Hong Kong is a booming city because of its simplified tax regulations and low-tax regime. It is an investment center not only in Asia but around the world. A large number of business owners have started their ventures in Hong Kong to enjoy the business-friendly environment and multiple tax incentives and allowances.
When operating a business in Hong Kong, you should know the taxation system and how it works for business entities. If you haven’t started your business in Hong Kong yet or are curious to know Hong Kong taxation’s different rules and regulations, this article will help you know all about the tax regime and Hong Kong tax return.
For a budding entrepreneur, information on how companies can make a successful claim for Hong Kong tax is useful. This article will assist you in understanding more about this tax regime’s rules and laws.
Hong Kong Tax
The Hong Kong Tax system is different from the tax systems of other states. Let us dive deep into how taxation in Hong Kong works.
Taxation in Hong Kong – overview (Territorial basis of taxation)
Hong Kong pursues a territorial system of taxation. To explain it much broadly, the levied tax arises from profits derived from carrying out business, trade, or profession in Hong Kong. Profits tax does not apply to profits whose source is outside Hong Kong. In case you start a business in Hong Kong, but your profits are derived from somewhere else, you are not liable to pay tax on the profits made.
Hong Kong’s taxation principle does not differentiate between residents and non-residents. Even if you are a Hong Kong resident, you are not accountable to pay any tax on profits that are derived from elsewhere. Similarly, in case a non-resident gains profits from Hong Kong, he will be liable to pay profits tax in Hong Kong.
It doesn’t even matter whether a business is carried out in Hong Kong or the profits are acquired from Hong Kong. However, some guidance on the applied principles can be found in cases that the courts have considered in Hong Kong and other common law jurisdictions.
Tax governing authority in Hong Kong (IRD Hong Kong)
IRD, which stands for the Inland Revenue Department, is the tax governing body in Hong Kong. This governing body deals with all Hong Kong’s taxation issues for both businesses and individual tax. Various organizations would need to submit the Profit Tax Return (PTR) and audited accounts yearly to this department, and this will be reviewed and any taxes assessed for the company.
The IRD in Hong Kong is accountable for collecting taxes and duties. The department after that absorbs different elements of the Treasury, including the Estate Duty Office (in 1949), the Stamp Duty Office (1956), and accountability for the collection of entertainments, bets, and sweeps, and public dance-halls taxes (1956).
Types of Taxes in Hong Kong
There are various types of taxes in Hong Kong. Let us dive deep into them now:
Corporate income tax
Hong Kong follows this fiscal year and wants business owners to file corporate and salary taxes as per their business earnings. Suppose you set up a new business in the year 2020, then the year of assessment for 2020/21 will be a part of the fiscal year starting from April 1st, 2020, and ending on March 31st, 2021.
Hong Kong Corporate Tax Rate – The applicable Hong Kong corporate tax rates are as follows:
| Assessable profits | Corporations | Unincorporated businesses |
|---|---|---|
| First HK$2 million | 8.25% | 7.5% |
| Over HK$2 million | 16.5% | 15% |
Corporations in Hong Kong have the right to select their own financial year as per their business operations; however, many companies choose either December 31st or March 31st because of tax return filing extensions for the year ends.
Personal tax
The personal income tax is imposed on all people whose income source is either from an office, pension, or employment (subject to salaries tax) in Hong Kong. As stated in the territorial principle of Hong Kong, tax is imposed on the income when it has a primary source of income in Hong Kong. This same approach applies to self-employed individuals operating a business, but rather than the salaries tax, they pay profits tax.
Given below are a few income categories that come under personal taxation in Hong Kong:
- Salary, work wages, and director’s remunerations
- Rewards, commission payments and paid leave from the company.
- Company stock awards or companies stock options.
- Amount of Employment termination and various retirement benefits such as MPF.
- Pensions.
- Rental compensation from property offered by the employer.
A person’s income from employment, less allowable deductions, charitable donations, and personal allowances, is chargeable to salaries tax or personal tax at the following rates:
| Net Chargeable Income (in HKD currency) | Rate |
|---|---|
| 0– 50,000 HKD | 2% |
| 50,001– 100,000 HKD | 6% |
| 100,001– 150,000 HKD | 10% |
| 150,001– 200,000 HKD | 14% |
| Above 200,001 HKD | 17% |
| Net total income (no allowances) | Standard rate 15% |
Property tax
The owner of any land or building is charged Property tax annually except the government and consular properties in Hong Kong SAR. A standard rate of 15% is charged on the net assessable value of properties. The property’s net assessable value is payable to the owner for the right to utilize the land or buildings at lower rates paid by the owner and with a 20% notional allowance.
In case any rental income is derived from a property in Hong Kong, it is also subject to profit tax. The company subjected to profit tax may also apply for an exemption from property tax regarding the property. The property tax paid can be utilized to offset against the profits tax payable by the company in case no exemption is applied.
Stamp duty
Before 1 August 2021, the transfer of Hong Kong stock via sale and purchase was at 0.2%, but it changed to 0.26% after 1 August 2021 of the consideration per transaction which is applicable for stamp duty. It is important in Hong Kong that you register the transfer of the Hong Kong stock. It is a must in Hong Kong as the registration allows for conveyance on sale of immovable property; the anticipated stamp duty depends on the type of property transferred, which can be a residential or a non-residential property.
Nowadays, stamp duty on transfer of properties is charged as follows:
- Transfer of residential property – A rate of 15%, with certain exceptions. One common exception is acquiring a single residential property by a Hong Kong SAR, a permanent resident who does not own any other residential property in Hong Kong SAR at the time of acquisition.
- Possession of a single residential property by a permanent resident of Hong Kong who does not own any other residential property in Hong Kong SAR at the time of acquisition. Various other specified circumstances, Scale 2 rates range from HKD 100 (for property consideration of up to HKD 2 million) to 4.25% (exceeding HKD 20 million).
- Transfer of non-residential property – Scale 2 rates range from HKD 100 (for property consideration of up to HKD 2 million) to 4.25% (exceeding HKD 20 million).
The stamp duty payable is calculated by applying the applicable rate to the consideration or market value of the property (taking the higher value). Marginal relief is available for transfer the moment scale 2 rates are applicable. The review is marginally above the lower bound of each rate band.
In Hong Kong SAR, the stamp duty is calculated at a particular annual rental rate that varies with the lease term. The applicable rate currently ranges from 0.25% when the lease period of a year to 1% if the lease period is more than three years.
Estate duty
Hong Kong SAR does not have an estate duty or a gift tax.
Customs and excise duty
Duties are demanded on limited categories of dutiable commodities such as tobacco, liquor, methyl alcohol, and hydrocarbons, whether they are imported or manufactured locally. No tax or excise duty is imposed on exports from Hong Kong.
Hong Kong waives taxes on
Hong Kong’s Inland Revenue Department (IRD) has announced the tax waiver that works, as follows:
- On account of profit tax, the ceiling will be applied to every business.
- In the case of the salaries tax, the ceiling will be applied to every citizen, aside from wedded couples that are mutually assessed.
- In the case of personal assessment, the ceiling will be applied to every single citizen or married individual who chooses for individual appraisal independently from their life partner.
- A taxpayer who is independently chargeable to salary and profit tax would have the option to profit from a tax reduction under every one of the tax types.
- One who has business profits or rental payments and who chooses for a personal assessment, the reduction would be founded on the tax payable under personal assessment.
The IRD said that taxpayers should document their profit tax return and tax return for people for the extended time of appraisal 2020-21, to no one’s surprise. Endless supply of the important regulation, the IRD will impact the reduction in the final evaluation. Hong Kong has waived taxes on Withholding tax, Dividend tax, No capital gain tax in Hong Kong, No value-added tax or VAT in Hong Kong.
Hong Kong Tax Returns
Taxes are imposed on the income obtained from any profession, business, or non-resident person to a profits tax charge in your name. If you are qualified under these conditions, you must complete the profit tax return and any necessary forms. In addition, people should likewise document the PTR to the Inland Revenue Department (IRD) by the due date.
Personal or Individual Tax Return
Personal or individual taxes are assessed on taxpayers’ income earned or derived within Hong Kong. If you are an employee of a Hong Kong company, your entire salary would be chargeable to the annual salary tax. On the other hand, in case the income is earned from outside Hong Kong, you would be typically exempted from salary tax during that year of assessment. This exemption is not valid if you work as civil servants or crew members of an airline. You can claim salary tax exemption in the following situation when you are an employee of a Hong Kong company for services less than 60 days. The IRD will assess the nature of your trip here based on the documentation provided.
Profits tax return for corporations (PTR)
The company’s profits tax return will be issued by the Inland Revenue Department in April annually. One month of time will be allotted to the company to file the accounts after the issued PTR from the IRD. Nevertheless, the company may also extend their PTR filings after their first financial year-end, which is the 2nd year onwards.
It is possible that you may receive the first tax return 18 months after incorporation if you have recently set up a company. Within three months from the issued date, the completed PTR needs to submit to the IRD. In case the company is late for the PTR submission, the IRD reserves the right to impose stricter penalties for non-compliance for PTR filings.
If you need assistance in filing your company’s PTR, Startupr can help! The company offers service and consultation for taxation matters and other information related to corporate taxation, personal taxation, and company formation. Feel free to contact us for more details.
Offshore Tax Claims & Tax Query Letters
The Hong Kong government does not charge the worldwide income on companies. The taxes are imposed only on the profits earned within the city. Therefore, this leads to an environment where the Hong Kong offshore tax regime defines taxable profit-making activities more clearly and pays to the Hong Kong IRD. The Hong Kong companies who operate all their activities outside the region to claim profits tax exemption on their offshore activities, are said to be under the “offshore status’’.
Hong Kong Tax Calculator
Hong Kong’s powerful and efficient tax system has made it an international financial hub and a prime location for operating businesses in the region. Calculating your potential tax liabilities relatively quickly with a low tax rate and eliminating many tax types in Hong Kong. Hong Kong companies can also relish various tax deductions and exemptions, specifically for conducting some of their business overseas.
By using the Hong Kong tax calculator, you can effortlessly find out how much tax, profits tax, and salary tax in Hong Kong you would owe in a given year. You can calculate your annual taxes with Startupr’s Hong Kong tax calculator.
Need Any Assistance in Filing Your Hong Kong tax?
Now that you know all about the Hong Kong tax system,you may either be opting for Hong Kong business registration or need assistance for filing the Hong Kong tax. When it comes to tax matters, it is best to fill the tax with the help of someone professional. Startupr helps in filing your business taxes in Hong Kong; the company is one of the leading business incorporation and company secretary service providers in Hong Kong; we offer taxation and accounting services for our clients.