hong-kong-tax-report

Hong Kong Tax ReportJanus Corporate Solutions (+65) 6222-7445 February 19, 2010 At a glance  Lowest tax rates in Asia  No tax on foreign-sourced income  No capital gains tax  No sales tax or VAT  No dividend tax  No inheritance tax or estate duty  No withholding tax on dividends and interest  No foreign exchange controls  Single-tier tax system  Territorial basis of taxation  Extensive DTA network  Overview Hong Kong has the lowest tax rates in Asia and one of the lowest rates in the world. The territory’s tradition of simple and low taxes is a major factor that contributes to its success as a preferred investment destination. The notable features of Hong Kong’s tax system are its low personal and corporate tax rates; no capital gains tax; no Value Added Tax; absence of withholding tax on dividends and interest; and no estate duty. Hong Kong’s territorial system of taxation provides it an advantage over most other jurisdictions, as it does not tax foreign sourced income or profits, even if they are remitted to Hong Kong. Hong Kong’s enormous foreign reserves, which are currently over US$240 billion, have enabled the country to levy an exceptionally light tax burden on its residents. Hong Kong’s low tax system has played a crucial role in increasing Foreign Direct Investment (FDI) flows into the territory. Hong Kong continues to be Asia’s second largest and the world’s seventh largest FDI recipient, according to the United Nations Conference on Trade and Development’s World Investment Report, 2009. In addition to an efficient tax system, other enabling factors such as a free economy, proximity to China, political and economic stability, an efficient legal system, preferential access to the China market under the China Hong Kong free trade agreement, and a talented workforce, make Hong Kong an attractive destination for global entrepreneurs. Basic Facts Contents Overview Corporate Taxes Personal Taxes Tax Treaties Goods and Services Tax Other Useful Facts About Janus 1 2 4 5 5 5 6 Currency: Hong Kong Dollar, HKD or HK$. FX Controls: None. Taxable Income: Persons, corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are liable for tax on all profits (excluding profits from the sale of capital assets) arising in or derived from Hong Kong. Tax Jurisdiction: Territorial system of taxation. Taxes are only levied on income "derived from or arising in" Hong Kong. No tax is levied on income arising overseas, even if it is remitted to Hong Kong. Tax Rates: The corporate income tax rate is a flat 16.5% on assessable profits. Individuals are taxed at progressive rates on their net chargeable income starting at 2% and ending at 17%; or at a standard rate of 15% on net income, whichever is lower. Double Taxation: Singletier tax system. Profits earned by companies are only taxed once; and the shareholder dividends are not taxable. Goods and Services Tax: None. Tax Year: April 1 to March 31. Capital Gains Tax: None. Withholding Tax: Royalties and fees paid to nonresident entertainers or sportsmen for their performances in Hong Kong are subject to a withholding tax. There are no withholding taxes levied on dividends and interest. Tax Treaties: Hong Kong has concluded 34 double taxation agreements. Accounting Standards: Hong Kong Financial Reporting Standards (HKFRS) are modeled on the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). a supplementary form for tax data. Depreciation Allowance: Depreciation provided for accounting purposes is not deductible. Profits tax is not applicable to profits whose source is outside Hong Kong. Corporate Income Tax Administration and Compliance Tax Year: Corporate income tax is assessed in relation to a Year of Assessment (YA). Capital losses are not deductible. Tax Basis: The basis of taxation is the same for resident and non-resident companies. and a tax computation showing how the amount of assessable profits (or adjusted loss) has been arrived at. and installations forming part of a building or structure. However. Copyright © Janus Corporate Solutions Pte Ltd . Corporate tax returns are generally issued on April 1 every year. • Writing off over five years of assessment for capital expenditure on refurbishment of business premises. machinery. non-resident companies are taxed only on that portion of their profits that are sourced in Hong Kong. and software. financial data. • Tax exemption for bona fide offshore funds managed in Hong Kong. tax is levied only on profits arising in or derived from carrying on a trade. Filing Requirements: A company has to file the specific tax return form. Hence. total gross income is < HK$500. trade or profession in Hong Kong. Tax Deductions and Allowances: Business expenses incurred in the production of profits are tax deductible. subject to certain conditions. dormant companies (i. no accounting transactions during the year) and Hong Kong branches of foreign companies. Audit Requirements: Small corporations (i. machinery.” Corporate Tax Incentives and Deductions Tax Incentives: Following deductions are available: • Writing off for capital expenditure relating to plant. Tax Residence: A Hong Kong resident company is one whose management and control is exercised in Hong Kong. etc. Surtax: None. Income Tax Filing Due Date: Within 1 month from the date of issue of tax returns. business or profession in Hong Kong. • Tax exemption for interest gained from any deposit with an authorized institution in Hong Kong.e. foreignsourced income is exempt from taxation in Hong Kong. • Tax concessions for gains from qualified debt instruments. Auditor's Report and Profit and Loss Account.5%. A non-resident company is one whose overall management of daily business operations and execution of management decisions by the board of directors are carried out from outside Hong Kong. Losses cannot be carried back. Taxable Income: Includes profits or gains arising from carrying on a business. • Deductions for capital expenditure incurred on plant.e. Group Relief for Losses: Not Allowed.. Dividend Tax: None. Hong Kong follows a territorial system of taxation. a certified copy of the company’s Balance Sheet. resident companies who derive profits from outside Hong Kong are not liable for any tax in Hong Kong. irrespective of whether the profits have been remitted to Hong Kong. “Under the territorial system of taxation. tax relief in the form of capital allowances for qualifying capital expenditure incurred in the production of profits is available. Conversely. The YA is April 1 to March 31.2 HONG KONG TAX REPORT Corporate Taxes Tax Rate: Flat rate of 16. are exempted from the audit requirement. • Concessionary tax rate for reinsurance companies’ offshore business operations. computer hardware. The assessable profits for YA are based on the accounting period ending within that YA. The balance can be carried forward indefinitely.000). Capital Gains Tax: None. Trade Loss Treatment: Losses are deductible and can be offset against profits from other trade sources. whichever is higher.000 a month. Stamp Duty: The rules are as follows: a) Stamp Duty is payable on the lease. sale. provided the nonresident companies are not associates. or transfer of immovable property and on the transfer of shares.000 for employees earning more than HK$ 20. 0.2% of the value of the stock.000 a month. if the employee earns more than HK$5. Social security: Employers and employees must each contribute 5% of the employee’s monthly income to a Mandatory Provident Fund scheme.5% for a 1-3 year lease. Payroll Tax: None.” Other Corporate Taxes Capital Duty: 0.5% applies to royalty payments made to unaffiliated non-resident individuals. Interest: No withholding tax on interest. c) Stamp duty for transfer of shares by way of purchase or sale of Hong Kong stock is 0. Stamp duty on the sale of immovable property varies with the amount or value of the consideration. Copyright © Janus Corporate Solutions Pte Ltd .000.000. • If royalty payments are made to non-resident companies that are associates. • A withholding tax rate of 4. and 1% for a 3+ year lease. Property Tax: Owners of rented land and/or buildings have to pay property tax at the rate of 15% on 80% of the annual rent of a property less ‘government rates’ (an indirect tax of 5% of the estimated annual rental value of a property payable to the government every quarter). or b) Any participation in sound recordings. Owner occupied property is exempt from property tax.00 +0. • Withholding tax rate for royalties due to nonresident companies is 4. subject to a cap of HK$30.75% of the value of property transferred. “There is no withholding tax on dividends and interest in Hong Kong.1% of the consideration or Net Asset Value. a withholding tax rate of 16. Mandatory contributions are capped at HK$1.5% will apply. subject to certain other criteria. the stamp duty is HK$5. Dividends: No withholding tax on dividends. The maximum stamp duty payable is 3.25% of the annual or average annual rent. radio transmissions.1% for share capital over HK$10.HONG KONG TAX REPORT 3 Corporate Withholding Taxes Scope of Withholding Tax: Withholdings tax is the tax charged to a nonresident company or individual that derives income from a Hong Kong source for services provided or work done in Hong Kong. • A withholding tax of 15% applies on royalty payments made to affiliate non-resident individuals. Fees to non-resident entertainers or sportsmen: A withholding tax rate of 10% applies on fees paid to a non-resident entertainer or sportsman for: a) A performance at a commercial event or occasion in Hong Kong. on every sold note and every bought note.000. The withholding tax rates differ for affiliate and nonaffiliate non-residents. Payments subject to withholding tax: Royalties and fees paid to nonresident entertainers or sportsmen. and television broadcasts (whether live or recorded). b) Stamp duty on the lease of property varies with the lease term. Transfer Tax: None.00. films. A company’s rental income from property is subject to profits tax and the amount of Property Tax paid can be deducted from Profits Tax. For all other transfers the stamp duty is HK$5. videos. Only specific types of payments are subject to withholding tax. For share transfers by way of gift.95%.25% for a 1-year lease. 0. Royalties: Royalty payments made to a nonresident company or individual for the use of Intellectual property both in and outside Hong Kong are subject to withholding tax. Stamp duty on an undefined lease term is 0. The maximum monthly income for contribution purposes is HK$20. ” Personal Tax Highlights Taxation of income earned in Hong Kong: Residents and non-residents are taxed only on income that has been "earned in Hong Kong". Non-residents are foreigners who have stayed or worked in Hong Kong for less than 180 days in the tax year. capital allowances. perquisites. Employees must file returns within 1 month from the date of issue. individuals can claim full or partial exemption of income or tax relief. approved charitable donations. stock options. whichever is lower. Under Personal Assessment. and benefits-in-kind are taxable. share awards. Income from services rendered in Hong Kong during “visits” not exceeding a total of 60 days in the year is exempt from tax. selfeducation expenses. Estate Duty: None. Taxation of Employer Benefits: Employer benefits. Wealth Tax: None. Stamp Duty. Income includes employment gains such as salary. Copyright © Janus Corporate Solutions Pte Ltd . Tax must be paid on or before the due date specified in the notice of Assessment. Property Tax. assessable income after deductions and allowances) starting at 2% and ending at 17%. Tax Basis: The basis of taxation is the same for resident and non-residents. Capital Duty: None. Tax Filing Date: Personal tax returns are generally issued on May 1 each year. Dividend Tax: None. bonus. including allowances. Individuals employed by a Hong Kong company to work in Hong Kong are liable for salaries tax on their full income. Tax Deductions: Allowed for qualified employment related expenses. under certain circumstances. Hong Kong Permanent Residents and foreigners who have stayed or worked in Hong Kong for 180 days or more in the tax year are considered to be residents. Assessments are issued by the IRD and sent to the taxpayer. “Individuals are taxed only on the income earned in Hong Kong. pension.e. Income earned overseas is not taxed. elderly residential care expenses. tax is calculated at progressive tax rates on the aggregated income from all sources. A married couple can elect to receive a joint assessment. even if some of their duties are performed outside Hong Kong. home loan interest. Personal Income Tax Administration and Compliance Tax Year: Personal income tax is assessed in relation to a Year of Assessment (YA). Personal Assessment: Individuals who are liable to pay corporate income tax and/or property tax in addition to personal income tax can reduce their tax burden by electing for Personal Assessment. Taxable Income: Residents and non-residents are taxed only on employment income arising in or derived from Hong Kong. MPF Scheme contributions and personal reliefs. or at a standard rate of 15% on net income (i. Tax Residence: Hong Kong citizens. and Social Security: Please refer to ‘Other Corporate Taxes’ section on page 3. Filing requirements: Every taxpayer has to file annual tax returns with the Inland Revenue Department (IRD).4 HONG KONG TAX REPORT Personal Taxes Tax Rate: Individuals are taxed at progressive rates on their net chargeable income (i. Individuals employed by an overseas company who are assigned to work in Hong Kong for a few years are only assessed on the income attributable to the services rendered in Hong Kong. The YA is April 1 to March 31. The Assessment will indicate the amount of tax payable for the given YA and will also include the provisional tax payable for the succeeding YA. soleproprietors must file returns within 3 months from the date of issue. However. Payment of Tax Due: Upon filing the tax return. Capital Gains Tax: None. etc.e. income after deductions). if it results in a lesser tax liability. in most cases. The Heritage Foundation.HONG KONG TAX REPORT 5 Tax Treaties Tax Treaty Network: Since Hong Kong follows a territorial system of taxation. Milken Institute’s Opacity Index. and • DTAs that cover only shipping income. • Ranked #3 on the ‘World’s Easiest Place to Do Business’ list. DTAs are not applicable to non-residents of either country. Membership in International Trade Organizations: Member of WTO and APEC. double taxation is eliminated by allowance of a tax credit. where only income or profit sourced in Hong Kong is subject to tax. 2010. Scope of the DTAs: The DTAs are only applicable to Hong Kong residents (individuals and companies). Intellectual Property protection. • Ranked #1 as having the ‘Lowest Tax Misery in Asia Pacific’. Hong Kong Rankings: Many international surveys rank Hong Kong highly on various business measures: • Ranked #1 as ‘World’s Freest Economy’. Index of Economic Freedom. “There is no GST or VAT imposed in Hong Kong. • DTAs that cover airline income only. UNCTAD’s World Investment Report. e-commerce. etc. invest in or buy into a CEPA qualified firm in Hong Kong. However. World Economic Forum’s Global Enabling Trade Report. and tax residents of the treaty country. 2) Easier and faster access to the mainland China market for qualifying Hong Kong based service providers. Under CEPA. Hong Kong resident companies and individuals will not be subject to double taxation on any income they earn outside Hong Kong. Key Benefits of CEPA: 1) Zero tariffs on the export of Hong Kong made products to mainland China. 2008. Forbes Tax Misery Index 2009. • DTAs that cover airline and shipping income. which came into effect in January 2004. transparency of law and regulations. • Ranked #2 in the world for ‘Openness to International Trade’. Taxes Covered by the DTAS: The DTAs usually apply to taxes on income and property. Types of DTAs: The DTAs concluded by Hong Kong include: • Comprehensive DTAs that provide relief from double tax to all types of income. • Ranked #2 for ‘Recipient of largest FDI in Asia’. 3) Trade and investment facilitation in key areas such as customs clearance. Milken Institute’s Capital Access Index. Sources of Tax Law: a) Inland Revenue Ordinance of Hong Kong. • Ranked #2 for ‘World’s lowest costs of doing business and business risk’. b) Stamp Duty Ordinance of Hong Kong. 2009. Hong Kong based companies and Hong Kong made products gain preferential access to the mainland China market. Other Useful Facts Tax Authority: Inland Revenue Department of Hong Kong. Copyright © Janus Corporate Solutions Pte Ltd .” Hong Kong China Free Trade Agreement The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is a bilateral free trade agreement between mainland China and Hong Kong. 2009. and b) overseas companies who collaborate with. Hong Kong has concluded 34 DTAs with various countries. • Ranked #2 in the world for ‘Ease of Access to Capital’. subject to certain criteria. 2010. Scope of CEPA: Applicable to a) Hong Kong based companies. World Bank’s Doing Business Report. 2009. United Nation’s Conference on Trade and Development. Hong Kong's Double Tax Relief Measures: In most treaties concluded by Hong Kong. there is increasing demand for world-class professional services to help organizations establish a presence in Hong Kong. accounting. highly educated work force.com Copyright © Janus Corporate Solutions Pte Ltd . • Tax preparation and filing for companies and individuals. immigration and related compliance services for entrepreneurs. rich cultural traditions. Janus is at the forefront of offering such services through its experienced team and at affordable fees. We’re on the Web! www. Given these attractive characteristics. startups and established companies who want to enter the Hong Kong market. and • Other related corporate services. subsidiaries of foreign corporations and registration of branches of foreign organizations. stable political institutions. and a low tax regime. It is of a general nature only and is not intended to be comprehensive. • Application for business licenses. Our Services Our core services include: • Incorporation of local companies. to any person by reliance on this report. they should discuss their particular situation with a professional tax adviser. well-developed capital markets.6 HONG KONG TAX REPORT Janus Corporate Solutions Pte Ltd 16 Raffles Quay #32-04 Hong Leong Building Singapore 048581 Phone (+65) 6222-7445 Fax (+65) 6222-7421 Email info@guidemehongkong. This report is designed to provide introductory information to clients and does not constitute professional advice.as the gateway to China . Janus believes that Asia is one of the most dynamic economic regions in the world and Hong Kong . It is a country with world-class infrastructure. tax. Readers are therefore advised that before acting on any information obtained from this document.guidemehongkong. • Ongoing statutory administration of Singapore companies.com About Janus Janus provides a complete range of company incorporation.offers an ideal location for firms and individuals who wish to participate in the Asian economies. • Application for Singapore Permanent Residence under various schemes. While care has been taken to prepare this report accurately. • Accounting and tax advisory services.com Website www.guidemehongkong. Janus accepts no liability for any errors or for any loss. however occasioned. • Application for work passes for expatriates.