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Taxes in Hong Kong

Hong Kong maintains a low, simple and predictable tax regime.

Profits Tax is levied on individuals, corporations, bodies of persons and partnerships, in respect of assessable profits arising in or derived from Hong Kong . Hong Kong adopts a territorial source principle . Only income which has a source in Hong Kong is taxable in Hong Kong. Salaries Tax is charged on all income arising in or derived from Hong Kong from any office, employment or pension. Property owners who receive rental income are chargeable to Property Tax . There is no tax in Hong Kong on capital gains, dividends or interest.

Profits Tax Rates

Our corporate profits tax rate of 17.5% is virtually the lowest in the region. At present, profits of unincorporated businesses are taxed at 15.5%, and it will be increased to 16% from 1 April 2004.

Profits Tax Deductions

In general, all business expenses incurred in the production of assessable profits are fully deductible. Generous allowances or deductions are given to investment in plant and machinery, buildings and structures, and capital expenditure on research and development, refurbishment and etc.

The Scope of the Charge

Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is therefore no distinction made between residents and non-residents. A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong. The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely one of fact, however some guidance on the principles applied can be found in cases which have been considered by the Hong Kong Courts and the Privy Council. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

If a person sells his flat or any property as part of a scheme of profit-making, it will be regarded as a business and he is required to pay tax on any profit he may make.

Hong Kong adopts a territorial source principle of taxation. Only profits which have a source in Hong Kong are taxable here . Profits sourced elsewhere are not subject to Hong Kong Profits Tax. The principle itself is very clear but its application in particular cases can be, at times, contentious.

Pre-conditions for liability to Profits Tax

Under the Inland Revenue Ordinance, a person is chargeable to Profits Tax under the following conditions

· he carries on a trade, profession or business in Hong Kong;
· the trade, profession or business derives profits; and
· the profits arise in or are derived from Hong Kong.