Hong Kong is one of the most tax-friendly jurisdictions in the world, for both individuals and companies.
Corporate Tax in Hong Kong
From 1 April 2018, Hong Kong has introduced a two-tier profit tax regime, i.e., there are two tax rates: one for profits till HK$ 2 million, and the other beyond that.
- For a normal company operating in Hong Kong, the corporate tax is 8.25% for profits to HK$ 2 million, and 16.5% above that
- For an unincorporated company type (sole proprietorship or partnership), the corresponding tax rates are 7.5% and 15%, respectively
The tax assessment period is April 1 to March 31 every year.
It’s to be noted that this tax is levied on a company carrying out business in Hong Kong – on profits derived from within the country. Thus, profits that have a foreign source (offshore profits) do not fall within the territorial scope of Hong Kong’s taxation system, including those obtained by locally incorporated companies.
What Is Not Taxed
The following taxes are not charged in Hong Kong:
- VAT or sales tax
- Real estate tax
- Capital gains tax
- Tax on dividends
- Withholding tax (i.e., tax on interest or dividends paid to a person residing outside Hong Kong)
- Tax on income derived from abroad
Tax Incentives in Hong Kong
The following tax incentives are available for eligible onshore and offshore companies in Hong Kong:
- 100% tax deduction on capital expenditure towards environment-friendly automobiles and ecology-restoration machinery
- 100% exemption on new expenses towards plant and machinery, specifically related to manufacturing – to promote high-value manufacturing businesses
- 5-year exemption on capital expenditure for the renovation of corporate property
- Special waivers for trusts and mutual funds
How to File Corporate Tax in Hong Kong
All eligible companies are required to submit the following documents to the Inland Revenue Department (IRD) in Hong Kong for the assessment period 1 April to 31 March every year:
- Profits tax return form
- Certified copy of balance sheet, auditor’s report and P&L statement
- A supplementary form for financial data, tax information, etc.
- Tax computation showing how the assessable profit (or adjusted loss) has been calculated
Companies whose gross total profit doesn’t exceed HK$ 0.5 million for the tax assessment duration nee to submit only the profits tax return form and the supplementary form.
Taxation for Offshore Companies in Hong Kong
An offshore company in Hong Kong can carry out its operations only outside the country and, since there are no taxes on income derived from outside Hong Kong (owing to territorial tax system here), there is no corporate tax for an offshore company in Hong Kong. However, a company subject to global taxes are required to report its income to its respective government.
Besides being one of the top countries in Asia to set up your business, Hong Kong features a lenient tax regime, making it one of the most preferred locations for foreigners to invest in and deposit their money. If you’re planning to start your business in Hong Kong, sundry tax benefits await you!
We at Business Setup Worldwide can help you with your incorporation, opening an offshore bank account and tax setup in Hong Kong – especially since we understand the incentives a new company in Hong Kong can benefit from. Do reach out to us – even if it’s for friendly advice!
