Explore Hong Kong’s tax system & tax rates

Investors turn to Hong Kong to establish operations for many reasons. The ease of starting and running a business is a key driver.

Another central determinant is Hong Kong's tax regime - known for its attractive corporate and personal tax rates, tax relief measures, no capital gains tax, single-tier tax system and tax treaties. widespread double taxation convention.

Current tax rate in Hong Kong

Hong Kong is renowned for its low, simple, and efficient tax system, making it an attractive destination for businesses and individuals. Here's an overview of the current tax structure as per the latest guidelines from the Inland Revenue Department (IRD) of Hong Kong.

1. Corporate Tax

Hong Kong's corporate tax rate is one of the most competitive globally:

• Standard Rate: 16.5% on assessable profits for corporations.
• Concessionary Rate: 8.25% on the first HKD 2 million of assessable profits for qualifying small and medium-sized enterprises (SMEs).

2. Value-Added Tax (VAT)

• Exemption: Hong Kong does not impose VAT, goods and services tax (GST), or sales tax.

3. Capital Gains Tax

• Exemption: There is no capital gains tax in Hong Kong.

4. Territorial Tax System

• Principle: Only income derived from or sourced in Hong Kong is subject to taxation. Foreign-sourced income is generally not taxed, which benefits businesses with international operations.

5. Taxation on Shareholder dividends

In Hong Kong, dividends are treated favorably under the tax regime:

• No Withholding Tax on Dividends: Hong Kong does not impose any withholding tax on dividends paid to shareholders, whether they are resident or non-resident. This policy enhances the attractiveness of Hong Kong as a base for holding companies and investment vehicles.
• Dividends Received: Dividends received by Hong Kong residents from foreign corporations are also generally not subject to taxation. This is consistent with the territorial principle, where only Hong Kong-sourced income is taxed.

Hong Kong government annual business reporting requirements

Hong Kong offers a highly competitive tax environment with various incentives designed to support businesses and promote economic growth. Here’s a comprehensive overview of the key tax policies and benefits available for corporations and unincorporated businesses, as well as details on the territorial tax system, tax incentives, and double taxation relief agreements.

Annual Return with Companies Registry (CR):

Companies must file an Annual Return with the Companies Registry, detailing the company’s particulars, including directors, shareholders, and registered office.

Annual Tax Return with the Inland Revenue Department (IRD):

Businesses are required to submit an Annual Tax Return to the Inland Revenue Department, providing information on their income, deductions, and tax liability.

Directors’ Reports and Audited Financial Statements:

Companies must prepare directors’ reports and audited financial statements annually to ensure transparency and accuracy in financial reporting. These documents are essential for maintaining corporate compliance and providing stakeholders with a clear view of the company's financial health.

Corporate Income Tax in Hong Kong

Hong Kong offers a highly competitive tax environment with various incentives designed to support businesses and promote economic growth. Here’s a comprehensive overview of the key tax policies and benefits available for corporations and unincorporated businesses, as well as details on the territorial tax system, tax incentives, and double taxation relief agreements.

1. Start-up Tax Exemption Scheme

For Corporations:

• Initial Tax Rate: 8.25% on the first HKD 2 million of assessable profits.
• Standard Rate: 16.5% on profits exceeding HKD 2 million.

For Unincorporated Businesses:

• Initial Tax Rate: 7.5% on the first HKD 2 million of assessable profits.
• Standard Rate: 15% on profits exceeding HKD 2 million.

2. Territorial Tax System

Hong Kong operates under a territorial basis of taxation, where only profits that arise in or are derived from Hong Kong are subject to profits tax. Generally, profits sourced outside of Hong Kong are not taxable unless they fall under the refined foreign-sourced income exemption (FSIE) regime.

3. Tax Incentives and Deductions

Hong Kong provides various tax incentives and deductions to attract businesses and support specific industries. These include:

• Deductions for research and development expenses.
• Deductions for capital expenditure.
• Exemptions for certain types of income, such as aircraft leasing income, reinsurance income, and fund management income.

4. Double Taxation Relief

Hong Kong has signed comprehensive Double Taxation Agreements (DTAs) with numerous jurisdictions to prevent double taxation of income. These agreements offer relief by either exempting the income from tax in one jurisdiction or allowing a credit for the tax paid in one jurisdiction against the tax payable in the other.

Hong Kong’s tax system, characterized by low rates and straightforward policies, is designed to support businesses and foster economic growth. By understanding the current tax rates, annual reporting requirements, and corporate income tax regulations, businesses can efficiently navigate Hong Kong's tax landscape and capitalize on the numerous benefits it offers.

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