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HK Tax

Why HK?

Advantages of having a Hong Kong Company

 

  • Low and simple Tax System: One of the lowest tax rates in the world with no capital gains tax or VAT. The profits Tax is taxed is capped at 16,5%. A territorial Tax system, which only taxes Hong Kong source income.

 

  • No restriction on capital flows and exchange control: It is easy to open the bank account in Hong Kong and the banks in Hong Kong can provide the multi-currency (USD, EUR, , etc) accounts. There are no restrictions on capital flows into and out of Hong Kong and no exchange controls in Hong Kong.

 

  • Gateway to Asia: Strategically located in the crossroads of the region, Hong Kong offers a gateway to the Chinese market with a unique relationship with PRC and the region. Also is a free port and does not levy any Customs tariff on imports and exports.

 

  • Excellent business environment: As a Special Administrative Region, Hong Kong has its own independent political, economic and judicial systems. The one country, two systems policy between China and Hong Kong ensures the rule of Law is adhere to.

 

 

  • Strong Network of Double Taxation Agreements: It provides clarity on taxation rights and obligations and allowing for lower withholding taxes and planning opportunities 

 

 

  • Leading International Financial Centre

Tax Compliance 

​There are different types of tax returns and both Company and Employee need to report their tax liabilities on the appropriate one(s).

Profits Tax (Tax Rate Applicable to Corporations): 

Two-tiered Profits Tax rates:
First $2 million of assessable profits: 8.25%
Assessable profits above $2 million: 16.5%
(All entities with profits chargeable to Profits Tax in Hong Kong would qualify for the two-tiered profits tax rates, except those with a connected entity which is nominated to be chargeable at the two-tiered rates).


Salaries Tax (Tax Rate Applicable to Individuals): It will be calculated at Progressive Rate or Standard Rate, whichever is lower:

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1. Progressive Rate on your net chargeable income (i.e. income after deductions and allowances)
First HK$50,000 - 2%
Next HK$50,000 - 6%
Next HK$50,000 - 10%
Next HK$50,000 - 14%
Remainder - 17%

2. Standard Rate on your net income (before deduction of the allowances): 15%
All entities with profits chargeable to Profits Tax in Hong Kong would qualify for the two-tiered profits tax rates, except those with a connected entity which is nominated to be chargeable at the two-tiered rates

Frequently Asked Questions (FAQ) for accounting and audit of Hong Kong Companies

·Do I need to audit the accounts if my Hong Kong company is inactive or the turnover is small?

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According to Companies Ordinance, a company is required to perform the audit and present the audit report to its AGM annually regardless of amount of the profit or inactive status of the company.

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·How does the IRD decide whether a company is carrying on a business in Hong Kong?

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In consideration of whether a company is carrying on a business in Hong Kong, the IRD would apply "Six Badges of Trade" as follows:
i) Profit-seeking motive at the time of acquisition
ii) Subject matter of the commodity disposed
iii) Length of ownership
iv) Frequency of similar transaction
v) Supplementary work done on the property
vi) Circumstances leading to the disposal

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·How should I choose the year-ended date of my company?

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Companies Ordinance does NOT restrict the year-ended date of a company. In other words, the directors are free to determine the year-ended date. Normally, most of the companies in Hong Kong choose either 31March or 31 December as their year-ended date.

 

·In which case will Hong Kong company be exempt from Profits Tax?

 

If one of the following conditions is satisfied, the company is not subject to Hong Kong profits tax
i) the company does NOT carry on a trade, a profession or a business in Hong Kong
ii) there is NO profits arising in or derived from such a trade, a profession or a business
iii) the profits are NOT arising in or derived from Hong Kong

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·How does the IRD decide whether a company's profits arise in or are derived from Hong Kong?

 

The IRD determines whether the company's profits arise in or are derived from Hong Kong by looking at where the operations of the company takes place in order to generate the profit. If the operation of company takes place in Hong Kong, then the relevant profit would be subject to Hong Kong profits tax and vice versa.

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·As companies in Hong Kong, what is the scope of charge?

 

The Hong Kong tax system is based on the territorial concept. According to section 14 of Inland Revenue Ordinance (IRO), profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession, or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong.

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·What's the tax obligation of a Hong Kong company?

 

A Hong Kong company is liable for profits tax if certain conditions are fulfilled as stated in Inland Revenue Ordinance (Chapter 112).

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·When should a limited company submit the Profit Tax Return once incorporated?

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Generally, profits tax return and any required supplementary forms should be filed within 1 month from the date of issue. The compliance date of submission is specified on page 1 of the profits tax return. In case of newly incorporated company, the IRD usually allows the tax payer to spend more time preparing the profits tax return and any required supplementary forms, which should be filed within 3 months from the date of issue.Block Extension Scheme may be applied to certain companies whose conditions fit the requirement stated by the IRD. For details, please consult your Relationship Manager.

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