Taxation
1
Hong Kong Tax
Hong Kong Taxation
Simple taxation system in terms of types
of taxes and administrative procedures
Low tax rates
Territorial Principle
2
Hong Kong Tax
Simple Taxation System
NO sales taxes and VAT
NO capital gains tax
NO estate duties
NO gift tax
NO annual net worth taxes and NO
accumulated earnings taxes on companies
which retain earnings rather than distribute
them.
NO tax on bank interest income
NO tax on dividend income
3
Hong Kong Tax
Simple Taxation System (cont’d)
1. Profits tax
2. Salaries Tax
3. Property Tax
4. Stamp Duties
4
Hong Kong Tax
Administration
Fiscal year : 1 April to next 31 March
NO PAYE
Report only once a year
Simple Tax Returns
5
Hong Kong Tax
Profits Tax
 Territorial Principle
i.e. profits tax is only imposed on a
person/corporation who is carrying on a trade,
professional or business in Hong Kong and has
accrued profits from that trade, business or
profession which are Hong Kong sourced.
 Possibility of ZERO tax
 Resident or not is irrelevant.
6
Hong Kong Tax
Profits Tax (cont’d)
Taxed on Assessable Profits
= accounting profits adjusted by:
Tax free income
Allowable capital expenditure
Depreciation allowances
Tax loss
Non-allowable expenses
7
Hong Kong Tax
Tax Free Income
Offshore profits
Capital gains
Bank interest income
Dividend income
8
Hong Kong Tax
Allowable Capital Expenditure
Prescribed Fixed Assets
Environmental Protection Facilities
Trade mark, design or patent
registration costs
Patent and know-how purchase costs
Scientific research and development
expenditure
Building Refurbishment
9
Hong Kong Tax
Prescribed Fixed Assets
100% Deduction in the year the
expenditure is incurred.
Computer hardware and software
Plant and machinery which are used
specifically and directly for manufacturing
process
10
Hong Kong Tax
Environmental Protection Facilities
Environmental protection machinery or
environmental-friendly vehicle
100% deduction in the year the
expenditure is incurred
Environmental Protection Installation
20% deduction for 5 years
11
Hong Kong Tax
Trade mark, design or patent registration
costs
100% Deduction
Expenses incurred in registering a
trade mark or design, or in registering
or granting a patent incurred if the
trademark, design or patent is used in
a trade in the production of
assessable profits.
deductible in the year the expenditure is
incurred
12
Hong Kong Tax
Patent and know-how purchase costs
100% Deduction
Expenditure incurred by a taxpayer on
the purchase of patent rights or knowhow rights to be used in the production
of assessable profits is deductible
Deductible in the year the expenditure is
incurred
13
Hong Kong Tax
Scientific Research and Development
Expenditure
 100% Deduction on
1) payments made to any approved research institute for
scientific research related to taxpayer’s trade, business
or profession;
2) payments made to any approved research institute, the
object of which is the undertaking of scientific research
related to the trade, business or profession to which
the taxpayer belongs; and
3) expenditure on scientific research related to the
taxpayer's trade, business or professional except
expenditure on land or building
 Deductible in the year the expenditure is incurred
14
Hong Kong Tax
Building Refurbishment
 An annual allowance of 20% of
expenditure incurred on the renovation
or establishment of any building or
structure which is not used for domestic
purposes is granted until the residue of
expenditure is nil.
15
Hong Kong Tax
Depreciation allowances
a) Industrial Buildings or Structures
b) Commercial building allowance
c) Depreciation allowance on plant and
equipment
16
Hong Kong Tax
a) Industrial building Allowances
 An initial allowance of 20% of the qualified
expenditure incurred on the purchase/
construction of an industrial building or
structure is granted in the year the
expenditure is incurred.
An annual allowance of 4% of the qualified
capital expenditure is granted for each of the
subsequent year until the residue
expenditure is nil.
17
Hong Kong Tax
b) Commercial Building or Structures
 An annual allowance of 4% of the
qualified expenditure incurred on the
purchase/ construction of a commercial
building or structure is granted until the
residue of expenditure is nil.
18
Hong Kong Tax
c) Plant and Machinery
 All initial allowance of 60% of expenditure
incurred on the purchase/ construction of other
plant and machinery and office equipment is
granted in the year the expenditure is incurred.
Annual allowances at 10%, 20% or 30% on the
written down value are granted respectively for
each type of plant and machinery for each of
the subsequent year until the residue of
expenditure is nil.
19
Hong Kong Tax
Tax loss
The tax allowable loss can be carried
forward for deduction of future assessable
profits indefinitely
No group relief
20
Hong Kong Tax
Non-allowable Expenses
Domestic or private expenses
Expense not incurred for profit-producing
purposes
Capital expenditure
21
Hong Kong Tax
Profits Tax rates
16.5% on assessable profits of corporations
15% of individuals and partnerships
22
Hong Kong Tax
Territorial Concept
Profits tax is only imposed on a
person/incorporation who is carrying on a
trade, professional or business in Hong
Kong and has accrued profits from that
trade, business or profession which are
Hong Kong sourced.
Possibility of zero tax
resident or not is irrelevant.
23
Hong Kong Tax
Successful Case: Offshore Service Income
Customer
Goods
Client
Supplier
Service
fee
Activities
performed
in overseas
Overseas
24
HK Service
Co.
- Bank A/C
HK
Hong Kong Tax
Activities
performed
in PRC
PRC
Successful Case: Offshore Trading Profit
Goods
Client
Order
$
Overseas
25
HK Trading
Co.
Order
- No staff in HK
- No physical office
in HK
- Registered office
- Bank A/C in HK
HK
Hong Kong Tax
Supplier
$
PRC
Applying Offshore Profits Exemption
Indicate offshore profits in tax return
Onus of proof on taxpayer
Maintain all relevant records of detailed
operations and fund flows
IRD issues letter requesting details of
operation and evidence for sample
transactions
Re-visit every 4 to 5 years
26
Hong Kong Tax
Salaries Tax
 Charged on progress rates from 2% to 17% on net
income after deduction of allowances
 Report to Inland Revenue once a year
- No PAYE system
 Non-Hong Kong visitor, services rendered in Hong Kong
- visits HK <60 days in a fiscal year – NO TAX
- visits HK >=60days in a fiscal year
 non-HK employment – tax on apportionment
basis
 HK employment – fully taxable (unless equivalent
tax has been paid in another territory)
27
Hong Kong Tax
Salaries Tax (cont’d)
Car, boat and holiday home  not taxable
Preferential loan  not taxable
Club benefits  not taxable if corporate
membership
Housing benefit  taxable value limited to 10%
of income
e.g. (1) Income $1M  @ 15%  $150,000
(2) Income $0.5M housing benefit $0.5M
 Taxable income = $0.55M
@ 15% = $82,500
28
Hong Kong Tax
Property Tax
 Property tax is charged on the owner of any land and
buildings which are situated in Hong Kong at a
standard rate of 15% on the net assessable value of the
real estates.
 The net assessable value is arrived at after a standard
deduction of an allowance equals to 20% of the
assessable value, bad debts and rates paid
 If the property is owned by a company, property tax
will be exempt if the rental income is reported under
profits tax where more deductions, such as mortgage
interest can be obtained.
29
Hong Kong Tax
Stamp Duty
Stamp duty is a duty charge on the following
instruments and documents.:Instrument for the sale or lease of immovable
property in Hong Kong, i.e. assignment or sale and
purchase agreement of an immoveable property.
(Sale 1.5% to 4.25%) (Lease 0.5% to 1%)
Instrument for the sale, purchase or other transfer
of Hong Kong stock. (0.1% for sale or purchase)
Hong Kong bearer instruments
Duplicates and counterparts of above
30
Hong Kong Tax
Taxation in China
Taxation system is complex both in terms of
number of taxes and administration
Tax laws and policies are changing all the
time
Since 1 January 2008, almost all benefits for
foreign investors have been abolished
Special tax rates on “economic zones”
e.g. Shenzhen
31
Hong Kong Tax
Taxation in China (cont’d)
 Main Taxes
- VAT 6% - 17%
- Business Tax 5%
- Corporate income tax 25%
- withholding tax on dividend, royalty, interest up
to 20%
- capital gains tax up to 40%
- salaries tax up to 40%
- various local taxes
32
Hong Kong Tax
~END~
Thank you!
Hong Kong Tax
33