Overview and detailed analysis of taxation in the Hong Kong Special Administrative Region
The Hong Kong Special Administrative Region, as the world’s third largest financial center, has attracted the attention of many investors with its free trade, low tax rates, and no foreign exchange controls. This article will introduce in detail the main types of taxes and their characteristics in the Hong Kong Special Administrative Region.
Profits tax: territorial principle and two-level tax system
Profits tax, similar to the corporate income tax in the Mainland, is a tax on corporate profits. Hong Kong adopts the territorial principle, which means that only profits originating in Hong Kong are taxed. For corporations (enterprises), the tax rate is 8.25% for profits not exceeding HKD 2 million, and 16.5% for the excess. In addition, there are a number of exemptions and deductions.
Exemptions
- Dividends distributed by corporations that have paid profits tax;
- Taxed profits received from other persons subject to profits tax;
- Tax Reserve Certificate Interest;
- Interest and profits distributed from bonds issued under specific regulations;
- Interest income and profits from long-term debt notes;
- Income from designated investment plans;
- Deposit interest since June 22, 1998 (except financial institutions);
- Starting from the tax year 2009/10, interest and profits on RMB government bonds.
Deductible items
Generally, all expenses incurred in earning assessable profits are deductible.
Non-deductible items
- Household or personal expenses;
- Capital loss or withdrawal;
- Improvement costs;
- Rent or expenses incurred in occupying a building other than for the purpose of producing assessable profits;
- Various taxes (except salaries tax);
- Salary, capital interest, loan interest paid to the proprietor or his spouse.
Salaries tax: personal income tax
Salaries tax is levied on an individual’s income derived from employment or provision of services in Hong Kong. The tax rate adopts a progressive tax rate (maximum 17%) or a standard tax rate of 15%, whichever is lower.
Property tax: based on rental income
Property tax is calculated based on the actual rental income obtained, and the tax rate is 15%. The calculation formula is as follows:
[ text{Property tax} = (text{Annual rental income} – text{Irrecoverable rent} – text{Rates paid by owner}) times (1 – 20%) times 15% ]
Rental income includes but is not limited to actual rent received, service fees, management fees, etc.
Stamp Duty: Stamp Duty
Stamp tax mainly involves two scenarios: company registration and share transfer, with tax rates of 0.1% and 0.2% respectively. After payment is completed, the relevant documents will become legally binding.
For more details, please visit the official website of the Inland Revenue Department of the Hong Kong SAR.
The above content is integrated from the information provided.