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Hong Kong Taxation
 
Hong Kong is world renowned for its simple and low tax regime, making it one of the most business-friendly jurisdictions in the world. The tax structure of Hong Kong is relatively straightforward compared with some of the more complex systems used in other countries in the world. There are two main revenue legislations in Hong Kong:

- the Inland Revenue Ordinance; and

- the Stamp Duty Ordinance.


The Ordinance is administered by the Commissioner of Inland Revenue. There are three distinct and separate headings under this Ordinance: Profits Tax; Salaries Tax and Property Tax.
 
(i) Profits Tax  (Relevant Tax Rates / Allowances / Deductions)
  The tax structure of Hong Kong is simple and the current tax rates for profits tax are as low as 16.5% on assessable profits of corporations and 15% of individuals and partnerships. In addition, certain deductions which can further reduce the amount of assessable profits are introduced in the Inland Revenue Ordinance as follows:
 

1. Tax loss
The tax allowable loss can be carried forward for deduction of future assessable profits.

 
2. Depreciation allowance
A number of special allowances are provided for capital expenditure:


a. Prescribed Fixed Assets
100% of expenditure incurred for the purchase/ construction of Prescribed Fixed Assets is treated as deductible expense in the year the expenditure is incurred. The Prescribed Fixed Assets include computer hardware and software and plant and machinery which are used specifically and directly for manufacturing process.

 
b. Industrial Buildings or Structures
An initial allowance of 20% of the qualified expenditure incurred on the purchase/ construction of an industrial building or structure is granted in the year the expenditure is incurred. An annual allowance of 4% of the qualified capital expenditure is granted for each of the subsequent year until the residue expenditure is nil.

 
c. Commercial Buildings or Structures
An annual allowance of 4% of the qualified expenditure incurred on the purchase/ construction of a commercial building or structure is granted until the residue of expenditure is nil.

 
d. Other Plant and Machinery
All initial allowance of 60% of expenditure incurred on the purchase/ construction of other plant and machinery and office equipment is granted in the year the expenditure is incurred. Annual allowances at 10%, 20% or 30% on the written down value are granted respectively for each type of plant and machinery for each of the subsequent year until the residue of expenditure is nil.

 
e. Building Refurbishment Deduction
An annual allowance of 20% of expenditure incurred on the renovation or establishment of any building or structure which is not used for domestic purposes is granted until the residue of expenditure is nil.

 
f. Deduction for trademark, design or patent registration costs
Expenses incurred in registering a trademark or design, or in registering or granting a patent, are deductible if the trademark, design or patent is used in a trade in the production of assessable profits.

 
g. Deduction for scientific research costs
The following expenditure for scientific research is deductible in the year of assessment in which it was incurred:
(1) payments made to any approved research institute for scientific research related to trade;
(2) Payments made to any approved research institute, the object of which is the undertaking of scientific research related to the trade to which the taxpayer's trade belongs; and
(3) expenditure on scientific research related to the taxpayer's trade.

 
h. Deduction for patent and know-how purchase costs
Expenditure incurred by a taxpayer on the purchase of patent rights or know-how rights to be used in the production of assessable profits is deductible.

 
3. Bank interest income and dividend income are also exempt from profits tax.
 
   
(ii) Salaries Tax (Relevant Tax Rates / Allowances / Deductions)
  Individuals are subject to salaries tax on any income derived from an office, employment or pension with a Hong Kong source. A non-Hong Kong resident employee will not be subject to salaries tax if the period spent as visitor in Hong Kong does not exceed 60 days for the year of assessment. In the case where the period spent as visitor in Hong Kong exceeds 60 days in a year of assessment, the whole income of a non-Hong Kong resident employee of a Hong Kong employment will be subject to Hong Kong salaries tax. However, if the employment is regarded as non-Hong Kong employment, his income will be apportioned based on the services rendered in Hong Kong and only this part of income will be subject to Hong Kong salaries tax.

(iii) Property Tax (Relevant Tax Rates / Allowances / Deductions)
  Property tax is charged on the owner of any land and buildings which are situated in Hong Kong at a standard rate on the net assessable value of the real estates. The net assessable value is arrived at after a standard deduction of an allowance equals to 20% of the assessable value.

(iv) Stamp Duty (Relevant Tax Rates / Allowances / Deductions)
  Stamp duty is a duty charged on the following instruments and documents:-
1. Instrument for the sale or lease of immovable property in Hong Kong.
2. Instrument for the sale, purchase or other transfer of Hong Kong stock.
  
Tax Rates, Allowances and Deductions:
  
Profits Tax  

Corporations
Year of Assessment Tax Rate
2012/13 to 2017/18 16.5%
2018/19 onwards 8.25% on the first HK$2M
16.5% on the excess of the first HK$2M

Unincorporated Businesses
Year of Assessment Tax Rate
2012/13 to 2017/18 15%
2018/19 onwards 7.5% on the first HK$2M
15% on the excess of the first HK$2M
 
 
Salaries Tax
 
 1. Allowances 
 
Year of Assessment

 
2016/17
 
2017/18
 
2018/19
onwards
  HK$ HK$ HK$
Basic Allowance   132,000 132,000 132,000
Married Person’s Allowance   264,000 264,000 264,000
Child Allowance   (For each dependant) the 1st to 9th child 100,000 100,000 120,000
For each child born during the year,
the Child Allowance
will be increased by 100,000 100,000 120,000
Dependent Brother / Sister Allowance (For each dependant) 33,000 37,500 37,500
Dependent Parent / Grandparent Allowance (For each dependant)      
  • Parent / grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme
  46,000 46,000 50,000
  • Parent / grandparent aged 55 or above but below 60
(For each dependant) 23,000 23,000 25,000
Additional Dependent Parent / Grandparent Allowance



 
(For each dependant who is living with the taxpayer continuously throughout the year)
 
     
  • Parent / grandparent aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme
  46,000 46,000 50,000
  • Parent / grandparent aged 55 or above but below 60
  23,000 23,000 25,000
Single Parent Allowance   132,000 132,000 132,000
Disabled Dependant Allowance (For each dependant) 66,000 75,000 75,000
Personal Disability Allowance   Not 
applicable
Not 
applicable
75,000
Qualified Premium for Eligible Health Insurance under the Voluntary Health Insurance Scheme   Not
applicable
Not 
applicable
Capped at
8,000
 
 
 2. Deductions – Maximum Limits
 
Year of Assessment
 
2016/17
 
2017/18
 
2018/19
onwards
   HK$ HK$ HK$
Expenses of Self-Education  80,000 100,000 100,000
Elderly Residential Care Expenses  92,000 92,000 100,000
Home Loan Interest  100,000 100,000 100,000
Mandatory Contributions to Recognized Retirement Schemes  18,000 18,000 18,000
Approved Charitable Donations       
[(Income – Allowable Expenses – Depreciation Allowances) x Percentage ] 35% 35% 35%
 

3. Tax Rate
Year of Assessment 2017/18
(See Note)
    2018/19
onwards
   
  Net Chargeable Income Rate Tax Net Chargeable Income Rate Tax
  HK$   HK$ HK$   HK$
On the First 45,000 2% 900 50,000 2% 1,000
On the Next 45,000 7% 3,150 50,000 6% 3,000
On the Next 45,000 12% 5,400 50,000 10% 5,000
On the Next       50,000 14% 7,000
  135,000   9,450 200,000   16,000
Remainder   17%     17%  
Standard Rates of Tax   15%     15%    
 
Note : 
For 2017/18, 75% of the final tax payable under salaries tax and tax under personal assessment would be waived, subject to a ceiling of $30,000 per case.
     
Property Tax

Year of Assessment Tax Rate
2008/09 to 2010/11 16%
2011/12 onwards 15%
 

Stamp Duty
Part 1 of Scale 1 (Applicable to instruments of residential property executed on or after 5 November 2016 ):

A flat rate of 15% of the consideration or value of the property (whichever is the higher)

Part 2 of Scale 1 (Applicable to instruments of residential property executed on or after 23 February 2013 but before 5 November 2016 and instruments of non-residential property executed on or after 23 February 2013)

On Sale or Transfer of Immovable Property in Hong Kong
Consideration or value of the property 
(whichever is the higher)
Rates at Scale 1 (Part 2)
Exceeds
HKD
Does not exceed
HKD
 
  $2,000,000 1.5%
$2,000,000 $2,176,470 $30,000 + 20% of excess over $2,000,000
$2,176,470 $3,000,000 3%
$3,000,000 $3,290,330 $90,000 + 20% of excess over $3,000,000
$3,290,330 $4,000,000 4.5%
$4,000,000 $4,428,580 $180,000 + 20% of excess over $4,000,000
$4,428,580 $6,000,000 6%
$6,000,000 $6,720,000 $360,000 + 20% of excess over $6,000,000
$6,720,000 $20,000,000 7.5%
$20,000,000 $21,739,130 $1,500,000 + 20% of excess over $20,000,000
$21,739,130   8.5.%


Any residential property that acquired by a Hong Kong Permanent Resident who does not own any other residential property in Hong Kong at the time of acquisition will be subject to rates at Scale 2 as follows:

On Sale or Transfer of Immovable Property in Hong Kong
Consideration or value of the property 
(whichever is the higher)
 
Rates at Scale 2
 
Exceeds
HKD
Does not exceed
HKD
 
  $2,000,000 $100
$2,000,000 $2,351,760 $100 + 10% of excess over $2,000,000
$2,351,760 $3,000,000 1.5%
$3,000,000 $3,290,320 $45,000 + 10% of excess over $3,000,000
$3,290,320 $4,000,000 2.25%
$4,000,000 $4,428,570 $90,000 + 10% of excess over $4,000,000
$4,428,570 $6,000,000 3%
$6,000,000 $6,720,000 $180,000 + 10% of excess over $6,000,000
$6,720,000 $20,000,000 3.75%
$20,000,000 $21,739,120 $750,000 + 10% of excess over $20,000,000
$21,739,120   4.25%
 

Special Stamp Duty (SSD)
SSD on disposal of residential properties on top of the current ad valorem property transaction stamp duty has become effective from 20 November 2010. Any residential property acquired on or after 20 November 2010, either by an individual or a company (regardless of where it is incorporated), and resold within 24 months will be subject to the SSD at the following penal rates:

Property Holding Period Tax Rate
6 months or less 15%
More than 6 months but not exceeding 12 months 10%
More than 12 months but not exceeding 24 months 5%


On 27 October 2012, the Stamp Duty Ordinance has been amended to adjust the rates and to extend the holding period in respect of SSD. Any residential property acquired on or after 27 October 2012, either by an individual or a company (regardless of where it is incorporated), and resold within 36 months, will be subject to the new rates of SSD upon the enactment of the relevant legislation:

Property Holding Period Tax Rate
6 months or less 20%
More than 6 months but not exceeding 12 months 15%
More than 12 months but not exceeding 36 months 10%






Buyer's Stamp Duty (BSD)
With effect from 27 October 2012, any residential property acquired by any person (including a company incorporated) except a Hong Kong Permanent Resident will be subject to the BSD. BSD is to be charged at a flat rate of 15% on all residential properties, on top of the existing stamp duty and the special stamp duty, if applicable.


On Lease of Immovable Property in Hong Kong
Term Tax Rate
Not defined or is uncertain 0.25% x of the yearly or average yearly rent (Note 1)
Exceeds Does not exceed  
  1 year 0.25% x of the total rent payable over the term of the lease (Note 1)
1 year 3 years 0.5% x of the yearly or average yearly rent (Note 1)
3 years   1% x of the yearly or average yearly rent (Note 1)
Key money, construction fee etc. mentioned in the lease 4.25% of the consideration if rent is also payable under the lease. Otherwise, same duty as for a sale of immovable property
Duplicate or counterpart $5 each
 
Note 1: The yearly rent/average yearly rent/total rent has to be rounded-up to the nearest $100.
 

On Transfer of Hong Kong Stock
Nature of Document Tax Rate
Contract Note for sale or purchase of any Hong Kong stock 0.1% of the amount of the consideration or of its value on every sold note and every bought note
Transfer operating as a voluntary disposition inter vivos $5 + 0.2% of the value of the stock
Transfer of any other kind $5