Hong Kong’s low tax rate and simple tax system are very attractive to mainland investors. Hong Kong levies tax on a geographical basis and only taxes profits and income from Hong Kong. Unlike the situation in the Mainland, Hong Kong has no value-added tax and business tax. The main direct taxes are profits tax (corporate income tax), salary tax (personal income tax) and property tax. The Inland Revenue Department is responsible for tax matters in Hong Kong. The tax bureau sends tax payment notices every year, and data such as profits tax and salary tax must be submitted by yourself before the specified deadline. The above taxes only need to be filed once a year.
Profits tax (corporate income tax)
Hong Kong only levies profits tax on profits derived from or derived from Hong Kong in various industries, professions or businesses. The tax rate is based on the corporate or non-corporate person's tax rate: the corporate tax rate is 16.5%, and the non-corporate person's tax rate is 15%.
Dividends paid by a company are not subject to withholding tax. Dividends received by companies are also exempt from profits tax, and capital gains tax is not levied in Hong Kong.
Interest income from deposits deposited by businesses and individuals (except financial institutions) in recognized banks is exempt from income tax.
Losses can be carried forward indefinitely for tax deductions.
Lose tax exemption system
For capital expenditures incurred in the construction of industrial buildings and buildings, 20% of the expenditure is tax-free in the year of expenditure, and every year thereafter 4% tax exemption; commercial buildings also enjoy a 4% annual depreciation tax exemption.
Capital expenditures incurred for redecorating and decorating buildings and structures will be deducted in equal installments over five years.
If held by the end user, 100% of the expenditures on manufacturing-related plant and machinery, computer hardware, software and development costs can be deducted in real time.
Other tax-deductible items
These items include interest on borrowed funds, rent of buildings and occupied land, employee wages, bad debts, trademark and patent registration fees, scientific research expenditures, , and employee retirement plan contributions, etc.
Salaries tax (personal income tax) and property tax
Income from any office or employment in Hong Kong is subject to salaries tax. Income subject to tax includes commissions, bonuses, gratuities, allowances (including education allowances) and other perquisites. Income and any salary derived from services rendered in Hong Kong are also taxable. The tax payable increases on a sliding scale from 2% to 17%. However, each taxpayer will not be required to pay more than 15% of their total income. In addition, mainland residents who stay in Hong Kong for no more than 183 days in any year of assessment are exempt from paying salaries tax.
Property tax
The property tax rate is uniformly 16% of the receivable rent (excluding rates) minus the repair and maintenance allowance of 20%. However, once the company pays income tax on the rental income, it is not required to pay property tax.
Double Taxation Agreement
Hong Kong has signed a comprehensive double taxation agreement with the Mainland. According to the "Arrangement on the Avoidance of Double Taxation on Income between Mainland China and the Hong Kong Special Administrative Region", if a mainland resident obtains remuneration from employment activities in Hong Kong, he must pay salaries tax in Hong Kong. However, if the following three conditions are met, the person must pay salaries tax in Hong Kong. The income is exempt from salaries tax:
(1) The continuous or cumulative stay in Hong Kong does not exceed 183 days in the calendar year;
(2) The remuneration is not paid by the Hong Kong employer or its representative;
(3) The remuneration is not borne by the employer’s permanent establishment or fixed base in Hong Kong.
If a Mainland resident conducts construction sites, construction, assembly or installation projects, or other related supervision and management activities in Hong Kong, and operates continuously in Hong Kong for more than six months, he or she will be deemed to have established a business in Hong Kong. With a permanent establishment, profits earned are subject to profits tax. If the project continues to be operated in Hong Kong for no more than six months, the profits earned will not be taxed in Hong Kong. For Mainland residents employed in these projects, if their wages, salaries or other remuneration are paid and borne by a permanent establishment in Hong Kong, the exemption condition of "staying not more than 183 days" does not apply to them. All remuneration received is subject to salary tax.
The amount of tax paid in the Hong Kong Special Administrative Region by Mainland residents on income derived from the Hong Kong Special Administrative Region in accordance with the provisions of this arrangement is allowed to be deducted from the Mainland tax levied on the resident.
However, the amount of deduction shall not exceed the amount of Mainland tax calculated in accordance with Mainland tax laws and regulations on this income