Taxable income
Hong Kong, SAR
Domestic
For profits tax purposes, a person is taxed on its assessable profits calculated as its income minus applicable deductions. Usually the starting point of the calculation will be the financial statements of the taxpayer adjusted in accordance with the tax legislation. Adjustments can be made for items of income – for example, excluding offshore profits – or items of deductions – for example, adjusting amortization claims.
Income
Generally, assessable profits include only profits arising in or derived from Hong Kong ( ie, profits sourced in Hong Kong) from a trade, profession or business carried on in Hong Kong. Source is a practical, hard matter of fact.
Specific rules may apply to certain types of receipts. For instance, a person in receipt of an amount for the use or right to use certain intellectual properties or movable property is deemed to carry on business in Hong Kong and in receipt of income arising in or derived from Hong Kong. There are also specific rules for income from an intra-group financing business.
On January 1, 2023, the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Ordinance 2022 introduced a refined Foreign Source Income Exemption (FSIE) regime, under which certain foreign-sourced income, including interest, dividend, disposal gain and intellectual property income of a multinational enterprise (MNE) entity may be chargeable to profits tax when it is received in Hong Kong, subject to certain exception requirements such as an economic substance requirement, participation requirement or nexus requirement.
Deductions
Expenses are generally deductible to the extent that they are incurred for the production of assessable profits and are not capital in nature, unless specifically prohibited. There are also specific rules for deductions of an intra-group financing business.
Foreign
There is no special regime for nonresidents. A Hong Kong branch of a foreign corporation is treated the same way as a locally incorporated company and is subject to similar corporate and tax obligations as a resident company.