Hong Kong Taxation System
There are several reasons for investors coming to Hong Kong for establishing their operations and one of the determinants is Hong Kong’s tax regime – well-known for its attractive corporate and personal tax rates, non-taxable capital gains, one-tier tax system and extensive double tax treaties.
The Hong Kong tax system is territorial in nature, with a tax levied on income arising in or derived from Hong Kong.
Hong Kong imposes three direct taxes, namely Profits Tax, Salaries Tax and Property Tax.
Profits Tax in Hong Kong
- Hong Kong follows a territorial basis of taxation. In other words, Hong Kong taxes only business profits, employment income and property rental income arising in or derived from Hong Kong. Whether profits or income arise in or are derived from Hong Kong depends on the nature of the profits or income and of the transactions which give rise to such profits or income.
- Hong Kong follows a single-tier corporate tax system, where tax paid by a company on its profits is not imputed to the shareholders (i.e. dividends are tax-free).
- There is no capital gains tax in Hong Kong. Capital loss and expenses are correspondingly not allowed as deductions.
- There is no VAT or GST imposed in Hong Kong.
- Hong Kong has concluded more than 30 bilateral comprehensive tax treaties to help Hong Kong companies minimize their tax burden.
- There is no withholding tax on dividend distributions and interest payments from a Hong Kong entity.Only specific types of payments are subject to withholding tax in Hong Kong such as royalties and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong.
- Royalty payments made to a non-resident for the use of, or the right to use, intellectual property in Hong Kong, or where the royalty payments are deductible for the payer, are deemed to be taxable in Hong Kong.
- The amount deemed taxable is 30% of the gross amount of the royalties paid, resulting in an effective of 4.95% (4.5% for a non-corporate person).
If a royalty is paid to an affiliated non-resident and the intellectual property was owned by a person carrying on business in Hong Kong, 100% of the royalty is deemed to be taxable, resulting in an effective rate of 16.5% (15% for a non-corporate person).
- The payer of royalties to a non-resident is required to withhold the appropriate tax.
|Tax rate on corporate assessable profits||16.5% (note)|
|Tax rate on assessable profits of unincorporated business||15% (note)|
|Tax rate on capital gains||0%|
|Tax rate on dividend distribution to shareholders||0%|
|Tax rate on non-Hong Kong sourced income||0%|
Generally, a newly incorporated company will receive its first profits tax return around 18 months after the date of incorporation and the filing deadline is 3 months from the date of issue of the first profits tax return.
The filing deadline for Profits Tax Return is as follows.
|Accounting year ended||Filing deadline|
|Between 1 April to 30 November (“N Code”)||2 May of the following year|
|Between 1 December to 31 December (“D Code”)||15 August of the following year|
|Between 1 January to 31 March (“M Code”)||15 November of the same year|
Salaries Tax in Hong Kong
Salaries tax is charged on all income arising in or derived from Hong Kong from any office or employment or pension.
Employees who have their work base during the year outside Hong Kong and who do not spend more than 60 days physically in Hong Kong will be exempt from Hong Kong salaries tax.
The salaries tax is charged on lower of (i) net assessable income less approved charitable donations at 15%, or (ii) net assessable income less approved charitable donations and personal allowances charged at progressive rates as follows.
|Year of assessment 2018/19 onwards|
|(i) Standard tax rate||15%|
|(ii) Progressive tax rate||Tax rate||HK$|
|Cumulative on first HK$200,000||16,000|
Please refer to Allowances, Deductions and Tax Rate Table for more details.
Filing Salaries Tax Return
- The tax year is from 1 April to 31 March of the following year.
- The salaries tax return is normally issued on the first working day of May each year and the filing deadline is 1 month from the date of issue of the salaries tax return.
- Please refer to Guide to Tax Return – Individuals for more details.