A Guide to Corporate Tax in Hong Kong

Setting up your business in Hong Kong has many advantages, including; it will be close to the Mainland Chinese market, you will have substantial opportunities for innovation and support from the government. These aspects attract entrepreneurs, and therefore, Hong Kong is a preferred location for many global enterprises.

Hong Kong company setup involves all the required paperwork. In addition to that, you cannot escape corporate tax, as it is one of the inevitabilities when starting a company.

In the corporate tax department, Hong Kong has low personal and corporate tax. There are essential Hong Kong taxes you should be aware of when you are establishing your company. The following will guide you to have an inside look at what corporate tax in Hong Kong means.

Corporate Tax Rate In Hong Kong

Since there are no distinctions established between residents and non-residents, a resident can derive profits from abroad without paying tax. On the other hand, a non-resident will have to pay taxes when they have profits from Hong Kong. It is important to note also that no taxes are imposed on profits arising abroad, even though Hong Kong is where they are remitted.

A person who sells a property like a flat in Hong Kong will pay tax on the profits made since the transition is regarded as a business.

As a Business owner in Hong Kong, What Corporate Taxes Must I Pay?

In Hong Kong, every company has to pay taxes on the profits they make. The rate of payment of these taxes is 16.5% of the profits made. If you compare these rates with other areas, it is considerably low. In South Korea, the corporate tax is 22%, and in Japan 31%. The corporate tax in Hong Kong is small enough to attract many company owners worldwide.

Aside from the low corporate tax, company owners in Hong Kong do not pay capital gains tax. When your company gains capital from selling stocks, metals, bonds, and precious metals and property, you will not have to pay tax on these.

Value-added tax is also exempted in addition to sales tax. There is no withholding of tax on dividends, no collection of social security benefits, and on interests that companies get. Local companies’ owners who receive dividends are therefore not obliged to pay taxes on them. Dividends from overseas companies are not subject to tax in Hong Kong because they are offshore businesses.

Individuals Liable For Paying Profit Tax in Hong Kong

The following conditions dictate whether a person is liable to pay profit tax in Hong Kong according to Inland Revenue Ordinance (IRO):

  • If one has a company, trade, business or profession in Hong Kong
  • If the trade, business, company or profession results in earning of profits
  • If these profits arise in Hong Kong

Taxation in Hong Kong is highly based on territorial source principle, meaning companies registered in Hong Kong pay taxes on benefits that come from within Hong Kong. If your company is outside of Hong Kong, then you will not have to pay taxes here.

How To Determine Taxable Profits

Assessable profits determine how you will pay the taxes for your Hong Kong company setup. Assessable profits are net profits or sometimes loss arising from selling of capital for the period they are occurring in Hong Kong.

To determine assessable profits, the following are excluded:

  • Dividends that a company liable to Hong Kong Profits Tax receives
  • Amounts present in the assessable profits of other people liable to pay Profits Tax
  • Interest on Tax Reserve Certificates
  • Profit made and interests on Bonds issued. It may be under Loans Ordinance or Government Bonds or relating to an Exchange Fund Debt instrument.
  • Interest on income and profits from trading gotten from long-term debt instruments
  • Sums received from specific investments schemes by it to the person as:
  1. a) A person chargeable to profits tax that relates to a unit trust, mutual fund or any similar investment schemes which are authorized as a collective investment scheme under section 104 of Securities and Futures Ordinance (Cap. 571) or
  2. b) A person is chargeable to profits tax that relates to a unit trust, mutual fund and any similar investment scheme where the commissioner is satisfied that the mutual fund, investment scheme or unit trust is a widely held investment scheme which is in compliance with requirements of a supervisor or authority within a regulatory regime that is acceptable.

When the filing of Profits Tax returns is due

There are different Profit Tax Returns to file to the Inland Revenue Department for different types of business. Types of businesses in operation can be:

  • Profits Tax Return Corporations (BIR51)
  • Profits Tax Return, Persons Other Than Corporations (BIR52)
  • Profits Tax Return, In Respect of Non-Resident Persons (BIR54)

It is vital for you to remember that profits tax return is to be filed within the first month after the date of issue. The date of submission is usually available on the first page of the Profits Tax Return. Deadlines can be moved to two weeks later from the early deadline if your business is filling electrically. To avoid paying fines or more tax, ensure that you file returns within the deadline provided.

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