9870310368 9810688945

Tax Systems in Hong Kong

There is a territorial tax system in Hong Kong. In other words, tax is charged only on the profits that arise or is derived from carrying on a business, profession, or trade. Profits tax does not apply to benefits having sources outside of Hong Kong.

Package inclusions:
  • Tax Audit and Investigation
  • Advance Ruling Application
  • Tax health-check Review
  • Tax Due Diligence and Structuring
  • Structured Finance Transactions
  • Securitizations
  • Merger and Acquisition Planning
  • Global and Regional Tax Planning
  • PE & Funds
  • Customs and Supply Chain Management
  • Global Transfer Pricing Services
  • International Personal Tax Services
Request a call back

 

Tax Systems in Hong Kong Services

Hong Kong is known in the world for its simple and low tax regime. This makes it one of the most business-friendly jurisdictions in the world. Countries with low tax rates, especially offshore investors, are considered tax havens as it makes them a lucarative place for people to park their money. Hong Kong is regarded as a tax haven due to its laws limiting the taxation on the island's foreign residents and corporations. Hong Kong in 2020 is renowned as the country with the most friendly tax system that is second to Bahrain. Hong Kong has been allowed autonomy and hence allows greater secrecy than the region had under its former British rulers.

The corporate tax system in Hong Kong or preferably known as profits tax follows the principle of a territorial and flat rate. Besides, the tax incentives are introduced to increase the competitiveness in Hong Kong and also to strengthen its form as an investment destination in the whole of Asia-Pacific region.

What is the Territorial Corporate Tax System in Hong Kong?

There is a territorial tax system in Hong Kong. In other words, tax is charged only on the profits that arise in or is derived from carrying on a business, profession, or trade. Profits tax does not apply to profits having sources outside of Hong Kong. Hence, if your business is in Hong Kong, but your profits are derived from other places, you will not be liable to pay profits tax. It does not matter whether the profits have been remitted in Hong Kong or not.

Whether a business is carried in Hong Kong or its profits are derived in Hong Kong is a matter of fact. However, some of the guidance that is applied to the principles can be found in cases that are to be considered by the courts in Hong Kong or in other jurisdictions where common law is applicable.

The tax system in Hong Kong companies has two options for the profit tax rates:

The tax system in Hong Kong
  • Single-Tier Corporate Tax System in Hong Kong

The single-tier corporate tax systems in Hong Kong are taxed at the rate of 16.5% on the assessable profits, and unincorporated businesses are taxed at the rate of 15%.

  • Two-Tier Profits Tax System in Hong Kong

The two-tier profit tax regime is applicable for both the corporations and unincorporated businesses by decreasing the tax rate charged for the first $2 million of the assessable profits.

The two-tier tax rates have been made effective from the assessment year 2018-2019, and it aims to reduce the tax burden of most of the taxpaying small and medium-sized enterprises (SMEs).

For companies, the first HK$2 million of the profits will also be taxed at one-half of the current tax rate that is 8.25%, and also the remaining profits will continue to be taxed at the current rate of 16.5%.

For unincorporated business, the first HK $ 2 million is taxed at one-half of the current tax rate at 7.5%, and the remaining profits are taxed at the current rate of 15%.

Only one organization within a group of connected businesses can enjoy the two-tier rates. With respect to this purpose, this group needs to identify which entity will benefit and make the selection as per the need.

The tax rates applicable to the tax system in Hong Kong are as follows:

Assessable Profits

 

Corporations

Unincorporated Business

First Hong Kong$ 2 million

 

8.25%

7.5%

Over HK$2 million

 

16.5%

15%

There is a round one-off reduction of 75% of the profits tax for the year of assessment, subject to a maximum amount of HKD 30,000.

In the specified budget for 2019-2020, a one-off reduction of 75% of the profits tax is proposed for the assessment year 2018-2019, subject to a maximum of HKD 20,000 per case.

To get double benefits, the following businesses shall be excluded from the two-tiered profits tax system in Hong Kong:

  • Businesses selecting the preferential half-rate tax systems in Hong Kong. For example, Professional reinsurance companies, corporate treasury centers, insurance companies, etc.
  • The assessable profits for the sums that are received or accrued to the holders of qualifying debt instruments as interests or gains or profits that should be already taxed at half ratethat is at 7.5% or 8.25% as per the case.
  • In the presence of the group of companies in Hong Kong, only one will be eligible for the two-tiered profits tax system in Hong Kong.
  • A concessionary tax rate at the rate of 50% of the standard profits tax rate will be applied to the trading profits and interest income. It is derived from the qualifying debt instruments (QDIs) issued in Hong Kong and the foreign business of professional reinsurance companies.
  • The profits from the QDIs that are already taxed at the rate of 8.25% or 7.5% will not be counted towards the HK$2 million thresholds to apply the two-tier rates. This means that businesses with assessable profits derived from the QDIs can continue to enjoy the half-rate on all the profits. Their first HK $ 2 million is assessable profits not derived from the QDIs will be taxed at 8.25% or 7.5%.

What are the Tax Incentives Available in Tax System in Hong Kong?

The profits tax exemption that is eligible for both local and foreign funds operating in Hong Kong available. Tax incentives in the tax system in Hong Kong include the following:

  • Tax incentive provided in high-value manufacturing businesses, 100% write off for new expenditure on plant and machinery that is specifically related to manufacturing and on computer software and hardware, which are owned by the users.
  • Five years write off period for the capital expenditure on the renovation or refurbishment of the business premises.
  • Tax concessions provided on mutual funds and trusts.
  • Tax exemption on the interests derived from any deposit accrued on or after 22nd June 1998, that placed in Hong Kong with an authorized institution. This does not apply to interest received by or accrued to a financial institution.
  • A 100% deduction on the capital expenditure on the environment protection machinery and environment-friendly vehicles.
  • A 100% profit tax deduction for the capital expenditure that is incurred with respect to environmental protection installations, where the expenditure is charged in the assessment year on or after 1st April 2018.
  • A 100% profit tax deduction is made for the capital expenditure on the environment-friendly vehicles in the year of its purchase, with effect from the year of assessment 2010-2011.
  • A tax concession for the captive insurers, in the form of a 50% reduction of the profits tax on foreign risk insurance business, with effect from the year of assessment 2013-2014.
  • Effective from 1st April 2017 a qualifying aircraft lessor or manager must have its qualifying profits taxed at half of the corporate profits specified tax rate. Additionally, a qualifying aircraft lessor is also eligible for a tax base concession according to which 20% of the net lease rentals are calculated to compensate with regard to their non-entitlement to depreciation allowances on the aircraft.
  • Effective from 1st April 2019, all the funds operating in Hong Kong, regardless of their tax structure, size or purpose, location of central management can enjoy profits tax exemption on its investments in both the overseas as well as local private companies.
  • Effective from 1st April 2018, the profits tax deductions for capital expenditure that is incurred by the enterprises for the purchase of Intellectual Property Rights i.e., copyrights, patents, registered designs, rights in performances, etc.

Income Tax Basis Period as per Tax System in Hong Kong

The corporate income tax in Hong Kong is assessed with respect to the year of assessment. The year of the evaluation is the year that ends on 31st March from 1st April to 31st March. Hence, the year ended on 31st March 2020 is known as the year of assessment for the year 2019-2020.

Generally, the calculated profits for the assessment year are based on the accounting period ending within the same year of assessment.

How to File Corporate Tax Return as Tax System in Hong Kong?

The Inland Revenue Department (IRD) in Hong Kong usually issues the corporate profits tax returns on April 1st every year. Generally, the company applies for extension within one month after receiving the Profit Tax Return. The last date can be extended as follows:

Normal Issue Date

Accounting Year

The normal Filing date for unrepresented or represented cases

The due date for Tax Payment

First working day in April of the next year of assessment

1st  April to 30th November

2nd May

As specified in the notice of assessment, usually between November of the year in which the return must be issued to April of next year.

First working day in April of the next year of assessment

1st  December to 31st  December

2nd May or 15th August

As specified in the notice of assessment, usually between November of the year in which the return must be issued to April of the following year.

First working day in April of the nest year of assessment

1st  January to 31st  March

2nd May or 15th November

As specified in the notice of assessment, usually between November of the year, the return is issued to April of the following year.

For instance:

The financial year in Hong Kong is from 1st April 2019 to 31st March 2020. Usually, the profit tax rate will be issued on the first working day in April 2020.

The company’s financial year ends between 1st April until the 30th December 2020-No extension will be permitted. They must file PTR within one month after receiving it.

The company's financial year always ends on 31st December. The 2020-Profit tax rate can be extended until 15th Aug 2021.

In the case of fresh registered businesses, the Inland Revenue Department will issue the profits tax return 18 months after the business commencement date or incorporation.

Profits Tax Return to be filed as per the Tax System in Hong Kong

The company needs to file a complete set of returns that includes the following:

  • The specified profits tax return form issued by the Inland Revenue Department or IRD.
  • A supplementary form that is issued by the Inland Revenue Department for the tax data and financial data etc.
  • A duly certified copy of the Auditor's Report, Balance sheet, and Profit & Loss Account pertaining based on period.
  • A tax computation to show how the amount of assessable profits or adjusted loss has been arrived.
  • Other documents and information, as mentioned in the notes and instructions.
  • Small corporations explained as those corporations having a gross total income that does not exceed HKD 500,000 for the basis period. It only needs to file its own profits tax return form and also supplementary form.

It is not compulsory to submit other documents that are explained above. However, it is clearly understood that these documents are still prepared before completion of the return. It may be called for by the Department in better circumstances.

Provisional Profits Tax System in Hong Kong

The profits tax is also payable on the assessable profits for assessment every year.

However, it is possible to arrive at the assessable profits only at the end of every concerned year. An estimated tax is calculated on the previous year's figure that is issued. The estimated figure is the provisional profits tax or PPT that must be paid in two installments:

  • The first installment is 75% of its liability.
  • The remaining 25% is payable after a period of three months.

Once the final assessment is done based on the actual assessable profits that are made, credit is given for the provisional tax paid.

If there is any excess payment that has been made or if there are any outstanding payment that needs to be made they will be subtracted or added from the first installment of the provisional profits tax for the respective year.

The application for holding the provisional tax should not be lodged later than:

  • Twenty-eight days before the due date for the payment of the provisional tax.
  • Fourteen days after date of issue of notice of payment for the provisional tax, whichever is later.
  • In case the provisional tax is payable by two installments and the due date settles the first installment, an application for holding the whole part of the second installment will be made subject to the prescribed time limit and the grounds on which the application is made.

Late or non-filing of a tax return is a severe offense that leads to penalties and even prosecution.

Requirements for Exemption in Income Tax Audit in the Tax System of Hong Kong

The exemption requirements for companies submitting audited accounts together with their profits tax return are as follows:

  • According to the Companies Ordinance explanation, Dormant companies explained having no relevant accounting transactions during any financial year. They are exempted from preparing audit only when they apply for the official dormant status by filing a special resolution to the Company Registry.
  • Companies that are incorporated in a jurisdiction whose laws do not require the accounts to be audited.
  • The Hong Kong branch of an offshore company, if the following information is supplied together with the return:

a) The place of incorporation of an offshore company.

b) Whether the laws of the specified country require a statutory audit of the company's world's broad accounts.

c) Whether that audit was conducted or not.

d) A brief description of the financial and accounting records that are maintained by the Hong Kong branch.

e) A duly certified copy of the financial and accounting records.

For small company- Small companies here are explained as those companies whose total gross income does not exceed the amount of HKD 2,000,000 for the basis period. It still needs to conduct an audit, but it is not necessary to file it to the tax authority.

How to Withhold the Tax Rules as per the Tax System in Hong Kong?

  • The royalties and fees that are paid to the non-resident entertainers or sportsperson for their performances in Hong Kong are subject to withholding of tax and its assessable profits.
  • There are no withholding taxes that are charged on the dividends or interests.
  • The fee that is received from the performances in Hong Kong that is given by a non-resident entertainer or sportsperson or with respect to a commercial occasion or an event that is chargeable to Hong Kong profits tax. The performances included are :

a) With respect to the promotion of any occasion or event any appearance made by an entertainer or a sportsperson.

b) Participation is done by an entertainer or a sportsperson for sound recording, videos, films, television, or other similar transmissions.

How are Losses treated in the Tax System in Hong Kong?

  • The losses that are made in the accounting year must be carried forward and set off against the future profits of that trade. However, a company carrying on more than one business may have losses in one trade set off against the profits of the other.
  • Group relief of losses is not allowed in Hong Kong, i.e transfer of losses between companies in the same corporate group.
  • For gains and losses that are subjected to the concessionary tax rate.
  • An individual who has suffered a trading loss and also claims personal assessment will have the loss allowed as a deduction from his overall total income.

How is Net Income Different from Taxable Income in Tax System in Hong Kong?

A Hong Kong company is usually taxed on its assessable profits. The company's taxable income is calculated after making some adjustments to the company's net profit/loss data, such as the deduction of business expenses incurred in the production of profits, etc.

How to Reach Enterslice?

Fill The Form

Get a Callback

Submit Document

Track Progress

Get Deliverables

Frequently Asked Questions

The tax rate that is levied on corporate in Hong Kong is 16.5%. The assessable profits of the corporation are taxed at the tax rate of 16.5%. There are some tax incentives for special business operations, such as the tax exemption for the profits derived by offshore funds and profits derived from operating ships in Hong Kong.

The tax structure and Hong Kong's ongoing dedication to preserving secrecy for the investors have contributed to it becoming a popular tax haven. It also has successfully established itself as one of the world's premier financial hubs.

Hong Kong has been a tax-free city for a long time. The British opium traders first let the city boom to the bankers and the business people who call the skyscrapers of Hong Kong home. At the same time, Hong Kong is a part of China now, as per the fundamental law the city can set its own tax laws and economic policy.

No tax is charged on profits arising abroad, even if they are remitted to Hong Kong. The primary question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong are generally a question of fact.

Among the many reasons, Hong Kong remains a popular place for both expatriates and a corporation is their favorable system of taxation. The Hong Kong tax rate is progressive and capped at a rate of 17%.

Share With
Why Enterslice?
Asia Winner
Top 100 Most Innovative Companies in Asia - Red Herring
Top 25 Consultants
Forbes 30 Under 30 in American business and industry figures Lists.
100%
Success Rate. Your Order Comes with Money Back Guarantee
300+
Services delivered by 300+ Qualified CA and CS
Latest Post
Chatbots on Steroids can rewire Business- GPT-3 Model
GPT-3 model is making waves on the internet for its ability to generate human-like text. Will it be able to live up to its hype? Implementing GPT 3 is expe...
Read more
Compliance functions in banks and Role of Chief Compliance Officer
Recently the Reserve bank of India released a notice on Compliance functions in Banks and the role of Chief Compliance Officer (CCO).  As per the comp...
Read more
Evolution and Growth of Digital Banking in India
Earlier, when we used to talk about Digital Banking in India, the industry in India was lagging behind many developing nations. It was due to the increased...
Read more
As seen in
Testimonials
5.0

" Enterslice use technology better than others. That saves time and money; Team enterslice is more efficient than traditional competitors, and that helps to pass on the cost advantage to its clients. The company is building a high-level transparency in legal services by optimum use of technology and process automation in consulting. I highly recommend this company. "

Nilanjan Bandyopadhyay
Nilanjan Bandyopadhyay
5.0

" Excellent advisory role by Enterslice Team. They are a trusted partners to us. Narendra and his team helped us with our pre NBFC applications and Post NBFC advisory services. "

Amit Goel
Amit Goel
5.0

" Amazing services provided by your organization. They have completed our NBFC registration order within stipulated time period of 90 days. They provide constant guidance and support in the process. Their support in building fintech software is amazing. "

Manisha Mantri
Manisha Mantri
Trusted by
Finstar Financial
Herbal Life Nutrition
First Cry
Acme Solar
Opera Software
Razorpay
Taj Hotels
wechat Abhi821982
Go to Top Hey I'm Suman. Let's Talk!