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Foreword
Introduction
About HLB International
General Information
Trade, Monetary, Financial & Legal System
Statutory Audit Requirements
Hong Kong Tax Structure
Setting up Companies in Hong Kong
Listing on the Hong Kong Stock Exchange
Doing Business in HK
Hong Kong Tax Structure
Profits Tax

Profits Tax is levied at the rate of 16.5% (for 2017/18) on corporations, and 15% (for 2017/18) on unincorporated entities on business profits which satisfy both of the following criteria:
  • The company must be carrying on business in Hong Kong.
  • The relevant profits must be earned in or derived from Hong Kong and is not capital in nature.
Source

The source of income is generally regarded as a “practical hard matter of fact ”. In the context of international operations, this typically means that the person ultimately deriving the income may have some tax planning opportunities. Rates of Hong Kong taxation are low and with care effective rates can be made even lower. Hong Kong does not have any form of dividend taxation or withholding taxes (other than on royalties paid to non-residents) and hence profits accumulated in a Hong Kong company can be distributed without withholding tax leakage in Hong Kong.

Deemed Income

Certain types of incomes derived by non-residents (i.e. a person who does not carry on trade or business in Hong Kong) are deemed taxable. These are mainly royalties received in connection with the use of intellectual properties and hire or rental income for the use or right to use movable property in Hong Kong.

Withholding Taxes

There are withholding taxes on royalties paid to non-residents. The payer is required to withhold tax on the royalty payment and file a tax return as agent for the non-resident recipient.

Interest

Deposit interest accruing to individuals and Hong Kong companies from deposits placed in Hong Kong is generally exempt from Profits Tax, unless certain conditions in the Inland Revenue Ordinance apply. Interest accruing to Hong Kong companies from deposits placed in offshore bank accounts is not subject to Hong Kong Profits Tax. It is not difficult for Hong Kong companies to place deposits in offshore accounts.

Tax Returns

Any company potentially liable to Profits Tax will be issued with a profits tax return for completion. This should be submitted within one month of issue (although in practice longer periods may be granted upon application) together with audited financial statements covering the company’s accounting year ending in the relevant year of assessment.

The profits tax return forms the basis for a tax assessment in respect of the relevant year of assessment. For example, a company with a 31 December year-end would report its results for the year ended 31 December 2017 in its profits tax return for the year of assessment 2017/18.

Anti-Avoidance Measures

If a transaction is entered into for the ’sole or dominant purpose’ of enabling a tax benefit to be conferred, the Inland Revenue Department has the power to assess tax liabilities as if the transaction had not taken place, or otherwise counteract the tax benefit.

Our Tax Department would be pleased to advise clients about the Hong Kong and international taxation consequences of proposed transactions.