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Taxation
Hong Kong General Tax Guide

The Hong Kong Tax Memo summarizes the Hong Kong tax systems and tax rates. The content is based on information current as of 1 January 2015, unless otherwise indicated in the memo. This memo contains information in summary form and is therefore intended for general guidance only.

HONG KONG TAX MEMO


TAXATION IN HONG KONG


Hong Kong imposes 3 separate direct taxes for a year of assessment which ends on 31st March. The taxes are on Profits, Salaries and Property.

Hong Kong adopts a territorial concept of taxation. Tax is levied primarily on Hong Kong sourced profits and income on a current year basis except for businesses which are assessed on profits of their accounting periods.

Companies are taxed as separate entities. No group relief is available.

Individuals carrying on business as sole proprietors or partners may elect for Personal Assessment which will have the effect of amalgamating their various income in a single assessment.


DOUBLE TAXATION RELIEF


Hong Kong has signed the following international double tax agreements:

Agreements on taxation of international shipping profits with:

  • Denmark
  • The United States
  • Germany
  • United Kingdom
  • Netherlands
  • Norway

Agreements on taxation of international airline profits with:

  • Bangladesh
  • Iceland
  • Mauritius
  • Belgium
  • Israel
  • Mexico
  • Canada
  • Jordan
  • Netherlands
  • Croatia
  • Kenya
  • New Zealand
  • Denmark
  • Korea
  • Norway
  • Estonia
  • Kuwait
  • Russian Federation
  • Ethiopia
  • Laos
  • Seychelles
  • Fiji
  • Macao SAR
  • Sweden
  • Finland
  • Mainland of China
  • Switzerland
  • Germany
  • Maldives
  • United Kingdom


Agreements on taxation of international airline and shipping profits with:

  • Singapore
  • Sri Lanka


Comprehensive double tax treaty with:

  • Austria
  • Japan
  • New Zealand
  • Belgium
  • Jersey
  • Portugal
  • Brunei
  • Korea
  • Qatar
  • Canada
  • Kuwait
  • South Africa
  • Czech
  • Liechtenstein
  • Spain
  • France
  • Luxembourg
  • Switzerland
  • Guernsey
  • Mainland of China
  • Thailand
  • Hungary
  • Malaysia
  • United Arab Emirates
  • Indonesia
  • Malta
  • United Kingdom
  • Ireland
  • Mexico
  • Vietnam
  • Italy
  • Netherlands

PROFITS TAX


Scope of charge

Persons (including companies, individuals and partnerships) carrying on business in Hong Kong are liable to Profits Tax on profits (excluding capital profits) arising in or derived from Hong Kong.

Basis of assessment

Tax is charged on the assessable profits for a year of assessment. The assessable profits for a business are calculated on the profits of the accounting year ending in the year of assessment.

Profits tax rates

2014/15

Corporations

16.5%

Unincorporated business

15%

Profits tax deductions

Expenses incurred in the production of chargeable profits in any period are deductible from profits tax with exception of expenses of domestic or private nature and capital in nature. However, depreciation allowance in respect of the fixed assets such as furniture and fixtures, and plant and machinery is allowed.

Capital expenditure incurred in the purchase of rights to patent, or any know-how from unrelated parties, for use in the production of chargeable profits, are fully tax deductible.

Starting from 2011/12, providing tax deduction for capital expenditure incurred on the purchase of copyrights, registered designs and registered trademarks. The expenditure is tax deducted over five succeeding years at 20% per annum.

2014/15

Donations

Up to 35% of assessable profits

Losses

Tax losses may be carried forward indefinitely to be offset against future profits of the company. A change in shareholding may affect the utilisation of the losses if the sole and dominant purpose of the change is to utilise the tax losses.

No group tax loss relief and tax loss carry-back arrangements.

Payments to non-residents
1. Royalties

Effective withholding tax rates

Payments for use of intellectual properties in Hong Kong to

Corporations

Others

  • Non-associates

4.95%

4.5%

  • Associates in certain circumstances*

16.5%

15%

* Where the relevant intellectual property was previously owned by an entity carrying on a business in Hong Kong.

2. Services fee to entertainers and sportsmen

Effective withholding tax rates

Corporations

Others

Payments for performance in Hong Kong

11%

10%

Exemptions

The following types of income are exempt from profits tax:

Nature

Exemption

  • Dividends
All. No withholding tax on payment.
  • Interests on Tax Reserve Certificates
All.
  • Profits arising from sale of capital assets
All.
  • Interest income paid or accrued to a person (including a corporation) carrying on a business in Hong Kong, and derived from any deposit placed in Hong Kong with a financial institution, is exempt from profits tax, unless the deposit is used to secure borrowings on which the interest expense is deductible.
All.
Debt instruments

To promote the development of the bond market, profits from qualifying debt instruments with a maturity period of 7 years or more are exempt from Profits Tax. Those with maturity periods of between 3 to 7 years will enjoy a 50% tax concession.

Tax depreciation allowances
Asset

Initial allowance

Annual allowance

Plant and machinery for manufacturing:

100%

Computer hardware and software:

100%

Other plant and machinery:

60%

10-30% (on reducing balance)

Industrial buildings:

20%

4% (on construction costs)

Commercial buildings:

4% (on construction costs)

Building refurbishment:

Refurbishment expenditure to be allowed over five years at 20% per annum.

SALARIES TAX


Scope of the charge

Salaries Tax is charged on all income arising in or derived from Hong Kong from any office or employment or any pension.

Employees who have their workbase 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.

Employees having a foreign employment as prescribed by the relevant law and who perform their services both within and outside Hong Kong may apply to have a portion of their remuneration exclude from Hong Kong tax on a time apportionment basis.

Employees who perform their services both within and outside Hong Kong and have paid overseas tax on a certain portion of their salary can have that portion of salary exempted from Hong Kong salaries tax.

Employment income derived by a Hong Kong resident providing services in China is exempt from individual income tax in China provided that:

  • the taxpayer physically stays in China for a period or periods not exceeding 183 days in any 12 months period;
  • the remuneration is paid by, or on behalf of , an employer who is not a resident of China; and
  • the remuneration is not borne by a permanent establishment or a fixed base which the employer has in China.

In practice, a Hong Kong individual should not have, or be deemed to have, a fixed position such as director or chief representative of entities within China to be eligible for the above exemption.

Married couples are normally assessed separately on their employment income. If they wish to be jointly assessed they must make an election to that effect.

Benefits-in-kind

Benefits-in-kind are tax free except:

  • Provided in cash form or capable of being converted into cash.
  • Payments to discharge an employee’s personal liability.
  • Payments in respect of education of an employee’s children.
  • Assets gifted or sold to an employee at less than market value.

The taxable value of housing benefits is generally computed as 10% of an employee’s taxable remuneration. To qualify for this concession, control must be exercised by the employer over the provision of such housing benefits.

The tax exemption for holiday warrants and passage benefits in kind provided to employees has been removed.

Share option benefits

Share option benefits are taxable if granted by virtue of a Hong Kong employment or if attributable to employment income taxable in Hong Kong.

Share option benefits to directors are taxable if the directors’ fees or emoluments are sourced in Hong Kong.

The source of employment income or directors’ fees, in the year that share options are granted determines the source of the share option benefits.

The difference between the market value of such shares on the date of exercise of the option and the total cost of acquiring and exercising the relevant share option rights is taxable.

Salaries tax rates

The tax charged is the lower of:

  • Net assessable income less approved charitable donations at 15% ; and
  • Net assessable income less approved charitable donations and personal allowances charged at progressive rates as follows:

2014/15

Standard tax rate

15%

Progressive tax rate

Tax Rate

HK$

First HK$ 40,000

@2%

800

Next HK$ 40,000

@7%

2,800

Next HK$ 40,000

@12%

4,800

Cumulative on first HK120,000

8,400

Balance

@17%

Allowances

2014/15

  • Personal allowances
  • Single taxpayer

HKD 120,000

  • Married couple

HKD 240,000

  • Child allowances

2014/15

1st child to 9th child (each)
  • Year of birth

HKD 140,000

  • Other years

HKD 70,000

  • Dependent parent/ grandparent allowances

2014/15

For aged 60 or above
  • Residing with taxpayer

HKD 80,000

  • Not residing with taxpayer

HKD 40,000

For aged 55 to 59
  • Residing with taxpayer

HKD 40,000

  • Not residing with taxpayer

HKD 20,000

  • Single supporting parent allowance

HKD120,000

  • Dependent brother / sister allowance

HKD33,000

(for whom no child allowance claimed)
  • Disabled dependent allowance

HKD66,000


Special deductions

2014/15

Expenses of a dependent parent/ grandparent in residential care

HKD 80,000

Approved self-education expenses

Up to HKD 80,000

Contribution to Mandatory Provident Fund Scheme

Up to HKD17,500

Mortgage interest of owner – occupied property incurred since 2003/04

Up to HKD 100,000 per year

(extended from 10 to 15 years of relief on total from 2012/13 onwards)
Charitable Donations : Ceiling for tax exempted donations is 35% of assessable income

PROPERTY TAX


Charged at the standard rate of 15% on 80% of the actual rental income on non-corporate owners of land and buildings in Hong Kong. Corporate owners are subject to Profits Tax on their rental income less expenses.

2014/15

Property Tax Rate

15%

HONG KONG TAX ADMINISTRATION


The first profits tax return will be issued to the newly incorporated Hong Kong entities within 18 months and the company has 3 months to prepare the audited accounts to be submitted together with the profits tax return.

FILING DEADLINE


Profits tax return
Hong Kong entities are allowed to adopt its financial accounting year end on the day as it likes for tax assessment purposes.
Accounts closing date

Filing due date (by extension)

1 Apr to 30 Nov (Code “N” accounts)

30 April of the following year

1 Dec to 31 Dec (Code “D” accounts)

15 August of the following year

1 Jan to 31 Mar (Code “M” accounts)

15 November of the same year


Composite tax return (Individual salaries tax)

Year end dateRepresented / Unrepresented

Filing due date (by extension)

31 MarchRepresented Taxpayer
– no sole proprietorship business

30 June of same year

– with sole proprietorship business

30 September of same year

31 MarchUnrepresented Taxpayer
– no sole proprietorship business

31 May of same year

– with sole proprietorship business

31 July of same year

Property tax return
Year end date

Filing due date

31 March

30 April of the same year

Employer’s return
Year end date

Filing due date

31 March

30 April of the same year

TIME LIMITS


CircumstancesTime limits for notifying the Hong Kong Inland Revenue
Chargeability to taxWithin four months after end of the basis period of relevant assessment year
Cessation of businessWithin one month of cessation
Departure of taxpayer from Hong Kong for more than one month, other than on businessNot later than one month before departure
Employer commencing to employ an employeeWithin three months of commencement
Employer ceasing to employ an employeeNo later than one month before cessation

STAMP DUTY


2014/15

1. Share transfers

0.2%


2. Property transfers

Property ConsiderationRate (2014/15)
Scale 1 rates (2)- Up to HKD 2,000,0001.5%
– HKD 2,000,001 to HKD2,176,470$30,000 + 20% of excess over $2,000,000
– HKD 2,176,471 to HKD 3,000,0003 %
– HKD 3,000,001 to HKD 3,290,330$90,000 + 20% of excess over $3,000,000
– HKD 3,290,321 to HKD 4,000,0002.25%
– HKD 4,000,001 to HKD 4,428,580$180,000 + 20% of excess over $4,000,000
– HKD 4,428,581 to HKD 6,000,0006%
– HKD 6,000,001 to HKD 6,720,000$360,000 + 20% of excess over $6,000,000
– HKD 6,720,001 to HKD 20,000,0007.5%
– HKD 20,000,001 to HKD 21,739,130$1,500,000 + 20% of excess over $20,000,000
– HKD 21,739,131 and above8.5%
Scale 2 rates (2)
– Up to HKD 2,000,000$100
– HKD 2,000,001 to HKD2,351,760$100 + 10% of excess over $2,000,000
– HKD 2,351,761 to HKD 3,000,0001.5%
– HKD 3,000,001 to HKD 3,290,320$45,000 + 10% of excess over $3,000,000
– HKD 3,290,321 to HKD 4,000,0002.25%
– HKD 4,000,001 to HKD 4,428,570$90,000 + 10% of excess over $4,000,000
– HKD 4,428,571 to HKD 6,000,0003%
– HKD 6,000,001 to HKD 6,720,000$180,000 + 10% of excess over $6,000,000
– HKD 6,720,001 to HKD 20,000,0003.75%
– HKD 20,000,001 to HKD 21,739,120$750,000 + 10% of excess over $20,000,000
– HKD 21,739,121 and above4.25%

Notes:

  • Marginal relief is available upon entry into each higher rate band
  • The Scale 2 rates apply to residential property acquired by a Hong Kong permanent resident who does not own any other residential property in Hong Kong at the time of acquisition. The Scale 1 rates apply to all other cases.


Special Stamp Duty on disposal residential property acquired on or before 20 November 2010

Holding period

The property was acquired on or before 20 November 2010 and before 27 October 2012

The property was acquired on or after 27 October 2012

– 6 months or less

15%

20%

– more than 6 months but for 12 months or less

10%

15%

– more than 12 months but for 24 months or less

5%

10%

    • more than 24 months but for 36 months or less

N/A

10%


Buyer’s Stamp Duty

With effect from 27 October 2012, unless specifically exempted, it is charged at 15% on the stated consideration or the market value of the property (whichever is the higher).


3. Share transfers and property transfers
    • intra group (at least 90% common shareholding, the consideration for the transfer must not come from a third party and the transferee must stay within the group for 2 years after the transfer)

Exempt

OTHER DUTIES FEES AND CHARGES


Air passenger departure tax:HKD 120 (passenger under age 12 exempt)
Betting duty:30% on the amount of paid, contributed or subscribed for cash sweeps
72.5% – 75% on horse races (on net stake receipts)
25% on Lotteries (on turnover)
50% on football betting (on gross profits)
Business registration fees:(on or after 1 April 2014)
– 1 year certificate plus levyHKD 2,250
– 3 year certificate plus levyHKD 5,950
Branch business registration fees:(on or after 1 April 2014)
– 1 year certificate plus levyHKD 323
– 3 year certificate plus levyHKD 939
Hotel accommodation tax0%
Import and excise dutiesLevied on liquor, tobacco, hydrocarbons and soft drinks products.
(Duty rates on beer, liquor and wine containing not more than 30% of alcohol is reduced to 0%)
Rates5% on rateable value of landed properties
Re-export declaration chargesHKD 0.2 for the first HKD46,000 and 0.0125% for each additional HKD 1,000 of the value of the goods.
Motor vehicle first registration tax:– The cost of air conditioners, audio equipment, anti-theft devices and distributors’ warranties is no longer excluded from taxable value.
– A marginal tax system has been adopted for private cars and van-type light goods vehicles not exceeding 4,500 cylinder capacity and 1.9 tones on gross vehicle weight respectively. Higher marginal rates apply for more expensive vehicles.
– Lower the first registration tax is applied for environment-friendly vehicles
Goods and Services Tax (GST):A public consultation on introduction of GST has been launched in July 2006, but no consensus has been reached.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.