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Hong Kong’s Simple, Low-rate Tax System

Hong Kong practises a simple, low-rate tax system and its financial management system is also relatively simple and clear. Tax is levied on the territorial source principle, i.e. no matter whether the taxpayer resides in Hong Kong or not, all incomes generated in Hong Kong are taxable. Meanwhile, profits generated outside of Hong Kong are not taxable in Hong Kong. Many accounting firms and law firms in Hong Kong provide tax return filing or account management services for clients; mainland or foreign enterprises may consider appointing these firms to handle such formalities for them.

Business related taxes:

The year of assessment in Hong Kong runs from 1 April to 31 March of the following year. Generally, people doing business or working in Hong Kong are subject to the following taxes: 1. Profits Tax; 2. Salaries Tax; 3. Property Tax.

Double taxation avoidance agreements:

Hong Kong has signed double taxation avoidance agreements with a number of regions and countries, including:

  • Comprehensive Agreement for the Avoidance of Double Taxation: Hong Kong first concluded this agreement with the Belgian government in 2004. To date, more than 30 countries or regions have signed such agreement with Hong Kong, offering concessionary withholding rates on dividends, royalties, interest and technical fees.
  • Non-Comprehensive Agreement for the Avoidance of Double Taxation:
    - Income from shipping transportation: Hong Kong has signed an agreement with a number of countries including the US for double taxation relief in respect of income from shipping, under which Hong Kong ship owners’ income from international operation of ships is exempt from tax.
    - Income from aircraft operations: Hong Kong has concluded agreements on income from aircraft operations with Canada, Germany, Israel, South Korea, Mauritius, the Netherlands, New Zealand and the UK, under which the income of Hong Kong airline companies from international aircraft operations is exempt from tax in the signatory countries.
  • Avoidance of Double Taxation with Respect to Taxes on Income: Hong Kong reached this agreement with the Chinese mainland in 1998, under which:
    - The income of Hong Kong companies derived from the operation of international or cross-boundary sea, land and air means of transport on the mainland is exempt from tax on the mainland, and vice versa.
    - Hong Kong companies operating on the mainland are not required to pay tax unless the profits go to their permanent establishment in the mainland.
    - If the income of Hong Kong residents (including companies) is subject to taxation both in Hong Kong and the mainland, application can be made for exemption and deduction of the income tax payable on the mainland, but the amount exempted or deducted may not exceed the amount of tax payable computed according to Hong Kong’s Inland Revenue Ordinance.
    - Income derived from dividends, interest, copyright royalty or capital gain is not covered.
Content provided by Picture: HKTDC Research
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