Hong Kong-based individuals and companies enjoy one of the lowest-taxed environments in the world. The tax system is uncomplicated and comprises three direct taxes on income.
The profits of corporations and unincorporated businesses are taxed at a rate of 16.5% and 15% respectively. No distinction is made between public and private companies or between distributed and undistributed profits.
All profits arising in or derived from Hong Kong are taxable, excluding capital gains or dividends, nor are revenues earned offshore. At the same time, all expenses incurred in the production of chargeable profits are allowed as deductions and allowances are given for capital expenditure on machinery and plant and the construction of industrial buildings and structures.
Salaries tax is levied on income received by employees from Hong Kong-sourced employment and pensions. This includes salaries and wages, commissions, fees, cost-of-living allowances, allowances for the education of children and similar employer-paid benefits. Housing costs paid or reimbursed by an employer are not directly taxable; an amount calculated up to 10% of an employee’s assessable income is added to reflect the taxable portion of housing provided.
Salaries tax is calculated on net chargeable income (i.e. total income less personal allowances) using a sliding scale of rates between 2% and 17%, or at the standard rate of 15% of the taxpayer’s total income, whichever is lower.
Property tax is charged to the owner of land or buildings in Hong Kong at a standard rate of 15% on actual rents received, excluding rates paid by the owner and less an allowance of 20% for repairs and maintenance. Only bona fide rental income is assessed as property tax. Where a corporation carries out business in its own premises, it is exempt from property tax and any rental income received is instead assessed under profits tax.
As a general principle, profits, salaries and property taxes are assessed separately and a person may be assessed under all three categories. In certain circumstances individuals can apply for a Personal Assessment whereby income from all three sources is aggregated and assessed in the same manner as salaries tax.
Tax Exemptions & Deductions
Generally, all expenses incurred in the course of generating chargeable profits are allowed as deductions, including:
- Interest on funds borrowed (provided the borrowings comply with stipulated conditions) and rental of buildings or land;
- Repairs of articles, premises, plant and machinery;
- Registration in Hong Kong of a patent or trademark;
- Costs of purchasing a patent or trademark for use in Hong Kong, subject to conditions and;
- Expenditure for scientific research and payments for technical education, subject to certain rules.
Deductions are allowed for capital expenditure incurred in the construction of industrial buildings and structures for use in certain trades (including, for example, the manufacture and processing of goods; public warehousing; trade carried on in mills and factories; and farming). An initial allowance of 20% of such capital expenditure is given, with an additional 4% annually thereafter until the total expenditure is written off.
Capital expenditure on machinery and plant is eligible for an initial allowance of 60% for the year of assessment during which the expenditure is incurred with an annual “wear and tear” allowance on the recorded value at rates ranging from 10% to 30% according to the estimated working life of the particular category of plant or machinery.
Double Taxation Relief
In August 2006, Hong Kong signed a comprehensive taxation agreements with Mainland of China and later also with Belgium, Thailand, Luxembourg and Vietname. In addition, an agreement relating to airline and shipping income has been concluded with over 30 countries.
Contact :Inland Revenue Department
5 Gloucester Road
Tel: (852) 187 8088
Fax: (852) 2519 9316 / 2877 1189 (Profits Tax)
Only minimal indirect taxes are levied in Hong Kong. They include property rates, stamp duty on property and stock market transactions, betting and sweepstakes tax, hotel accommodation tax, air passenger departure tax, entertainment tax and motor vehicle taxes. The Hong Kong Government also levies a directly taxed estate duty
More useful information can be found from the Internet web site of the Hong Kong SAR government at http://www.gov.hk/en/business/.