Just as is the case in almost any other location in the world, the companies of Hong Kong are required to pay a certain amount of corporate tax. However, the most notable fact about corporate tax in Hong Kong is the fact that corporate tax rates are among the lowest in the world.
The assessable profits of most companies in Hong Kong are taxed at 16.5%. However, such is not the case with unincorporated businesses, which are taxed at a rate of 15%. Hong Kong uses a territorial system of taxation about how its companies are taxed. In other words, tax is only to be imposed on profits which originate from the company’s carrying out a trade, business, or profession in Hong Kong. Profits tax does not apply to any profits which have a source from outside Hong Kong.
Therefore, anyone who owns a business located in Hong Kong which also has its profits derived from elsewhere will not be required to pay any profits tax. This is true regardless of the location in which the profits were received. The territorial system of taxation also does not distinguish between those who are tax residents and those who are not.
Tax Residency and Incentives for Companies in Hong Kong
Therefore, a person who is a tax resident of Hong Kong who derives profits from elsewhere will not be legally obliged to pay any taxes on those profits. Non-residents earning profits from Hong Kong must pay profits tax to Hong Kong’s tax authorities.
The companies of Hong Kong may also benefit from claiming one or more tax incentives. A tax incentive offers exemption on profits from offshore sources and funds from ships operating in Hong Kong. Similarly, there is also a tax deduction on profits which have been derived from business activities involving the reinsurance of offshore risks. Such profits are to be taxed at half of the usual rate of corporate tax in Hong Kong.
Tax deductions also exist for certain expenditures on research and development which are made in Hong Kong.
Companies which benefit from these tax deductions may claim either of two
Type A expenditure deductions which provide a tax deduction equal to the amount of the expenditure;
Type B expenditure deductions provide a tax deduction at a rate of 300% for the first HK$2 million spent and 200% for the rest of the expenditure.
Tax incentives have been introduced to attract foreign companies to establish corporate treasury centres in Hong Kong. Hong Kong’s tax incentives aim to boost its economy by stimulating local business activity.
Eligibility and Assistance for Tax Incentives in Hong Kong
However, if a Hong Kong company has not fulfilled the relevant criteria for a tax incentive to be claimed, the company will not be permitted to claim the tax incentive. For example, the tax deductions for expenditures on research and development only apply to specific types of expenditures. A company cannot claim the tax incentive if its research and development expenditure is not listed as eligible.
As an aside, the tax system of Hong Kong contains many intricate details which not everyone is always able to easily understand. This is where we at Paul Hype Page & Co. play our role. We can assist anyone who needs assistance with taxation in Hong Kong. Should you happen to be such a person, do not hesitate to contact any of our tax experts. We’ll provide all the information needed to navigate Hong Kong’s tax system effectively.
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