Hong Kong is well-known as one of the lowest tax regimes in the world and the tax system in Hong Kong is relatively simple.
According to the Inland Revenue Ordinance (“IRO”, the prevailing tax laws in Hong Kong), only income arising in or derived from Hong Kong is tax chargeable. It is therefore very essential to identify the source of income before determining the liabilities of a taxpayer in Hong Kong.
Application for tax exemption with the Hong Kong Inland Revenue Department (“IRD”, the tax authority in Hong Kong) is possible if all income/profit of the Hong Kong Company is arising in or derived from outside Hong Kong.
In Hong Kong, the “Year of Assessment” is a 12-month period commencing from 1 April of any year and ending on 31 March in the following year. For corporation, Hong Kong Company may decide its own financial year end and reporting currency.
The residence or nationality of a person is irrelevant in determining his/her chargeability for tax.
A Foreign company carrying on business in Hong Kong may be charged to Hong Kong taxes on the same basis and at the same tax rate as a Hong Kong company.
In general, capital gains and dividend income are tax-exempted in Hong Kong.
Profits arising in or derived from Hong Kong (excluding profits arising from the sale of capital assets) by a person carrying on a trade, profession or business in Hong Kong (directly/indirectly through an agent);
Rental income from letting and/or sub-letting of real property situated in Hong Kong earned by a corporation; and
Rental income from sub-letting of real property situated in Hong Kong by a person other than a corporation.
Business Category Tax Rates Unincorporated Business 15% Corporation 16.5%
A Hong Kong company may receive its first Profits Tax Return issued by the IRD in around 18 months from its date of incorporation and is due for submission within 3 months from the issue date.
Generally speaking, a Profits Tax Return is due for submission within 1 month from the issue date. The Profits Tax Return must be submitted together with the supporting profits tax computation and the audited financial statements Note 1 to the IRD.
Nevertheless, under the Block Extension scheme adopted by the IRD, application for a further extension of time for filing a Profits Tax Return may be lodged with the IRD for approval, depending on the annual financial period end date fixed by the Company.
Below table summarizes the extended tax filing deadline upon successful application (actual deadline subject to the IRD’s announcement):-
Financial Year End Date Note 2 Annual Extended Tax Filing Deadline 1 April - 30 November (“N” Code) No extension allowed, due for filing within 1 month from the issue date 1 December – 31 December (“D” Code) Around mid- August of the following year 1 January – 31 March (“M Code”) Around mid-November of the same year; further extension may be applied for case with adjusted loss (separate application required)
Salaries tax is charged on income earned by a person arising in or derived from Hong Kong from:-
Tax Rates Standard rate 15% Progressive tax rates 2% - 17%
In general, full income of an employee with a Hong Kong source of employment is chargeable to salaries tax even if some of his/her duties are performed outside of Hong Kong.
Nevertheless, an employee with a Hong Kong source of employment may be eligible to apply for personal tax exemption if he/she could prove all of his/her duties are performed outside of Hong Kong.
The IRD considers a directorship is regarded as an office.
In general, full income of a director derived from his/her office of a company resident in Hong Kong is chargeable to salaries tax.
The tax position is not affected by the number of days he/she stayed in Hong Kong during the year of assessment. No exemptions or relief are available.
Property tax is charged on a person who is the owner of land or buildings or both or both situated in Hong Kong in respect of the net assessable value he/she earned in each year of assessment.
Tax Rates Standard rate 15%
Under normal circumstances, the IRD would presume that a Hong Kong company’s business operation is located in Hong Kong and is therefore subject to Hong Kong Profits Tax.
Nevertheless, a Hong Kong company may lodge an offshore claim application with the IRD claiming the fact that the Company's business operations are all located outside Hong Kong.
The factor in determining the source of trading business profits is generally contract effected test. If both sales and purchase contracts are effected outside Hong Kong, the Hong Kong Company could be entitled to tax exemption from Hong Kong Profits Tax.
If the services are physically rendered outside of Hong Kong, it is possible for the Hong Kong Company to apply for its service fee income exempted from Hong Kong Profits Tax.
Establishing an offshore claim is never easy in the current environment as the onus of proof always rest with the taxpayers in Hong Kong.
The territorial source principle of taxation adopted by the IRD has been described in details on its official website [ A Simple Guide on The Territorial Source Principle of Taxation ].
Should you have any enquiries on general tax compliance requirements in Hong Kong, please send email to [ Tax@AtrixBiz.com ].
The general tax information on the above content is provided for your ease reference and is not intended to replace any tax advice or other professional advice. Clients should clearly acknowledge and confirm that final decision is reserved by Hong Kong Inland Revenue Department through its tax assessment process. In the event of any inconsistency between the English and Chinese versions of this content, the English version shall prevail.
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