Hong Kong

Tax Residence – 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 a 16.5%. A company limited by guarantee for charitable non-profit purposes may apply for Section 88 of the Inland Revenue Ordinance Cap 112 tax exemption status to the Inland Revenue Department.

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 effected or the place where the key activities to generate the profits are carried out.

Withholding taxes - Payments to non-residents on 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 – There is no specific transfer pricing legislation in Hong Kong, but there are a few existing provisions in the Inland Revenue Ordinance (IRO) to tackle non-arm’s-length transactions with non-residents. There are no thin capitalization regulations, nor controlled foreign company rules.

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. Tax credit is usually limited to the amount of tax payable in Hong Kong on the same income.

Offshore 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, offshore business of reinsurance and authorized captive insurances.

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