Introduction
Hong Kong is globally recognized for its straightforward and low tax regime, making it an ideal location for entrepreneurs and business enterprises. This article highlights key aspects of the Hong Kong tax system, providing insights into corporate and personal tax rates, the territorial tax principle, and various tax incentives available.
Why Choose Hong Kong for Business?
Hong Kong offers numerous advantages for company formation, including:
Ease of setting up and operating a business
Strategic proximity to mainland China
Highly attractive tax regime with low personal and corporate tax rates
No capital gains tax, value-added tax (VAT), sales tax, or withholding tax on dividends and interest
No social security benefits collection requirement
Corporate Tax Rates in Hong Kong
Hong Kong's corporate tax system includes two options: the Single-Tier Corporate Tax System and the Two-Tier Profits Tax Regime, effective from the Year of Assessment 2018/19.
Single-Tier Corporate Tax System:
Corporations: 16.5% on assessable profits
Unincorporated businesses: 15%
Two-Tier Profits Tax Regime:
First HK$2 million of profits:
Corporations: 8.25%
Unincorporated businesses: 7.5%
Profits over HK$2 million:
Corporations: 16.5%
Unincorporated businesses: 15%
Income Bracket | Corporations | Unincorporated Businesses |
First HK$2 million | 8.25% | 7.5% |
Over HK$2 million | 16.5% | 15% |
Personal Tax Rates in Hong Kong
Individual income tax in Hong Kong is progressive, with rates as follows:
Net Chargeable Income (HKD) | Tax Rate |
1 – 50,000 | 2% |
50,001 – 100,000 | 6% |
100,001 – 150,000 | 10% |
150,001 – 200,000 | 14% |
Above 200,000 | 17% |
Key Points:
No tax on capital gains
No tax on overseas income
No tax on dividends from Hong Kong companies
Hong Kong's Tax System and Tax Incentives
Hong Kong offers a range of tax incentives to encourage investment and business growth, including:
Profits tax exemption for eligible onshore and offshore funds
100% write-off for new expenditure on manufacturing-related plant and machinery, and on computer hardware and software
5-year write-off for capital expenditure on business premises renovation
Tax concessions for mutual funds and trusts
Tax exemption for interest derived from deposits in authorized institutions
100% deduction for capital expenditure on environmental protection machinery and vehicles
Concessionary tax rates for qualifying debt instruments, corporate treasury centers, and certain insurance and aircraft leasing activities
Additional Tax Information
Currency: The Hong Kong Dollar (HKD) is closely pegged to the US Dollar at approximately 1 USD = 7.8 HKD.
Foreign Exchange Control: No foreign exchange controls are in place.
Territorial Principle: Taxes are levied only on income derived from or arising in Hong Kong. Income sourced outside Hong Kong is not taxed, even if remitted to Hong Kong.
Corporate Tax: Two options for profit tax rates (Single-Tier and Two-Tier).
Capital Gains Tax: No capital gains tax; capital loss expenses are not deductible.
Dividend Tax: Dividend income, whether from Hong Kong or overseas, is not taxable.
Personal Tax: Individuals are taxed at progressive rates on their net chargeable income.
Withholding Tax: No withholding taxes on dividends and interest; applicable to royalties and fees for non-resident entertainers or sportsmen.
Value Added Tax (VAT): No VAT or sales tax.
Double Tax Treaties: Hong Kong has a network of 37 double tax treaties to minimize double taxation.
Accounting Standards: Adopts Financial Reporting Standards (FRS) based on International Financial Reporting Standards (IFRS).
Tax Year: Runs from April 1 to March 31.
Property Tax: Charged at 15% on the net assessable value of property.
Estate Duty: Abolished since February 10, 2006.
Stamp Duty: Charged on certain documents related to stock and shares and immovable property.
Customs and Excise Duty: No tariffs on general imports; duties on specific items like liquors, tobacco, hydrocarbon oil, and methyl alcohol.
Hotel Accommodation Tax (HAT): Waived since July 1, 2008.
Governing Authority
The Inland Revenue Department (IRD) oversees tax collection in Hong Kong, guided by the Inland Revenue Ordinance (IRO) and other relevant laws. The Commissioner of Inland Revenue is responsible for administering various ordinances related to taxes, including betting duty, business registration, and hotel accommodation tax.
Conclusion
The IRO was first enacted in 1947, based on the UK's legislative framework for its colonies. Although initially intended as a temporary measure, the tax system has largely remained unchanged, with significant reforms introduced in response to the evolving economic landscape and public feedback.
Hong Kong's tax system is designed to support business growth and competitiveness, making it a preferred destination for global entrepreneurs and investors.
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