Hong Kong is renowned for its simple tax structure with low tax rates, and adopts a territorial source principle of taxation. Only profits which have a source in Hong Kong are taxable here. A tax year runs from 1 April to 31 March. ● Profits Tax ● Salaries Tax ● Property Tax
1、 Profits Tax Any persons, including corporations, partnerships, trustees and bodies of persons, carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits arising in or derived from Hong Kong from such trade, profession or business. There is no distinction made between residents and non-residents. A resident may therefore derive profits from abroad and not subject to Hong Kong tax; while, a non-resident may be liable to tax on profits arising in Hong Kong. From the financial year starting on and after 1 April 2009, the corporate tax rate on profit is 16.5%. (1) Nontaxable Income In Hong Kong, dividend income is not subject to tax, and no withholding taxes thereon. No tax is levied on profits arising from the sale of capital assets; while the capital loss are not tax deductions. A person is exempt from the payment of profits tax in respect of interest that is derived from any deposit placed with authorized financial institutions. However, if the recipients of interest are financial institutions, or the deposit is pledged for loans advanced, and the loan interest expenses will be claimed as a tax deductible items, this exemption does not apply. (2) Deductible All outgoings and expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions. However, deduction is not allowed for some expenses, including private expenses, capital expenditure and any tax payment. There are stringent requirements on the interest expenses deduction. (3) Depreciation Allowances For industrial builiding initial allowance of 20% on the cost of capital expenditure is granted on the year of purchased / expenses. Thereafter, annual depreciation allowance of 4% on the cost of capital expenditure will be granted until all the cost are deducted. The annual allowance on commercial buildings, such as office buildings and hotels, etc, is 4% on the cost of capital expenditure. Capital expenditure on the renovation or refurbishment of commercial buildings is allowed to deduct over a period of 5 years in equal instalments. For the expenditure on purchasing manufacturing machineries, industrial equipments and computer hardware and software, full deduction of cost will be allowed in the year of purchase. For the other plant and machinery, initial allowance of 60% on the cost is granted on the year of purchase. Thereafter, annual allowance can be claimed on the balance from the first year when the assets are put into use at the annual rates of 10%, 20% or 30% on the reducing balance method. (4) Business Loss Relief If a company carries any unrelieved losses, the losses can be used to set off against future profits of the company without time limit. However, some restrictions have been set up to prevent the avoidance of tax with tax loss companies.
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2、 Salaries Tax
Salaries tax is charged on all income derived from Hong Kong from any office, employment or pension. The source of income is the place where the taxpayer employed and performed the duties. All the expenditure incurred fully and exclusively for the production of taxable income can be deducted from the income, whereas expenditure of a private nature cannot be deducted. The mandatory contribution of the MPF scheme can be deducted some tax and the maximum tax deductions is $15,000 per annual. If an individual has income from other sources, he can elect personal assessment to reduce the tax. (1) Allowances If a taxpayer’s net chargeable income after deduction is lower than the standard tax rate (15% is from the financial year starting on or after 1 April 2009), the taxpayer can apply for allowance, including personal allowance, married person’s allowance, child allowance and dependent parent allowance, etc.
(2) Tax Rates Salaries tax is computed based on the standard rate or on the net income after allowance on progressive rates. The tax payable is the lower amount of the two methods.
At present, the standard tax rate is 15% and the progressive rates are 2% - 17%.
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3、 Property Tax
Property tax is charged on the owner of land and buildings in Hong Kong, and is chargeable at the standard rate on the net assessable value of the property. The net assessable value is the actual revenue less government rate payment and less a statutory allowance of 20%. A standard rate of 15% is chargeable as from the financial year after 1 April 2009. Back
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