5 Feb 2016
Hong Kong’s Tax Rates
1. Profits Tax
Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to Profits Tax on all profits arising in or derived from Hong Kong from such trade, profession or business. As from the fiscal year starting on 1 April 2008, the rate of Profits Tax is 16.5%.
Profits Tax is levied based on the assessable profits, which is determined by excluding deductible expenses and tax-exempt incomes.
- Profits arising from the sale of capital assets
- Interest on deposits placed in authorised financial institutions
- Expenses paid by the taxpayer for producing the assessable profits (excluding: domestic or private expenses, capital expenditure, cost of improvements, and various types of tax. Deduction of interest is subject to strict regulations).
- Industrial and commercial buildings allowance:
Industrial buildings: the initial allowance in the year incurring expenses is 20% of capital expenditure; the depreciation allowance every year is 4% of capital expenditure, until all the expenses have been deducted.
Commercial buildings: the annual allowance is 4% of capital expenditure; capital expenditure incurred in renovating buildings or structures (with the exception of renovation for residence) can be deducted over a period of five years in equal instalments.
- Plant and office equipment: an initial allowance of 60% on the cost is offered in the year of purchase; for the remaining amount, counting from the first year these assets start commissioning, annual allowance at the rates of 10%, 20% and 30% respectively each year are available by using the declining balance method. For expenditure incurred in purchasing plant and machinery as well as computer software and hardware for use in the manufacturing industry, outright deduction in full is allowed. For capital expenditure incurred on specified environmental protection machinery and installation, full deduction of capital expenditure is allowed. For environmental protection installation forming part of a building or structure, a deduction at 20% of the expenditure is allowed in each of the five consecutive years commencing from the year the expenditure is incurred.
- Corporate losses: can be set off against other profits made by the corporation in the same year, regardless of whether such profits are derived from its business income. Hong Kong has in place certain rules and regulations preventing corporations from using their losses to evade tax. Group tax loss relief is not available and groups may not file composite tax returns.
2. Salaries Tax
Incomes derived from work, employment and pension in Hong Kong are subject to Salaries Tax. Salaries Tax is computed according to two rates, and the tax payable is the lower of the two:
- Standard rate: this applies to the net chargeable income after allowances; the rate is 15%;
- Progressive rate: this applies to the net chargeable income after deductions and allowances; the rates are: 2% for the first $40,000, 7% for the next $40,000, 12% for the next $40,000, and 17% for the remainder.
According to the law, there are allowances and deductions for Salaries Tax, which is computed according to the net chargeable income.
- Basic allowance ($120,000)
- Married person’s allowance ($240,000)
- Single parent allowance ($120,000)
- Child allowance (from the first to the ninth child, $100,000 for each dependant)
- Dependent parent/grandparent allowance (aged 60 or above, $40,000 for each dependant; aged 56-59, $20,000 for each dependant)
- Dependent brother/sister allowance ($33,000 for each dependant)
Deductions (maximum limits):
- Self-education expenses ($80,000)
- Mandatory contributions to recognised retirement schemes ($18,000)
- Home loan interest ($100,000)
- Elderly residential care expenses ($80,000)
3. Property Tax
Property Tax is chargeable to owners of land and/or properties in Hong Kong. The tax is computed at the standard rate on the net assessable value of the property. The net assessable value of the property is the amount of actual income less allowances. As from the fiscal year starting on 1 April 2008, the standard tax rate is 15%.