Corporate tax in Hong Kong

Jurisdiction of Hong Kong refers to corporate tax as income tax, labor tax and tax levied on real estate.

In general, this region of China is attractive for foreign entrepreneurs for the reason that it has a transparent and simple system of doing business. However, even the most democratic jurisdiction nevertheless imposes an obligation on companies to pay mandatory fees to the state budget.

In accordance with the regulations of Hong Kong, income tax will only be charged if the company receives the income directly in this autonomous region. This is fairly for both residents and non-residents; moreover, there is no dependence on whether the profit was transferred to Hong Kong.

Now, there is no universal mean through which it would be possible to determine the source of profit. Representatives of the tax authorities of the CAP analyze the nature of business transactions; they study the texts of agreements, primary documentation, and so on. Below are a few aspects that will be relevant for entrepreneurs in Hong Kong:

  • The location of the office where the key operations necessary to generate income are carried out.
  • Place of performance of the main operations required for the company to make a profit.
  • Place of making major decisions related to the formation of profits.
  • Which organizations are transferring funds?

If Hong Kong is mentioned in any of these aspects, it is highly likely that profits will be taxed.

The income tax rate is two-tier. The first two million dollars (local currency – the Hong Kong dollar) are taxed at a rate of 8.25%, the rest of the profits are taxed at 16.5%. Partnerships and sole proprietors pay the tax levy at the rate of 7.5% and 15%, respectively.

There are several exceptions to this rule that allow a legal entity to “disregard” Hong Kong tax regulations.

The first of these exceptions is that if an enterprise falls into the privileged category and pays a tax levy at a rate equal to 50%, then it does not use the additional two-tier regime, but necessarily follows the established procedure. This applies to the following legal entities:

  • representative offices of the corporate treasury;
  • specialized reinsurance companies;
  • captive insurance organizations;
  • aircraft leasing firms.

In addition, the second exception is that the company belongs to a group of legal entities that are related to each other. Of these enterprises, only one can apply the two-tier regime.

Deductions from income tax

The expenses that accompanied the company in making a profit are deducted from the income that is taxed. The following are deductible:

  • expenses for the repair and reconstruction of premises for conducting business activities –such amounts are evenly divided by 5 years and are payable in installments;
  • expenses allocated for the acquisition of technological equipment;
  • expenses incurred in connection with the purchase or repair of equipment, with the help of which the harmful effect on the natural environment is reduced;
  • depreciation amounts.
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