will be one month from the date of issue.
All individuals must file their tax returns, and filing deadlines would differ depending on whether the individuals are owners of a sole proprietorship business. The IRD will issue tax returns at the start of May each year. If you own a sole proprietorship, the standard deadline will be 31 July or one month from the date of issue.
The Penalty for Missing Tax Return Deadlines
If your tax returns in Hong Kong are not lodged by the required deadlines, or your due dates have been extended, the IRD will provide an estimated assessment of your penalty. You must undergo the penalty proceedings under Section 80(2) or 82A, where you could be subjected to a maximum fine of HK$25,000, and an additional tax which does not exceed treble of the tax concerned.
Charges on Stamp Duty
Stamp duties are charged on certain documents in Hong Kong. The First Schedule to the Stamp Duty Ordinance in Hong Kong imposes fixed duty (from HKD3.00 to HKD100) on some documents, and an ad valorem duty (from 0.1% to 4.25%) to others. Generally, documents related to shares, stocks and other immovable property may be subjected to stamp duty charges.
Customs and Excise Duty in Hong Kong
Because the country is a renown free port, general imports are free from tariffs. There will be a duty imposed on tobacco, hydrocarbon oil, methyl alcohol and liquors. The charges imposed will be at specific rates per quantity. Duties on liquors will be charged at different percentages, which will be based on their values. This is because liquor in Hong Kong has its charges defined broadly per the strength of the alcohol. No tax or excise duty will be imposed on goods exported from Hong Kong.