When we talk about Hong Kong we think directly of an offshore territory. But Hong Kong is not an offshore jurisdiction, it is a territory where taxation is low. Income, capital gains and dividends are not taxed, which makes this destination even more attractive to start a business. The relatively low tax rates and favorable tax environment make Hong Kong a more than attractive place to generate income and hold assets.
Tax base in Hong Kong
Il faut savoir que Hong Kong adopte le principe de la source territoriale l’imposition. En d’autres termes, cela signifie que les revenus ne sont imposés que s’ils proviennent ou sont dérivés d’activité commerciales, entreprises ou profession exercées à Hong Kong. L’impôt ne dépend donc pas de la nationalité, du domicile ou de la résidence d’une personne à Hong Kong.
The main taxes in Hong Kong
In Hong Kong, taxes are administered by The Hong Kong Inland Revenue Department.
Only profits, salary income and rental income generated in Hong Kong are taxed. If you do business in Hong Kong, be prepared to pay various taxes:
Tax on profits
The tax on profits received in Hong Kong from the exercise of a trade, business or profession in Hong Kong. This is 16.5% of the profits for companies.
Income tax is payable by all persons receiving income. Income tax is determined either by applying a progressive rate of 2 to 17% to each income bracket, or by imposing a flat rate of 15%.
- From 0 to 40 000 HK$: 2%.
- From 40 000 HK$ to 80 000 HK$ : 7% of the total amount
- From 80 000 HK$ to 120 000 HK$ : 12%.
- Above 120 000 HK$: 17%.
Tax on income from real estate in Hong Kong. Apart from income tax, stamp duty is payable on taxable instruments executing certain transactions. For transfer or sale of a residential property, a special stamp duty may be applicable.
In Hong Kong, the tax year is from April 1 to March 31 of each year.
The absence of taxes in Hong Kong
Many taxes that exist in other jurisdictions do not exist in Hong Kong.
VAT in Hong Kong
The positive thing about Hong Kong is the total absence of VAT! There is no VAT in Hong Kong. Taxes are few and far between but the cost of living is high.
But not only that, there are no taxes on:
- Capital gains transfers;
- No tax on dividends;
- No inheritance tax;
Social security in Hong Kong
It is important to note that no social security tax is payable in Hong Kong. Employers and employees are required to contribute the lesser of 5% of employees’ salaries or HK$1,500 (approximately US$192) per month to approved mandatory pension plans, unless employees are covered by other recognized occupational pension plans.
Double taxation agreements with Hong Kong
As of January 1, 2019, Hong Kong has entered into full DTAs with 38 treaty countries: Austria, Belarus, Belgium, Brunei, Canada, Finland, France, Guernsey, Hungary, India, Indonesia, Ireland, Italy, Japan, Korea, Jersey, Kuwait, Latvia, Liechtenstein, Luxembourg, Mainland China, Malaysia, Malta, Mexico, New Zealand, Netherlands, Pakistan, Portugal, Qatar, Romania, Russia, South Arabia (ratification pending), South Africa, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom, Vietnam, as well as DTAs on air revenue, maritime revenue and air revenue.
Currently, further negotiations are underway with Bahrain, Bangladesh, Cambodia, Cyprus, Estonia, Germany, Israel, Macau, Macedonia, Maldives, Mauritius, Nigeria, Norway and Turkey.
In summary, the territory of Hong Kong offers considerable tax advantages for those who decide to settle there or to develop a business activity. These advantages can be summarized as follows:
- Taxes are extremely low by OECD standards;
- Taxes are levied under the “territorial principle”;
- A number of taxes that exist in most jurisdictions do not exist in Hong Kong.
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