A Guide to Tax Regulations in Hong Kong
While considering moving a business into a new market, one of the key consideration is that country’s tax regime. What are the incentives that would attract foreign investment? Are there any double tax treaties in place? What is the rate for corporate tax?
Hong Kong is a Special Administrative Region of China. The language spoken most popularly is Cantonese (Chinese), and the monetary unit is the Hong Kong Dollar (HKD).
This guide aims at providing the structure for tax regulations in Hong Kong-based on current practices and taxation laws.
In Hong Kong, the Inland Revenue Ordinance charges the income from an office, a pension to salaries tax, employment, and profits from business or trade to profits tax and income from the real estate to tax on property. Indubitably, any income which does not come within the ambit of any of the abovementioned categories is not subject to tax. At present, some of the categories which are not yet taxable in Hong Kong are:
- Value Added Tax
- Capital Gains Tax
- Estate Duty
The list is not exhaustive, but a gist of the categories on which tax is not levied.
What is the Basis of Taxation?
The basis for imposing taxes in Hong Kong is territorial. Generally, the income is tax in Hong Kong on a condition that the same is derived or arises from Hong Kong. However, there are a limited number of separate business receipts which may be taxable in Hong Kong.
What is the Assessment Year?
The year of assessment or the tax year is from the 1st of April to the 31st of March of the following year. The assessment is based on the income that is accrued in that particular tax year for property and salaries tax. However, while considering profits tax, the assessment is based on the accounting profits of that financial year that ends within the assessment year whilst maintaining appropriate adjustment for the purpose of tax.
Are there any Double Tax arrangements or Agreements with other countries?
As seen below, Hong Kong has entered into comprehensive tax treaties or arrangements with numerous countries.
Following is the list of countries for the same:
|South Africa||United Arab Emirates|
What is a Personal Assessment?
An individual who is a resident of Hong Kong has an option to elect for a personal assessment, where the income chargeable to property tax, profits tax and salaries tax are aggregated in one assessment, meaning a single assessment. This personal type of assessment enables a person to offset a loss in business against income subject to property and salaries tax, and also to claim a deduction of the interest on the loan for rental properties, and the same is not available as under the property tax.It was until the assessment year 2017-18 that a married individual has to elect for personal assessment jointly with the spouse on a condition that both of them earn income, which is taxable in Hong Kong. It was in the assessment year 2018-19 where the husband and wife could individually opt for personal assessment, and not jointly.
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