A Guide To Hong Kong’s Taxation System

Date published: 2020-11-10   — by Celestine Loh

 

hong kong

Hong Kong has proved itself to be an emerging and thriving business hub with Hong Kong’s realigned taxation system. Taxes are imposed based on a “territorial principle”. This means that if your business income source is outside of Hong Kong, your Hong Kong-based business will be exempted from Hong Kong’s taxes. Additionally, taxes are not imposed on profits that are remitted to Hong Kong from abroad. Therefore, all in all, it is highly attractive to conduct business through Hong Kong,  because of its taxation system.

On the individual level, the same “territorial principle” applies as well. Therefore, the residential address of an employee is not the determinant for whether he will be taxed according to Hong Kong’s taxation system. The tax imposed is determined on the origin of the employee’s income. If it is arising from in or derived from Hong Kong, then it will be taxed according to Hong Kong taxes. 

The taxation calendar starts 1st April and ends 31st March the following year. Hong Kong adopts the Financial Reporting Standards (FRS) framework that builds upon the International Accounting Standards Board (IASB). 

The overall statute governing the taxation system in Hong Kong is the Inland Revenue Ordinance and within this structure, there is its subsidiary legislation, the Inland Revenue Rules that covers the different aspects of taxes. All these are overseen by the Inland Revenue Department which upholds the highest level of integrity and bureaucracy in its management of taxes. 

Individual Taxes*

Income Level (in Hong Kong Dollars)

Tax Rate

1 to 50,000

2%

50,001 to 100,000

6%

100,001 to 150,000

10%

150,001 to 200,000

14%

Above 200,000

17%

* There is a flat 0% tax rate imposed on personal capital gains, income derived from overseas as well as dividends from a Hong Kong-based company.

Company Taxes*

Income Level (in Hong Kong Dollars)

Tax Rate

For Corporations

First $2 million

8.25%

Over $2 million

16.5%

For Unincorporated Businesses

First $2 million

7.5%

Over $2 million

15%

* There is also a flat 0% tax rate on all corporate capital gains, shareholder dividends as well as foreign-sourced income. 

Other Taxes 

Type of Tax

Tax Rate

Property Tax

15%

Estate Tax (Inheritance/ Death Tax)

0%

Stamp Duty Tax

Dependent on the type of documents. Can be fixed duties or ad valorem duties

Hotel Accommodation Tax 

0%

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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READ MORE: A Guide to Singapore’s Taxation System

FURTHER READING: A Guide to Australia’s Taxation System

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