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The territorial principle is the fundamental to the taxation of profit tax in Hong Kong. Thus, the profits which arise in or are derived from Hong Kong are liable to profits tax. Otherwise, you can claim of tax exemption on the ground of “Income not sourced in Hong Kong”. That is, may be treated as offshore sourced and non-taxable in Hong Kong.

Does your company’s income liable to income tax in Hong Kong?

The profits derived by Hong Kong Limited Company may be treated as offshore sourced income and thus exempted from Hong Kong taxation. Here are some examples of various business incomes prepared by Inland Revenue Department (IRD):

Trading Profits

A Hong Kong company negotiates and concludes the terms of the purchase and sale contracts with suppliers and customers outside Hong Kong. And also carries out the relevant operations outside Hong Kong. Then it may be possible to claim that the trading profits so derived are non-taxable in Hong Kong.

Manufacturing Profits

A Hong Kong manufacturing business enters into a contract processing or assembly arrangement with a Mainland entity. And to entity located elsewhere where the arrangement is similar to the one with the Mainland entity. Moreover, the Hong Kong manufacturing business will provide the raw materials, technical know-how, management, training and supervision for the locally recruited labour and so on. Then it may be possible to claim that 50% of the manufacturing profits are not taxable in Hong Kong.

Service Profits

A Hong Kong company provides services partly in Hong Kong and partly outside Hong Kong. It may be possible to claim that part of the service income is attributable to the services rendered outside Hong Kong and therefore not taxable.

Furthermore, if a Hong Kong company appoints overseas agent or service provider to perform services on its behalf outside Hong Kong. It may be possible to claim that the entire service income relating to the services rendered outside Hong Kong is not taxable.

Can you get a green light from IRD?

IRD will examines each case of offshore-sourced income tax exemption claim. So, the samples above we have emphasized the word “possible”. IRD adopts operation test in the matter of facto to determine where the major business profit-making operation take place. That is, the source of profit. Usually, offshore-sourced income must at least fulfill all the following conditions:

• Sufficient Proof of profits not derived from Hong Kong.
• No business activities which produced the relevant profits held in Hong Kong
• No office (no physical office of daily business operation and decision making) in Hong Kong.
• The director(s) stay less than 60 days in Hong Kong during the financial year.

For further information, please contact us.

You may want to read: How to proof my income is offshore-sourced?

Tax Payable

You may have heard Provisional Tax during the tax filing process but didn’t know much about it. After the tax assessment, the taxpayer needs to pay two instalments. Sometimes it is only when the tax is paid that it is discovered that the tax is more than the original tax payable. In fact, it is a provisional tax payment.

What is Provisional Tax?

According to the information of the Inland Revenue Department, Provisional Tax is a government requirement. The tax amount is calculated based on the taxpayer’s income in the previous tax year. And then calculated for 12 months and requires prepayment for the next tax. Part of the tax in the tax year.

When assessing the tax in the coming year, the tax will be deducted from the provisional tax of the current year. If there is still a balance, the provisional tax of that year will be used and offset in the next year of assessment.

Since the first-time tax payer does not have the provisional tax deduction for the previous year. So, you may have to bear the provisional tax for the next tax year.

How to settle a tax bill in Hong Kong?

Inland Revenue Department (IRD) will send you a payment vouchers by letter. Or send you an e-alert if you have registered a e-tax account. Then you can settle the bill either in person or electronic payment.

In Person

Post Offices

You can present the payment voucher and pay your IRD bills or purchase Tax Reserve Certificates at Post Offices by cash, cheque or EPS.

Convenience Stores

You can print the payment voucher barcode, then you can present the voucher and pay tax. For example, at any 7-Eleven Convenience Store, Circle K Convenience Store, VanGO Convenience Store and U select in Hong Kong.

By Post

You can send a crossed cheque to the commissioner of Inland Revenue. And make payable to “The Government of the Hong Kong Special Administrative Region”. Then write the reference number on the back of the cheque.

Electronic Payment

Tax payment accepts all kind of electronic means. You can pay your tax by telephone, Internet or bank Automated Teller Machine (ATM). 

Last but not the least, Hong Kong have so many simple and easy way to pay tax. And paying tax should be paid on or before the due date. If you denied to pay, IRD will take immediate action.

For further information, please contact us.

You may want to read: Tax Paying Form BIR51/BIR52: Using the same envelope to send correspondence for enquiries/claims and the tax return

Hong Kong has a reputation of tax-friendly for decades. As Hong Kong is a Free Trade Port. Tax is low, simple and competitive for tax residents in Hong Kong. If you are going to start a new career or business in Hong Kong, here’s a little tax guide for you.

Direct Tax

Hong Kong only imposes 3-type of direct taxes. That is, Profit Tax, Salaries Tax and Property Tax. In the past few years, Government offers generous allowance and deduction to lower your taxable amount.

2023/24: Hong Kong Tax Residents Salaries tax rate

Here are the salaries tax rates for the period from 1 April 2023 to 31 March 2024:

Do you need to pay Salaries Tax?

Hong Kong observes a territorial basis of taxation; therefore, the concept of tax residents has no significance in determining tax liability, except in limited circumstances.

Your income will be chargeable as below:

• If your income is generated from Hong Kong, including arising in or derived from Hong Kong employment, office and pension.
• Your income from services rendered in Hong Kong during visits of more than 60 days in a tax year.

What kinds of income is taxable?

Employment income

An employee is subject to salaries tax if their employment income is sourced in Hong Kong. Even if you are not usually resident in the territory. Thus, cash emoluments including bonuses and gratuities are taxable income. However, benefits are non-taxable. Unless they are converted into cash. Or specifically relate to holiday travel or the education of a child. Moreover, the provision of accommodation by an employer creates a taxable benefit equal to an amount ranging from 4%-10% of the employee’s other taxable income, depending on the type of accommodation.

Self-employment and business income

Anyone carrying on a profession, trade or business in Hong Kong is subject

to profits tax on income arising in or derived from Hong Kong from that

profession, trade or business.

Directors’ fees

Directors fees derived from a company that has its central management and control in Hong Kong are subject to salaries tax in Hong Kong. Otherwise, directors’ fees are not taxable.

Employer-provided stock options

Employer-provided stock options are generally taxable at the time of exercise. However, for an individual who has non-Hong Kong employment and is taxed on a pro rata basis by reference to the number of days of his or her services in Hong Kong only. That is, part or all of the option gain may be excluded from taxable income. The amount excluded depends on various factors including whether the option is granted conditionally or unconditionally. And, if granted conditionally, the number of days on which the individual performed Hong Kong services during the vesting period.

Taxation of employment-related share awards

Employment-related share awards are generally considered to be perquisites from employment and taxed as part of the remuneration. In general, they become taxable when an employee is entitled to the full economic benefit of the shares awarded. If the employee has a non-Hong Kong employment, proration of the income by reference to the number of days of their services in Hong Kong that is similar to the proration applicable to stock option benefits may also be allowed.

For further information, please contact us.

You may want to read: What to do when I receive a Profit Tax Return?

Simple Tax System

Hong Kong has a simple tax system with low tax rates for businesses and individuals. There is no Capital Gain tax and only have three types of taxes in Hong Kong: Profits tax, Salaries tax and Property tax.

Any other Taxes?

Capital Gain Tax

Hong Kong does not tax capital gains. However, gains on the disposal of assets may be subject to profits tax if the disposal constitutes a transaction in the nature of trade.

Consumption Taxes

Value-added, goods and services, and sales taxes do not apply in Hong Kong.

Estate Taxes

Started from Feb 2006, Hong Kong abolished the Estate Taxes.

Social Security Tax

Hong Kong does not impose any social security taxes. However, employers and employees need to contribute 5% of the salaries or HKD1,500 per month for the Mandatory Provident Fund (MPF) schemes. If the salary is under HKD7,100 per month, then the employee is not required to make contribution. But the employer still has to contribute 5% for the MPF.

Is there any taxes other than Capital Gain tax?

In short, Hong Kong does not have hidden tax, apart from the 3 major taxes, there are Stamp Duties, Custom Duties, Rates and Property tax.

Stamp Duties

Stamp duty imposes on stock transfer. By way of sale and purchase at 0.26% of the consideration per transaction.

Custom Duties

Customs duties are levied on limited categories of dutiable commodities . For examples: tobacco, liquor, methyl alcohol, and hydrocarbons etc. Regardless of whether they are imported or locally manufactured. As far as individuals are concerned, the sale prices includes the duties.

Rates

Rates are an indirect tax levied on properties in Hong Kong. It charged at 5% of the rateable value which is the estimated annual rental value of a property.

Property Tax

Property tax is charged to the owner of any land or buildings (except government and consular properties) in Hong Kong. Nonetheless, the standard rate of 15% on the net assessable value of such land or buildings. On the other hand, net assessable value of a property is the consideration payable to the owner for the right to use the land or buildings less rates paid by the owner and a 20% notional allowance. If the owner is self-using the property, then it is not subject to property tax. Indeed no rent is receivable with respect to that property.

Environmental Taxes

Hong Kong does not exactly have an environmental Taxes, but Plastic Shopping Bag (PSB) charging scheme. Except for plastic bags used for hygiene reasons. All plastic bags are subject to PSB charges. You have to pay $1 for each PSB.

For further information, please contact us.

You may want to read: CAN DONATIONS BE TAX DEDUCTIBLE IN HONG KONG?