Taxation of Hong Kong companies is based on a territory rather than based on residency. This translates to individuals and companies incorporated in Hong Kong paying tax only on income or profits earned or sourced in Hong Kong.
The taxation system is simply as below:
Profits Tax – based on a company’s trading profit
Salaries Tax – based on an individual’s income
Property Duty – no Property duty is payable with effect from 11 February 2006
There are no taxes on capital gains, no withholding taxes on dividends or interest and no sales taxes.
Profits Tax of Hong Kong Co.
Profits tax of Hong Kong companies is levied at the rate of 16.5% on taxable profits arising in Hong Kong. Deductions are given for expenses incurred in earning assessable profits.
The determination of where profits are earned is the key to whether profits are taxable in Hong Kong. If profits are earned from activities that take place entirely outside of Hong Kong then these profits would not be taxable in Hong Kong.
It should be noted that the offshore profits tax exemption outlined above is a legal exemption and not achieved through non disclosure.
Salaries tax is levied on the income of individuals arising from employment within Hong Kong. Various allowances and relieves are available. Apportionments may be used for individuals based in Hong Kong if part of their duties are performed outside of the SAR. Professional tax planning is often beneficial to ensure the maximization of allowances and the minimization of income subject to tax.
Property duty in Hong Kong has been abolished with effect from 11 February 2006.
In fact, Hong Kong is a low taxation city. Its tax laws are simple and straight forward.