Hong Kong has one of the most business-friendly tax systems in the world, with low tax rates and a simple tax structure.
Territorial Tax System
Hong Kong operates under a territorial tax system, meaning that only income/profits derived from or sourced in Hong Kong are subject to taxation. Offshore profits, i.e., income generated outside of Hong Kong, are generally exempted for taxes.
Low Tax Rates for Profit Tax (Corporate Income Tax)
The standard corporate tax rate is 16.5% on assessable profits. For the first HKD 2 million of profits, a lower rate of 8.25% is applied.
No VAT, Sales Tax, or Capital Gains Tax
There is no Value-Added Tax (VAT), sales tax, or capital gains tax, making the tax regime less burdensome compared to other jurisdictions. However, frequent practice of buying and selling investment instruments may be considered as carrying on trade in Hong Kong and subject to the profits tax.
Withholding Tax
Generally, withholding tax are applied to certain payments made by a Hong Kong company.
· On dividends
There is no imposition any withholding tax on dividends, regardless of whether the shareholders are residents or non-residents.
· On interest
Hong Kong does not impose withholding tax on interest payments made by a Hong Kong company to non-residents. Interest payments to Hong Kong residents will be deductible, while the recipient will be chargeable in the profit tax.
· On Royalties
Royalties received by or accrued to a non-resident for the use of or right to use intellectual properties, in or outside Hong Kong are deemed to constitute profits. A total of 30% of the sum received or accrued is deemed to be the profits. If the non-resident is associated corporations, the rate would be even higher and 100% is deemed to constitute profits under certain circumstances.
The rate of 30% (or 100% in case of related parties’ transactions) can be reduced under applicable Double-Taxation agreement (DTAs).
No Estate Duty
Estate duty was abolished in 2006, meaning that inheritances in Hong Kong are not taxed.
Stamp Duty
Although there is generally no capital gain tax, stamp duty is applicable on the transfer of Hong Kong stock.
For stock, the current stamp duty rate is 0.1% of the consideration or market value, whichever is higher, on every sold note and every bought note respectively, i.e. 0.2% of the consideration or market value in total for a single transaction.
Nature of Document | Time Limit |
Contract note for purchase or sale of Hong Kong stock | Within 2 days after the sale or purchase, if effected in Hong Kong Within 30 days after the sale or purchase, if effected elsewhere |
Instrument of Transfer of Hong Kong stock (not including gift) | Before execution, if executed in Hong Kong Within 30 days after the execution, if executed outside Hong Kong |
Gift of Hong Kong stock | Within 7 days after the execution, if executed in Hong Kong Within 30 days after the execution, if executed outside Hong Kong |
There are some reliefs applicable to exempt the stamp duty, such as intra-group transfer of shares.
Employer’s Returns of Remuneration and Pensions (ER)
If there are employees being employed by the company in Hong Kong, the company has to submit the ER annually.
· Period to cover
The ER covers the period from 1 April of last year to 31 March of current year.
· When to submit
Description | ER Forms | Timing |
Commencement of employment | 1 copy of duly completed Form IR56E | Within 3 months of the commencement |
Reporting employees in employment as at 31 March annually | 1 copy of Form BIR56A and 1 copy of Form IR56B in respect of each employee | Within 1 month from the date of issue of Form BIR56A (usually on 1 April) |
Cessation of employment (Employee not departing from Hong Kong) | 1 copy of duly completed Form IR56F | 1 month prior to the cessation |
Cessation of employment (Employee departing from Hong Kong) | 2 copies of duly completed Form IR56G | At least 1 month before the expected departure date of an employee |
· Records to keep
The Ordinance requires the employers in Hong Kong to keep the identification documents and personal particulars, the payroll records, the amounts of benefits and allowance paid and the employment contracts once the employment relationship starts
Simple Filing System
The tax filing and compliance system is relatively straightforward. There are no complex rules for deductions, and tax returns are generally filed once a year.
Tax Incentives
Hong Kong offers various tax incentives to promote sectors such as innovation and technology, including tax deductions for research and development (R&D) expenditures and accelerated depreciation for certain assets.
Double Taxation Relief
Hong Kong has an extensive network of double taxation treaties to avoid double taxation on income earned in other countries, which can be referred to (https://www.ird.gov.hk/eng/tax/dta_country.htm).
These features make Hong Kong an attractive destination for businesses and individuals looking for a tax-efficient environment.
If you are looking to set up your business in Hong Kong, our experts in Brasia can help you through the entire process. We will assess your needs to determine the most suitable company and license type. Please contact us by filling out the form on the contact page or via info@brasia.hk. We are also available on Whatsapp.
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