February 2020 / Hong Kong

February 10 2020

Hong Kong – Country Key Features

A. Direct taxation: Companies

1. Resident companies
Residence Hong Kong operates a territorial tax system and the concept of residence is irrelevant for the determination of tax liability. However, for the purpose of a tax arrangement (treaty), a company is a resident if it is incorporated in Hong Kong or it is incorporated outside Hong Kong but normally managed or controlled in Hong Kong
Tax base Territorial
Corporate tax rates 8.25% (for the first HKD 2 million of corporate profits); 16.5% (for profits exceeding HKD 2 million)
Alternative minimum tax No
Capital gains No
Loss carry-forward Yes, indefinitely
Loss carry-back No
Unilateral double taxation relief Yes

2. Non-resident companies
Corporate tax rates 8.25% (for the first HKD 2 million of corporate profits); 16.5% (for profits exceeding HKD 2 million)
Capital gains on sale of shares in resident companies No
Capital gains on sale of immovable property Profits tax is charged on gains from disposal of immovable properties in the nature of trading adventure

Withholding tax rates
Branch profits No
Dividends No
Interest No
Royalties 4.95% (16.5% on 30% of profits)
Fees (technical) No
Fees (management) No

3. Specific issues
Participation relief Dividends are exempt from taxation
Group treatment No
Incentives High value manufacturing Qualifying debt instruments Qualifying reinsurance business Qualifying R&D expenditures Offshore mutual funds Offshore private equity funds

Anti-avoidance
Transfer pricing legislation Yes
Thin capitalization legislation No
Controlled foreign company legislation No
General anti-avoidance rule (GAAR) Yes
Other anti-avoidance legislation No

B. Direct taxation: Individuals

1. Resident individuals
Residence A resident is a person who ordinarily resides in Hong Kong (permanent resident), or stays in Hong Kong for a total period(s) of at least 180 days during a year of assessment and not less than 300 days in a year of assessment and the year immediately before or after (temporary resident)
Taxable income Individuals are subject to salaries tax on all income arising in or derived from Hong Kong from any office or employment and pension
Income tax rates Progressive Top rate 17% (income over HKD 200,000) Sole proprietors or partners of a business and property owners who receive rental income: 15%
Alternative minimum tax No
Capital gains No
Unilateral double taxation relief Yes
Social security contributions Employees who are covered by the Mandatory Provident Fund (MPF) System are required to make regular mandatory contributions, calculated at 5% of the employee’s relevant income. Self-employed persons are required to contribute 5% of income

2. Non-resident individuals
Income tax rates Progressive Top rate 17% (income over HKD 200,000)
Capital gains on sale of shares in resident companies No
Capital gains on sale of immovable property Profits tax is charged on the gains from disposal of immovable properties in the nature of trading adventure

Withholding tax rates
Employment income Salaries tax is levied on a provisional basis
Dividends No
Interest No
Royalties 4.95% (16.5% on 30% of profits)
Fees (technical) No
Fees (directors) No

C. Indirect taxation: Value added tax (VAT)/Goods and services tax (GST)
Taxable events No
VAT/GST (standard) No
VAT/GST (reduced) No
VAT/GST (increased) No
Registration/deregistration threshold No
VAT group No

D. Other taxes
Inheritance and gift taxes No
Net wealth tax (individual) No
Net wealth tax (corporate) No
Real estate taxes 15% (charged on income derived from the property)
Capital duty No
Transfer tax No
Stamp duty Yes, on documents evidencing transactions in respect of stocks and bearer instruments: fixed duties vary from HKD 5 to HKD 1,500,000, whereas ad valorem duties range from 0.1% to 20% A flat rate of 15% applies to residential property transactions since 4 November 2016 unless the transactions are exempt Which an ad valorem stamp duty (AVD) at a flat rate of 15% chargeable on residential property transactions has been introduced Special stamp duty (SSD) is levied on residential properties of all values acquired on or after 20 November 2010 and resold within 24 months after acquisition, in addition to the current ad valorem stamp duty Buyer’s stamp duty (BSD) is levied on all residential properties acquired on or after 27 October 2012 by any person (including enterprises) except a Hong Kong permanent resident (HKPR) (15%, in addition to the existing stamp duty and the SSD if applicable)
Excise duties Excise duties levied on liquor, tobacco and related products, hydrocarbon oil, methyl alcohol, etc
Other main taxes Betting duty

E. General information
Sources of tax law Inland Revenue Ordinance Stamp Duty Ordinance Tax Reserve Certificates Ordinance Business Registration Ordinance
Main types of business entities Private limited company, branch, subsidiary or representative office Sole proprietorship, partnership
Accounting principles Hong Kong Financial Reporting Standards
Currency Hong Kong dollar (HKD)
Foreign exchange control No
Official websites Hong Kong Inland Revenue Department
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February 26 2020

Budget for 2020/21 – tax measures proposed

The Budget for 2020/21 was presented to the Legislative Council by the Financial Secretary on 26 February 2020. The tax measures proposed require legislative amendments before implementation. Once enacted, the amendments will apply from 1 April 2020. The highlights of the proposal are as follows:
  • a one-off reduction of 100% of profits tax, salaries tax and tax under personal assessment for the year of assessment 2019/20, subject to a maximum of HKD 20,000 per case; and
  • a waiver of business registration fees for 2020/21.
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