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Hong Kong

Private company limited by shares

Hong Kong is a vibrant, densely populated urban center with a skyscraper-studded skyline and is a major regional free trade port and a global financial hub.

This jurisdiction has one of the most liberal, competitive and laissez-faire economies worldwide. Characterized by simple taxation with a competitive level of corporation tax (8.25% / 16.5%), capital gains and dividends free from taxes, no sales tax, and no customs duties.

Although there is no specific legislation for international companies, due to its territorial tax system, a correctly structured and managed company may qualify for a 0% tax for its business carried out outside the jurisdiction.

Supported by a legal system derived from the Common Law, which is very scrupulous in respect of private property, and an independent judicial system in which the rule of law applies to legal and contractual procedures.

A high international reputation and business-friendly jurisdiction, with great facility to establish companies, it can be done in as little as 2 days and remotely, and move capitals from Hong Kong abroad.

Hong Kong is also one of the safest and convenient places to do banking. Being home to some of the most solid banks worldwide, with the highest levels of solvency and liquidity. No exchange controls and availability of multi-currencies accounts, merchant accounts, and payment processing services.

In addition, it is the gateway to one of the largest and fastest-growing markets worldwide, China. The Closer Economic Partnership Arrangement (CEPA) provides to companies incorporated in Hong Kong preferential access for goods and services entering the mainland China market.

Hong Kong participates in the OECD's Automatic Exchange of Information for tax purposes (AEoI) and is undertaking exchanges of information through Common Reporting Standard (CRS).

All in all, Hong Kong is an excellent jurisdiction to incorporate and its company limited, a powerful vehicle for international trading, start-ups, internet entrepreneurs, investment businesses, IP holdings and as a holding company.

Taxes

Tax residency – A legal entity is deemed to be tax resident in Hong Kong if it is incorporated and/or managed and controlled in Hong Kong.

Basis - Corporate income tax is levied on profits derived from Hong-Kong, foreign-source profits may be exempt from taxation, whether remitted or not.

Tax rate - Companies incorporated in Hong Kong are subject to profits tax at 8.25% for the first HKD 2,000,000 and 16.5% on profits over HKD 2,000,000.

Capital gains - Capital gains are usually not subject to taxation.

Dividends - Dividends received from resident entities are tax-exempt, whereas dividends received from non-resident entities are usually considered foreign-source income and exempt from taxation.

Interests - Interest income derived from Hong Kong is subject to profits tax, except interest derived from any deposit in a financial institution.

Foreign-source income - Foreign-source profits are usually exempt from taxation. The profits source is usually determined by the place where the purchases and sales contracts are affected or the place where the key activities to generate the profits are carried out.

Withholding taxes - Payments to non-residents on dividends and interests are exempt from taxation. Royalties are subject to a withholding effective tax rate of 4.95% if are paid to a resident of a jurisdiction where the royalty payments are deductible for profits tax purposes. If royalties are derived from the use of intangibles that previously were owned by a person carrying business in Hong Kong, they may be subject to an effective withholding tax rate of 16.5%.

Losses – Losses arising from taxable income may be carried forward indefinitely. Losses may not be carried back.

Inventory - Inventory may be declared at its cost or market value, whichever is lower and must be valued through the First in first out (FIFO) method.

Anti-avoidance rules – On July 4, 2018, Hong Kong passed The Inland Revenue (Amendment) (No. 6) Ordinance 2018 (IRO), which codifies transfer pricing rules (Fundamental Rule) and requires transactions between affiliates to be carried out at an arm’s length basis for tax purposes.

The Fundamental Rule entitles Hong Kong’s taxman, the Inland Revenue Department (IRD), to adjust profits or losses of a company if compensations arisen from transactions with associated persons differ from compensations which would have been made between independent actors, and have led to a tax advantage.

The Fundamental Rule applies to transactions involving sale/transfer/use of assets and provision of services, and financial and business arrangements within a group structure.

The IRO Amendment also codifies transfer pricing documentation requirements. Hong Kong companies transacting with affiliates are required to prepare a master file and local file transfer pricing documentation, and HK ultimate parent entities (UPE) need to prepare country-by-country (CbC) reports (CbCR).

The local file typically includes documentation on the local entity intercompany transactions, whereas the master file includes high-level information about the group’s global business operations and transfer pricing policies.

A CbCR is an annual return that includes the key elements of the financial statements of a given multinational group by jurisdictions. It provides information to tax authorities about revenue, tax paid and accrued, employment, capital, retained earnings, tangible assets, and business activities, among others.

These transfer pricing reporting requirements are becoming a worldwide standard international tax practice in line with OECD’s BEPS anti-avoidance requirements.

Companies that meet certain conditions, such as total revenue of not more than HKD 400 mil or total assets of not more than HKD 300 mil, among others, might be exempted from preparing the local file and master file documentation. For its part, an HK UPE with consolidated group revenue of less than HKD 6.8 Bil may not be required to file a CbCR.

Companies subject to prepare the master file and local file documentation, and fail to do so may face a fine of HKD 50,000, and may be ordered by the court to prepare such documentation within a specified time. Failure to comply with that order may entail an HKD 100,000 fine on conviction.

The IRO amendment also provides for enhanced economic substance requirements to benefit from HK tax treaties; and modifications to certain preferential regimes.

Labor taxes – Employers are required to make contributions to the Mandatory Provident Fund (MPF) at 5% of employees’ monthly income, capped at HKD 1,500. Employees whose salary is over HKD 7,500 contribute other 5 %, also capped at HKD 1,5000.

Tax credits and incentives – A tax credit may be available for foreign tax paid on income taxable, provided that is derived from a jurisdiction where Hong Kong has concluded a tax treaty with. A tax credit is usually limited to the amount of tax payable in Hong Kong on the same income.

Investments funds may be exempt from taxation. Concessionary tax rates (up to 50% of the standard tax rate) may be available for certain treasury corporate centers, reinsurance and authorized captive insurances.

Compliance – The tax year in Hong Kong starts on 1st April and ends on 31st March. On average, a Limited Company may require 3 payments and 74 hours per year to prepare, file and pay taxes.

Personal income tax – Individuals who ordinarily reside in Hong Kong or stay in the country for more than 180 days per year or more than 300 days in two consecutive years may be considered Hong Kong tax residents. Although, tax residency rules may vary according to a tax treaty.

In Hong Kong income tax is levied on a territorial basis. This means that both residents and non-residents are subject to income tax on their income accrued in Hong Kong, being foreign-source income exempt from taxation.

Personal income tax on salaries is levied at a progressive rate from 2% to 17% on income exceeding HKD 120,000. Income from business is taxed under profits tax (16.5%). Dividend and interest income are exempt from taxation. Capital gains are usually tax-exempt, although those derived from certain trading assets may be subject to profits tax.

Rental income is taxed under property tax, at a 15% on the net assessable value of land or buildings. Property tax does not apply on residential properties occupied by the owner for self-use. Note that while it is possible to buy condominium units, the land is owned by the government and its tenure is on a renewable leasehold basis.

Other taxes – There are no sales taxes, nor customs duties on general imports, some commodities such as tobacco, alcohol, and hydrocarbons may be subject to excise taxes.

Hong Kong levies property tax on land and buildings owners at a 15% rate.

There is a stamp duty on contracts of sale and purchase of Hong Kong-registered stocks (0.2%) and the transfer of immovable property, up to 8.5%. There is a special stamp duty on the resale of properties held less than 36 months from 10% to 20%.

There are no capital duties, net wealth, inheritance and taxes.

  • Offshore Income Tax Exemption
  • Offshore capital gains tax exemption
  • Offshore dividends tax exemption
  • CFC Rules
  • Thin Capitalisation Rules
  • Patent Box
  • Tax Incentives & Credits
  • Property Tax
  • Wealth tax
  • Estate inheritance tax
  • Transfer tax
  • Capital duties
  • 0% Offshore Income Tax Rate
  • 16.5% Corporate Tax Rate
  • 0% Capital Gains Tax Rate
  • 0% Dividends Received
  • 0% Dividends Withholding Tax Rate
  • 0% Interests Withholding Tax Rate
  • 4.95% Royalties Withholding Tax Rate
  • 0 Losses carryback (years)
  • Indefinitely Losses carryforward (years)
  • FIFO Inventory methods permitted
  • 72 Tax time (hours)
  • 3 Tax payments per year
  • 5.00% Social Security Employee
  • 5.00% Social Security Employer
  • 17% Personal Income Tax Rate
  • 0% VAT Rate
  • 35 Tax Treaties

Country details

Hong Kong
HKD
Hong Kong
Asia
z h - H K , y u e , z h , e n
6898686

Hong Kong is a Special Administrative Region of the People’s Republic of China (Hong Kong SAR). Its official languages are English and Cantonese.

Although it is part of the People’s Republic of China, the region maintains an independent economic, administrative and judicial system, and even its own currency, the system of customs and external borders.  Its official legal tender currency is the Hong Kong Dollar (HKD), pegged to the USD, which is the ninth most traded currency worldwide.

The legislative council is the Hong Kong Parliament, which is formed by 60-members, half elected by universal suffrage in geographical circumscriptions, while the other 30 are elected by groups of representatives from different economic and social sectors.

Its public finances are characterized by its sustainability, with no public net debt, continuous government surplus and ample foreign exchange reserves, all supported by rigorous anti-corruption measures.

Hong Kong’s economy is mainly based on financial services, tourism, wholesale and retail trade, and international trade, especially trade between China and the rest of the world. Hong Kong is one of the world’s major financial hub, ranking eleventh worldwide in the volume of banking operations and the Hong Kong Stock Exchange being the second largest capital market in Asia, after the Tokyo Stock Exchange.

Tax treaties

Country Type Date Signed
Ireland DTC  2010-06-22
Belgium DTC  2003-12-10
Austria DTC  2010-05-25
Malta DTC  2011-11-08
Luxembourg DTC  2007-11-02
Malaysia DTC  2012-04-25
Switzerland DTC  2010-10-04
Denmark TIEA 2014-08-22
Greenland TIEA 2014-08-22
France DTC  2010-10-21
Portugal DTC  2011-03-22
Guernsey DTC  2013-03-28
Netherlands DTC  2010-03-22
Norway TIEA 2014-08-22
United Kingdom DTC  2010-06-21
Italy DTC  2013-01-14
China DTC  2003-12-10
Viet nam DTC  2008-12-16
Iceland TIEA 2014-08-22
Jersey DTC  2012-02-15
Brunei Darussalam DTC  2010-07-19
New Zealand DTC  2010-12-01
Indonesia DTC  2010-03-23
Mexico DTC  2012-06-18
Faroe Islands TIEA 2014-08-22
Hungary DTC  2010-05-12
Sweden TIEA 2014-08-22
Qatar DTC  2013-05-13
Liechtenstein DTC  2010-08-12
Kuwait DTC  2010-05-13
Thailand DTC  2005-09-07
Spain DTC  2011-04-01
Japan DTC  2010-11-09
Czech Republic DTC  2011-06-06
Canada DTC  2012-11-11

Tax treaties Map

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Services

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