Hong Kong

2012 Tax rates of Hong Kong

Corporate tax

Rate

The corporate tax rate of Hong Kong is 16.5%(15% for unincorporated businesses). Corporate tax is imposed on company profits. Company profits consist of all types of income.

In general all costs relating to company’s business may be deducted as long as it’s derived from the production of profits. Domestic and personal expenses, capital expenditure and losses, taxes and other expenses are not deductible, if the expenses are not used for the purpose of producing profits. If profits are derived from both Hong Kong and non Hong Kong source, these expenses are not deductible.

Taxation is only applied on Hong Kong-source profits of businesses carried on in Hong Kong.

Taxation of dividends

There is no taxation of dividends in Hong Kong.

Capital gains

There is no taxation on capital gains in Hong Kong and capital gains are not subject to corporate or personal income tax.

Losses

Losses can be carried forward indefinitely and set off against future taxable profits of the company. Losses may not be carried backward. Specific anti-avoidance rules prevents a purchase of a loss company for the sole purpose of using the company’s losses.

Withholding tax

There is no withholding tax on dividends in Hong Kong, nor is there any withholding tax on interest payments from entities residing in Hong Kong.

Royalty payments made to non residents tax is levied in Hong Kong, if for the use of intangibles in Hong Kong or outside, where the royalty payments are deductible for profit tax purposes. 30% of the total gross amount royalties paid, a 4.95%(4.5% for non corporate individuals) tax is levied. If the royalty paid is to an affiliated non resident for the use of intangibles that was previously owned by an individual carrying business in Hong Kong, 100% of the royalty will be deemed for taxation. 16.% tax is levied in this case, or 15% if it’s a non corporation individual.

Technical fees, no taxation is levied.

 

Individual tax

General

Invividuals living in Hong Kong is taxed on their Hong Kong-source income. Non resident individual is tax exempt if not spending more than 60 days in a tax year. Employees who already paid substantial tax of the same nature as Hong Kong salaries, outside Hong Kong are exempt in respect of that income derived from services outside Hong Kong.

Taxable income

Hong Kong individuals are taxed on their Hong Kong income from employment, less deductible expenses, charitable donations or personal allowances. Source of employment depends on what is contracted, where it was negotiated and where it was enforceable, residence of the employer, salary paid. Taxable income concludes stock option gains, bonuses, commissions, allowances, cost derived from employment. Note that dividend income is not deemed for taxation, but gains from execising share options are taxable.

Rates

HK$ 0 – 40,000 is 2 %

HK$ 40,001 – 80,000 is 7 %

HK$ 80,001 – 120,000 is 12 %

HK$ 120,001 or above is 17 %

Capital Gains

There is no capital gains tax in Hong Kong.

Deductions

Deductions are very limited in Hong Kong. Strict rules apply and deductions are only permitted if the expenses are fully necessarily inquired in the production of assessable income. Deductions allowed includes such as contributions to the retirement scheme, self-education expenses, mortgage interests, donations to approved charities.

Real Estate

Hong Kong property owners are taxed on rental income, if the income is derived from a property residing in Hong Kong. Standard rate of 15% is levied on the total vaue of the property as determined by rent, service charges and fees paid to the owner, less an allowance of 20% for costs such as repairs and maintenance.

Net Worth Tax

There is no net worth tax in Hong Kong.

Inheritance Tax

There is no inheritance tax in Hong Kong.

Social Security

Employers contributes 5% of the monthly income to the Mandatory Provident Fund scheme, as well as deducting 5% of the employee’s monthly salary which is contributed along side. If the individual is self-employed, the individual contributes 5% of their income, and may choose to do so on a monthly or annual basis. Maximum deductions effective from 1st of June 2012 is HK$ 1 250 per month, previously it was HK$ 1 200 per month.

VAT

There is no VAT levied in Hong Kong.

 

Other

Tax year. Calendar year, starts from 1 April every year and ends on 31 March on the following year.

Tax treaties. Hong Kong currently has 22 double tax treaties signed.

Filing requirements. Tax returns is issued to individual taxpayers on the first working day of May each year.

Registration (for VAT purpose). Not needed due to no VAT is levied.

 

Links

Tax authorities. Inland Revenue Department

Consulate

Local Tax Resources

Chamber of commerce

(Online realtor/stock exchange)