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  • Residence and basis for taxation

    Residence is generally not relevant for Hong Kong tax purposes.  Rather, the basis for taxation is whether or not a person carries on a trade or business in Hong Kong. Nevertheless, the concept of residence can be relevant for the purposes of Hong Kong tax treaties as well as certain exemptions (such as the offshore fund profits tax exemption). In such case, Hong Kong would follow the common law tests of residential ties for individuals and management and control for other entities. 

    Domestic

    Hong Kong has a territorial system of taxation without a general definition of income. Generally, only:

    • Profits arising in or derived from Hong Kong from a business carried on in Hong Kong
    • Employment remuneration for services rendered in Hong Kong, and
    • Income from real properties situated in Hong Kong can be subject to tax

    Any other item of income is exempt from tax.

    Foreign

    There is no special regime for non-residents. 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.

     

  • Taxable income

    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.

    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 non-residents. 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.

     

     

  • Tax rates

    Under the 2-tiered profits tax rate regime (effective from April 1, 2018), the profits tax rate for the first HKD2 million of profits of corporations will be lowered to 8.25 percent; profits above that amount will continue to be subject to the normal tax rate of 16.5 percent. The said rates apply on all assessable income with only a few exceptions. The most significant one is the offshore fund profits tax exemption, which exempts most profit of offshore funds carrying on business in Hong Kong. Partial rate exemption (ie, 8.25 percent) applies to items of income such as income from qualifying debt instruments issued in Hong Kong or the onshore business income of professional reinsurance companies. In addition, qualifying corporate treasury centers may enjoy a 50 percent concession (ie, 8.25 percent) on the prevailing rate of normal Hong Kong profits tax (ie, 16.5 percent) on the qualifying profits.

  • Tax compliance

    The year of assessment runs from April 1 to March 31. For profits tax purposes, the basis period is the accounting year of the taxpayer ended in the year of assessment.

    Hong Kong taxpayers are prompted to file tax returns. The Inland Revenue Department (IRD) usually profits tax returns to taxpayers from the first working day of April each year. Note that the bulk issue date of 2019-20 profits tax returns (BIR51, BIR52 or BIR54) was May 4, 2020. In general, a corporate taxpayer is required to complete and file its profits tax return with IRD within 1 month from the date of issuance, but a taxpayer with a tax representative usually has an automatic extension, with reference to the accounting date (eg, an accounting date between April 1, 2019 to November 30, 2019 is extended to June 30, 2020; December 1, 2019 to December 31, 2019 is extended to August 17, 2020; and January 1, 2020 to March 31, 2020 extended to November 16, 2020). If a taxpayer has assessable profits for a tax year, it is required to inform the IRD accordingly if it has not received a tax return.

    A newly incorporated business in Hong Kong usually receives its first profits tax return around 12 to 18 months from the date of commencement of business or the date of incorporation.

  • Alternative minimum tax

    Not applicable for this jurisdiction.

  • Tax holidays, rulings and incentives

    Tax holidays

    Not applicable for this jurisdiction.

    Tax rulings

    Advance rulings are available to taxpayers as a paid service and are subject to certain formalities.

    A taxpayer can voluntarily request for a ruling in specified areas, such as the application of the locality of profits rules or the general anti-avoidance provision, royalty payments, stock borrowing or lending and interest income exemption.

    The normal processing time is 6 weeks, but a complex application can take significantly more time. A ruling is final, but it does not affect the taxpayer's right of objection against a subsequent tax assessment issued in accordance with an unfavorable ruling.

    Tax incentives

    See Tax rates. There will be a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of 2019-20 by 100 percent, subject to a ceiling of HKD20,000 per case. Tax incentives are also available to certain specified areas subject to qualifying conditions, such as interest on and any profit made in respect of Renminbi sovereign bonds, capital expenditure on specified environmental protection facilities, capital expenditure on plant and machinery specifically related to manufacturing, expenditure on computer hardware and software, and expenditure incurred on certain research and development activities.

  • Consolidation

    Although group companies in Hong Kong are permitted to prepare consolidated financials for accounting purposes, Hong Kong does not allow groups of companies to file consolidated profits tax returns. There is no group loss relief (eg, loss consolidation, loss transfer) for taxpayers in group companies.

  • Participation exemption

    Dividends received by a Hong Kong company are not subject to tax, nor are dividends paid by a Hong Kong company to its shareholders, whether or not in Hong Kong.

  • Capital gain

    Hong Kong does not tax capital gains. However, the net gains on transactions deemed speculative may be taxable as a taxpayer's trading income.

  • Distributions

    Dividends distributed by a Hong Kong company to its shareholders are tax exempt. No withholding tax is levied on the distributing Hong Kong company.

  • Loss utilization

    Losses attributable to the operation of the trade, profession or business carried on in Hong Kong can be carried forward indefinitely to offset against future assessable profits until fully utilized. Where a taxpayer carries on multiple trades, profession or businesses in Hong Kong, the losses in one can be utilized against the profits of the other.

    However, losses cannot be carried back to offset against assessable profits in prior basis periods.

  • Tax-free reorganizations

    Ad valorem stamp duty is payable for the transfers or sales of shares or immovable property in a reorganization (see Stamp duty). Stamp duty relief for intra-group reorganization is available subject to certain conditions.

  • Anti-deferral rules

    There is no controlled foreign corporation (CFC) regime in Hong Kong.

  • Foreign tax credits

    A deduction is available for foreign tax paid, on a turnover basis, in respect of profits that are also taxable in Hong Kong. Where Hong Kong has a tax treaty with the other jurisdiction a full credit for tax paid may be available in Hong Kong.

  • Special rules applicable to real property

    Income derived from renting out real properties by owners in Hong Kong is subject to property tax, which is charged at a standard rate of 15 percent of the property's net assessable value. It may be more beneficial for individuals to elect personal assessment, depending on actual income position. A corporation may also seek exception if the relevant rental income has already been included for profit tax assessment. Save for specific exemptions, ad valorem stamp duty is levied on sale or transfer of real properties in Hong Kong.

    In addition, residential property transactions in Hong Kong can attract Stamp Duty, Buyer's Stamp Duty and Special Stamp Duty.

  • Transfer pricing

    The Hong Kong government amended the Inland Revenue Ordinance in July 2018 in order to meet the international standards of transfer pricing developed under the OECD. The main objectives of the amendments are to codify the transfer pricing principles (such as the arm’s length principle), implement certain measures under the Base Erosion and Profit Shifting (BEPS) package and align the existing provisions with international tax requirements. The amendments also cover requirements and exemptions for transfer pricing documentation, including master file, local file and country-by-country report.

  • Withholding tax

    Dividends, royalties, interest, rents, etc 

    Hong Kong does not impose withholding tax on dividends, interests or rents. The only withholding tax is on any payment made to a nonresident for the use of, or the right to use, certain intellectual property in Hong Kong, or outside Hong Kong where the payments are deductible for the taxpayer. The general tax rate is 16.5 percent on the assessable profits. When the payment is derived from an associate and the relevant intellectual property has once been owned by any Hong Kong taxpayer, the assessable profits are deemed to be 100 percent of the payment; in other circumstances, the assessable profits are generally deemed to be 30 percent of the payment. A double taxation arrangement may provide for a lower rate.

    Service fees 

    Not applicable for this jurisdiction.

  • Capital duty, stamp duty and transfer tax

    Hong Kong does not have capital duty.

    For shares transfer or sales of shares, ad valorem stamp duty is payable in respect of contract notes at the rate of 0.2 percent of the consideration or the fair market value of the shares, whichever is higher, and a fixed duty of HKD5 each is payable in respect of the instrument of transfer.

    For sale or transfer of immovable property in Hong Kong, ad valorem stamp duty at applicable rates is payable depending on the type of immovable property being transferred. In addition, residential property transactions in Hong Kong may also attract Buyer's Stamp Duty and Special Stamp Duty.

    For rental of immovable property in Hong Kong, stamp duty is payable at up to 1 percent of the average yearly rent.

    In case of an intra-group transfer, a stamp duty exemption may apply.

  • Employment taxes

    Employment taxes

    Regardless of whether the employees are residents in Hong Kong, employers are not required to withhold tax for employees. The only exception is in the case of a termination and if the employee intends to leave Hong Kong for over 1 month following the cessation of employment; in this case, the employer is required to give IRD a notification of such impending departure and must temporarily withhold all payment due to the employee until IRD issues a "letter of release."

    Pension contributions

    Employers are required to:

    • Withhold 5 percent of their employees' relevant income (capped) as the employees' contributions and
    • Pay an additional 5 percent as their own contributions (capped) to the Mandatory Provident Fund (MPF) scheme or a MPF-exempted Occupational Retirement Scheme.

    Currently, the maximum mandatory contributions of each of the employers’ shares and employees’ shares for such MPF scheme is HKD1,500 (approximately USD200) for employees with a monthly relevant income exceeding HKD30,000 (approximately USD3,870). If the employee's monthly relevant income falls under HKD7,100 (approximately USD915), their monthly contributions to MPF are not required, but the employer's contributions remain the same.

  • Other tax considerations

    Imports into Hong Kong are generally tax-free with few exceptions. No customs or excise duty is levied on exports from Hong Kong.

  • Key contacts
    Anderson Lam
    Anderson Lam
    Partner DLA Piper Hong Kong [email protected] T +852 2103 0722 View bio

Withholding tax

Hong Kong, SAR

Dividends, royalties, interest, rents, etc 

Hong Kong does not impose withholding tax on dividends, interests or rents. The only withholding tax is on any payment made to a nonresident for the use of, or the right to use, certain intellectual property in Hong Kong, or outside Hong Kong where the payments are deductible for the taxpayer. The general tax rate is 16.5 percent on the assessable profits. When the payment is derived from an associate and the relevant intellectual property has once been owned by any Hong Kong taxpayer, the assessable profits are deemed to be 100 percent of the payment; in other circumstances, the assessable profits are generally deemed to be 30 percent of the payment. A double taxation arrangement may provide for a lower rate.

Service fees 

Not applicable for this jurisdiction.