Grand Concept Certified Public Accountants (Practising) Limited

Hong Kong Taxation

Facts

Introduction

Article 108 of the Basic Law of Hong Kong stipulates that the Hong Kong Special Administrative Region should practise an independent taxation system. As such, the taxation system in People Republic of China is not applicable to Hong Kong. In addition, under Article 106 of the Hong Kong Basic law, Hong Kong enjoys independent public finance. No tax revenue is handed over to the Central Government in China. Taxation system in Hong Kong is generally considered to be simple, transparent and straightforward among jurisdictions in the world.

Income Tax

Unlike most countries which apply both residential jurisdiction and territorial jurisdiction in determining the tax liability of a person, Hong Kong adopts territorial source jurisdiction as its taxation principle and disregard the concept of residence. Thus, only profits sourced in Hong Kong would be taxable whereas their worldwide income will not be taxable. (However, by exception, certain kinds of world-wide deemed trading receipts will be taxable for non-resident.)

Transfer Tax

Includes Stamps Duty & Betting Duty.

Stamps Duty is collected upon existence of certain transactions in Hong Kong. The three major types of transactions that attract stamp duties are transfers of Hong Kong immovable properties, transfers of Hong Kong shares and leases of immovable properties. Stamp Duties are chargeable on dutiable instruments.

Turnover Tax

No turnover tax (e.g. Value-Added Tax and Goods and Services Tax) has been imposed in Hong Kong. As a result, Hong Kong is considered to be favourable for profit shifting and conducting re-invoicing activities. In July 2006, Proposal of legislation of Goods and Services Tax (“GST”) was made by the Government, who argues that tax base in Hong Kong was urged to be broadened. Subsequently, due to fierce opposition of the general public, the proposal was dropped.

Tax Administration

Includes Individual Tax Return & Employer's Return.

Taxpayers who received Individual Tax Return are required to fill out the return in order to notify the IRD their Profits Tax, Salaries Tax and Property Tax positions. For regular taxpayers, normally IRD issues Salaries Tax Return to them on the first working day of May every year. They are also required to furnish the return within 1 month in normal case.

In Hong Kong, it is IRD's general practice to issue Employer's Returns to Hong Kong Company in every April in the year. The employer is obliged to file the form within 1 month from the date of issue in order to notify IRD the amount of wages, salaries and other kinds of remuneration paid to the employees during the year of assessment ending 31 March every year. No Employer's return is required to be furnished for those employees who received HK$120,000 or less during the Year of Assessment