德勤-香港税务小册子（英文）-2020.8-21页_3mb

Hong Kong Tax Guide 2020 Summary

Core Content Overview

This document provides an overview of the tax system in Hong Kong, covering various aspects such as investment basics, taxation for businesses and individuals, transfer pricing rules, anti-avoidance provisions, and other taxes. It aims to inform taxpayers, businesses, and investors about their obligations, tax rates, and available incentives under the Inland Revenue Ordinance (IRO).

Main Types of Tax

Hong Kong imposes three main types of tax:

• Profits Tax: Applied to Hong Kong-source profits of corporations and unincorporated businesses.
• Salaries Tax: Imposed on employment income of individuals.
• Property Tax: Charged on rental income from property located in Hong Kong.

Other taxes include stamp duty, customs and excise duty, betting duty, hotel accommodation tax, and excise duties on specific goods. Value Added Tax (VAT) and sales tax are not applicable in Hong Kong.

Key Characteristics of the Hong Kong Tax System

• Simple Tax System: Minimal compliance requirements.
• Territorial Source Concept: Only income derived from Hong Kong is taxable.
• No Tax on Dividends: Dividends received from foreign companies are not taxable.
• No Withholding Tax on Dividends and Interests: No withholding tax applies to these types of income.
• No Capital Gains Tax: Capital gains are not taxed, unless the disposal of assets is part of a trade.
• No Estate Duty: Abolished in 2006.
• No Consumption or Sales Tax: Hong Kong does not have a value-added tax or consumption tax.

Profits Tax

Persons Chargeable

• Corporations, partnerships, trustees, and bodies of persons carrying on a trade in Hong Kong are subject to profits tax.
• Foreign companies (including branches) are treated similarly to local entities.

Basis of Taxation

• Based on the territorial source concept, only income derived from Hong Kong is taxable.
• The "operations test" is used to determine the source of profits.

Tax Rates

• Two-tiered system:
  • First HKD 2 million of assessable profits: 8.25% (corporations) or 7.5% (unincorporated businesses).
  • Remainder of assessable profits: 16.5% (corporations) or 15% (unincorporated businesses).
• Partnerships with both corporate and non-corporate partners apply the rates based on profit sharing ratios.

Taxable Income

• Includes income from employment, an office, or a pension sourced in Hong Kong.
• Excludes dividends, interests, and capital gains unless they arise from a trade.

Deductions

• Allowable deductions include self-education expenses, home loan interest, MPF contributions, donations, and qualifying health and annuity premiums.

Incentives

• Preferential tax regimes are available for:
  • Research and Development (R&D) expenditure.
  • Onshore and offshore funds.
  • Corporate treasury centers.
  • Reinsurance and captive insurance businesses.
  • Direct insurers and general reinsurers.
  • Aircraft leasing and ship leasing businesses.

Losses

• Tax losses can be carried forward indefinitely.
• Losses cannot be carried back or transferred to other taxpayers.
• Anti-avoidance rules prevent the purchase of loss companies solely for tax benefits.

Foreign Tax Relief

• Double taxation can be avoided through tax credits under tax treaties or unilateral relief if applicable.

Exit Tax

• No capital gains tax on asset disposal unless it is part of a trade.

Salaries Tax

Persons Chargeable

• Individuals who derive Hong Kong-source employment income, including locally employed and expatriates.
• Income from non-Hong Kong employment is taxable if attributable to services in Hong Kong.

Basis of Taxation

• Based on the territorial source concept.
• Income from employment, an office, or a pension is taxable if sourced in Hong Kong.

Tax Rates

• Progressive rates apply to net chargeable income:
  • Up to HKD 50,000: 2%
  • HKD 50,001–100,000: 6%
  • HKD 100,001–150,000: 10%
  • HKD 150,001–200,000: 14%
  • Over HKD 200,000: 17%
• The standard rate is capped at 15% for income without allowances.

Taxable Income

• Includes salaries, wages, director’s fees, bonuses, allowances, and other employment benefits.
• Excludes dividends, interests, and capital gains unless from share options or fringe benefits.

Allowances

• Allowances reduce taxable income before applying tax rates:
  • Basic allowance (single person): HKD 132,000
  • Married person’s allowance: HKD 264,000
  • Single parent allowance: HKD 132,000
  • Child allowance (1st–9th child): HKD 120,000
  • Dependent parents/grandparents (aged 60+): HKD 50,000; (55–59): HKD 25,000

Housing Benefit

• Rent-free residence provided by employer or associates is taxed at 10% of income, with exceptions for hotel and hostel accommodation.

Foreign Tax Relief

• Unilateral relief may be available for foreign taxes similar to salaries tax.
• Tax credits under treaties may be used for double taxation.

Compliance Requirements

Profits Tax

• Tax Year: April 1 to March 31.
• Filing: Annual returns must be submitted within one month of issuance.
• Payment: Two instalments are typically required.
• Penalties: Apply for non-compliance with filing and payment obligations.
• Advance Rulings: Available for tax-related queries.
• Consolidated Returns: Not allowed.

Salaries Tax

• Tax Year: April 1 to March 31.
• Filing: Individual returns are issued in May and must be filed within one month.
• Payment: Two instalments, with the first due in January or February and the second in April.
• Penalties: Apply for non-compliance.
• Joint Assessment: Married couples may file jointly.

Transfer Pricing Rules

• Follow OECD guidelines.
• Require transactions with related parties to be on arm’s length basis.
• Allow the IRD to adjust profits or losses if the actual terms differ from those of independent parties.
• Documentation Requirements:
  • Master file
  • Local file
  • Country-by-country (CbC) reporting
• APA Regime: Includes unilateral, bilateral, and multilateral advance pricing agreements.

Anti-Avoidance Rules

• General Anti-Avoidance Provisions: Apply to artificial or fictitious transactions, those with the sole purpose of tax benefits, and use of tax loss companies.
• Specific Provisions: Apply under various preferential tax regimes to prevent abuse.

Other Taxes / Levies

• Property Tax: 15% of net assessable value, less 20% for repairs and maintenance.
• Stamp Duty: Applies to lease, sale, or transfer of immovable property and Hong Kong shares.
  • Shares: 0.2% (0.1% for each note).
  • Leases: 0.25% for one-year terms; 0.5% and 1% for longer terms.
  • Property transfers: AVD up to 8.5% for non-residential; 15% flat rate for residential, with exceptions.
  • SSD (5%–20%) applies to residential property sold within 36 months.
• Betting Duty: 25%–74.5% on certain betting events; winners of cash prizes are exempt.
• Hotel Accommodation Tax: 0% since July 2008.
• Customs and Excise Duty: Applies to liquors, tobacco, hydrocarbon oil, and methyl alcohol.
• Social Security Contributions: 5% of relevant income for both employer and employee, subject to minimum and maximum levels.

Summary of Key Information

Tax Type	Key Features
Profits Tax	Territorial, two-tiered rates, no capital gains tax, no estate duty
Salaries Tax	Territorial, progressive rates, exemptions for certain benefits
Property Tax	15% on net assessable value, with deductions for repairs and maintenance
Stamp Duty	On property and share transfers, with varying rates depending on the type
Betting Duty	On specific betting events, with high rates and exemptions for cash prizes
Transfer Pricing	OECD-based, requires arm’s length terms, documentation, and APA regime
Anti-Avoidance Rules	Prevents abuse of tax regimes, including use of tax loss companies
Other Taxes	Customs and excise duties, no VAT, no sales tax, and social security payments