Whether you are in the process of registering or have already registered your company in Hong Kong, it is essential to comply with the country’s regulations and file your corporate tax accordingly to prevent any legal repercussions. Entrust your corporate tax filing to us and experience the advantages of strategic tax planning with our specialized services in Hong Kong.
What Is Corporate Income Tax (CIT)?
In Hong Kong, Corporate Income Tax (CIT) is a fee that companies must pay on their profits. In simpler terms, it is where a portion of a company’s earnings goes to the government. Businesses subtract their expenses, operating costs, and depreciation from revenues from their earnings to figure out how much tax they owe.
Anyone who runs businesses or offers services will need to pay corporate tax, regardless of the size of the company or type of incorporation. Paying corporate tax on time is beneficial for business owners, and it’s different from individual taxes, where there might be deductions for items like medical insurance and other fringe benefits (including retirement plans and tax-deferred trusts.
What is the Corporate Tax Rate in Hong Kong?
In Hong Kong, companies are taxed at a certain rate, regardless of type of business entity. Companies without profits do not pay any Profits Tax.
There are also tax obligations related to royalties paid to overseas entities for using intellectual property (usually 4.95% of the royalty payments). However, a reduced rate may apply if a comprehensive double tax agreement/arrangement (CDTA) is in place.
What do I need to File Corporate Tax?
Here is a checklist of things to keep note of before you file your CIT:
Hong Kong Tax Incentives
Foreign tax credits can be claimed by Hong Kong tax residents if they have paid foreign taxes on income earned from a jurisdiction that has a Comprehensive Double Taxation Agreement (CDTA) with Hong Kong SAR, and the same income is subject to tax in Hong Kong SAR. Taxpayers must make efforts to minimize foreign tax payments before claiming tax credits in Hong Kong SAR.
For Hong Kong tax residents who pay foreign taxes on specified foreign-sourced income deemed taxable under the refined Foreign-Sourced Income Exemption (FSIE) regime, foreign tax credits are available regardless of whether the foreign taxes are paid in a jurisdiction with a CDTA with Hong Kong SAR. Again, taxpayers are required to take reasonable steps to minimize foreign tax payments before claiming tax credits in Hong Kong SAR.
Hong Kong has signed CDTAs with several countries to prevent double taxation and promote fair tax treatment. These agreements provide tax relief (in the form of tax credits) for foreign income that is also subject to Hong Kong’s profits tax.
The CDTAs are currently in force in many countries, such as Malaysia, Indonesia, South Korea, and Japan. With these agreements, businesses can manage their tax liabilities more efficiently and avoid being taxed twice on the same income in both Hong Kong and other countries with CDTAs.
Company Tax Exemption
To meet the qualifying conditions for this exemption, the following criteria must be satisfied:
- The company should have no customers or suppliers located in Hong Kong.
- The business entity’s owner or employees must exclusively operate the business outside of Hong Kong.
- The company should not provide any services within Hong Kong.
- The services and products offered by the company must not be available or accessible within Hong Kong.
- All day-to-day business decisions and service agreements must be executed outside of Hong Kong.
- The company should not have any employees based in Hong Kong, and if there are any overseas employees, their visits to Hong Kong must be infrequent.
- Lastly, the products manufactured or sold by the company should not enter the territory of Hong Kong.
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