Tax Policies in Hong Kong
Hong Kong is one of the lowest tax regimes in the world which requires a high degree of compliance of taxpayers.
Double Taxation Relief
Double taxation is generally defined as the imposition of comparable taxes in two or more places on the same taxpayer in respect of the same subject matter and for identical periods. Double taxation relief is designed to resolve the double tax issues between contracting parties.
Hong Kong adopts territorial basis of taxation from which only income or profits arising in or derived from Hong Kong shall be subject to tax in Hong Kong. In order words, profits generated from outside Hong Kong by local residents are likely not subject to Hong Kong tax. In this connection, double taxation will not generally be suffered by Hong Kong residents. However, tax residents in many other jurisdictions are subject to tax on their worldwide income and may be granted by the residence jurisdiction in the form of unilateral tax credit relief for Hong Kong tax paid on income/profits derived from Hong Kong in accordance with the Double Taxation Agreements/Arrangements (“DTAs”). Currently, Hong Kong has concluded DTAs with more than 40 countries.
Withholding Taxs
Subject to the fulfillment of certain conditions, Royalties received by or accrued to a non-resident from treaty countries for the use of or right to use the IP in Hong Kong or outside Hong Kong (if the royalty payment are deductible for the payer) are deemed to be taxable in Hong Kong. The deemed taxable amount shall be 30% of the gross royalty income which result in an effective rate of 2.475% (for the first HKD 2 million of assessable profits) and 4.95% (for the remaining amount of assessable profits). While the effective withholding tax rate for the whole amount shall be 4.95% for non-treaty corporate recipients.
The Hong Kong payer of the royalty is obligated to furnish the non-resident tax return and withhold sufficient amount for the payment on the non-resident profits tax on royalty income and make payment to the IRD.
Advance Ruling in Hong Kong
Any person may apply for advance ruling under Section 88A of the Inland Revenue Ordinance (“IRO”) on how the provision of the IRO applies to the person or to the particular arrangement. The purpose of advance ruling system is designed to provide persons who wish to have certainty about the tax positions on the seriously contemplated arrangement.
Applications Requirements and Procedures :-
- Complete the application form IR1297
- Identify Issue(s) in which the taxpayer needs to resolve
- Describe thoroughly the facts and the arrangement in question
- State the Provision(s) of the IRO in respect of which the ruling is sought
- State the propositions of law with law cases which are relevant to the issues raised in the application. Also any legal reasons and arguments should be mentioned to support the application to the Commissioner
- The applicant must provide a draft ruling
- Settle the application fee
- Submit the ruling application to the Deputy Commissioner of the Inland Revenue
Note: Applicants are at any time being requested by the Commissioner of the IRD for provision of further information and documents in the course of application.
Common Reporting Standard ("CRS")
and Automatic Exchange of Financial Account Information ("AEOI")
and Automatic Exchange of Financial Account Information ("AEOI")
CRS is a new information-gathering and reporting requirement for financial institutions (“FIs”), it is developed by Organisation for Economic Co-operation and Development purposes to fight against tax evasion and increase fiscal transparency via AEOI.
With effect from 30 June 2016, Hong Kong commenced to implement AEOI.
Under the AEOI standard, FIs are required to register with the IRD by September 2017 and file the first AEOI returns to the IRD by May 2018. FIs are responsible to monitor their status and procedures for complying with the relevant compliance and reporting obligations under the AEOI regime of IRD.
Under the CRS, FIs in a jurisdiction are required to perform due diligence procedures to identify financial accounts held by tax residents of reportable jurisdictions and to collect and furnish the information of such financial accounts to tax authorities in that jurisdiction on an annual basis. In Hong Kong, IRD will apply AEOI with the tax authorities of CRS partner jurisdictions on an annual basis.
For details, please visit IRD official website: http://www.ird.gov.hk/eng/tax/dta_aeoi.htm
Corporate Tax
Hong Kong adopts territorial tax system. Profits tax shall be charged on every person carrying on trade, profession or business in Hong Kong in respect of the profits arising in or derived from Hong Kong from such trade, profession or business regardless of the nationality, domicile or residence of a person.
Individual Tax
Hong Kong salaries tax is charged on every individual in respect of his/her income arising in or derived from any office, employment or any pension in Hong Kong. All income from a “Hong Kong sourced employment” is liable to tax irrespective of the locations for rendering the services, subject only to certain statutory exemptions.
Tax Investigation and Filed Audit Support
Hong Kong upholds simple tax system and its tax rate is one of the lowest in the world which requires a high degree of compliance of taxpayers. In order to protect government revenue, the IRD will review the submitted tax returns periodically by way of field audit and investigation.
Tax Policies in Hong Kong
Double Taxation Relief / Withholding Taxs / Advance Ruling in Hong Kong
/ Common Reporting Standard ("CRS") and Automatic Exchange of Financial Account Information ("AEOI")
/ Common Reporting Standard ("CRS") and Automatic Exchange of Financial Account Information ("AEOI")