Taxation in Hong Kong
The attractiveness of Hong Kong for modern entrepreneurs is largely due to the loyalty and simplicity of its tax system. The lowest corporate tax rate among major Asian economies (16.5%), combined with the absence of sales tax, VAT and capital gains tax, allows local companies to significantly reduce costs and thereby increase their efficiency.
Profits tax
The tax is levied on the income of both residents and non-residents. Tax is levied on trading, business and professional activities in Hong Kong. Income earned outside of Hong Kong is generally not subject to this tax.
If a financial company operating in this jurisdiction receives interest income from foreign sources, such income is treated as taxable in Hong Kong. The tax year starts on April 1st and ends on March 31st.
The income tax rate for companies for 2016/2017 (year ending March 31, 2017) is 16.5%.
The following non-resident income is considered income from trade, business and professional activities in Hong Kong:
- royalties received from the screening or use in Hong Kong of cinematographic or television films or tapes, any sound recordings or promotional materials associated with such film, tape or recording;
- royalties receivable for the use or right to use in Hong Kong a patent, design, trademark, copyright, formula or other property of a similar nature;
- royalties received for the use or the right to use outside Hong Kong of a patent, design, trademark, copyright, formula or other property of a similar nature, if the recipient of such payments has claimed a tax deduction in Hong Kong;
- amounts received or accrued in respect of hire, lease or similar fees for the use of movable property in Hong Kong.
Property tax
Charged at a standard rate of 15% on the net assessed value of any land or building in Hong Kong. Net appraised value is the rent paid to the owner of the land or property after deducting the following amounts:
- unpaid rent;
- government fees paid by the owner;
- 20% of the appraised value after deducting (a) and (b).
- Any building used as a residence by the owner is exempt from the tax.
Stamp Duty
Applies only to the following categories of transactions:
- contracts for shares and exchange-traded securities of Hong Kong;
- transfer of real estate;
- renting and transferring the right to lease property in Hong Kong;
- insurance of bearer financial documents.
Transactions in Hong Kong shares or exchange-traded securities are subject to a transaction price fee of HKD 2 per HKD 1,000, payable equally by the buyer and seller. There is no stamp duty on the transfer of shares or units of all ETFs.
The state duty for the transfer of immovable property is charged at the following rates:
| Selling Value (HKD) | State duty rates |
|---|---|
| 1 – 2 000 000 | 1,5% |
| 2 000 001 – 2 176 470 | HKD 30,000 + 20% over HKD 2 million |
| 2 176 471 – 3 000 000 | 3% |
| 3 000 001 – 3 290 330 | HKD 90,000 + 20% over HKD 3 million |
| 3 290 331 – 4 000 000 | 4,5% |
| 4 000 001 – 4 428 580 | HKD 180,000 + 20% over HKD 4 million |
| 4 428 581 – 6 000 000 | 6% |
| 6 000 001 – 6 720 000 | HKD 360,000 + 20% over HKD 6 million |
| 6 720 001 – 20 000 000 | 7,5% |
| 20 000 001 – 21 739 130 | HKD 1,500,000 + 20% over HKD 20 million |
| 21 739 131 or more | 8,5% |
Special State Duty (Special Stamp Duty)
Beginning November 20, 2010, any residential property purchased by an individual or entity (regardless of where it was registered) and resold within 24 months (if the property was acquired between November 20, 2010 and October 27, 2012) or 36 months (if the property was acquired on or after October 27, 2012), is subject to a special state duty.
The amount of the special duty is calculated taking into account the declared or market value of the property (whichever is higher) at rates established depending on the period of ownership of the seller / transferor of the property before the sale:
| Period of ownership | The property was purchased between November 20, 2010 and October 27, 2012 | The property was purchased on or after October 27, 2012 |
|---|---|---|
| 6 months or less | 15% | 20% |
| 6 – 12 months | 10% | 15% |
| 12 – 24 months | 5% | 10% |
| 24 – 36 months | - | 10% |
Buyer’s Stamp Duty
This obligation is valid from October 27, 2012 (except in cases of exemption). The purchase duty is charged under a contract of sale or when transferring rights to real estate, when acquiring any residential real estate.
A purchase tax is charged at 15% of the declared consideration or the market value of the property (whichever is greater) in addition to the existing stamp duty and special stamp duty, if applicable.
Employer contributions
The Mandatory Provident Fund (MPF) is a privately managed retirement system under the prudential regulation and oversight of the Insurance Funds Authority in Hong Kong. All employees and self-employed individuals between the ages of 18 and 65, except those in certain categories, must join the MPF scheme. The contributions required from employees and employers are shown in the table below:
| Employee income (per month) | Employer contribution | Employee Contribution |
|---|---|---|
| до 7 100 HKD | 5% | at your own discretion |
| 7 100 – 30 000 HKD | 5% | 5% |
| over 30,000 HKD | 51,500 HKD (5% of 30,000), the balance is up to you | HKD 1,500 (5% of 30,000), balance is up to you |
Withholding tax
Royalties and license fees paid to non-residents for the use of certain intellectual property in Hong Kong, as well as payments to non-residents or athletes for their work for commercial purposes or events in Hong Kong, are subject to withholding tax of 16.5% on their assessed profits.
There are no withholding taxes on dividends and interest.
Estate Duty
The value of immovable property in Hong Kong transferred after death is currently exempt from tax. The inheritance tax obligation has been abolished since February 11, 2006 in accordance with the 2005 Government Decree.
Hong Kong does not levy the following types of taxes: VAT/sales tax, capital gains tax, collateral tax, payments and benefits from the employer on behalf of the employee, local taxes.
Tax avoidance provisions in Hong Kong
Hong Kong has two general tax avoidance provisions that allow the tax authorities to ignore:
- transactions that reduce or result in a reduction in the amount of tax payable by any person if the tax authority considers that the transaction is artificial or fictitious;
- alienation, which actually did not take place.
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In addition, the competent authority of Hong Kong (Inland Revenue) before issuing a Tax Residence Certificate requires a certain level of actual presence of a company in the territory of the country, both for companies incorporated in Hong Kong and for companies incorporated outside of it, in order to enable them to demand payment under contracts concluded in Hong Kong. Before issuing a Certificate, the Internal Revenue Service must also verify that the recipient of the relevant income is its beneficial owner.
