Hong Kong Corporate Tax - Explained
Hong Kong (HK) is a central hub for business in Asia. It is extremely popular for a variety of reasons, including political stability, economic freedom and tax benefits. Hong Kong has one of the lowest tax rates in the world for a developed country, and has an intricate and effective tax system that allows companies to conduct business without being overpowered by their tax liabilities. Indeed, Hong Kong is rated as the world's 3rd friendliest tax system by Forbes (Tax Misery & Reform Index 2009).
Given the large number of companies that operate or have an offshore business in HK, an understanding of HK tax implications begins with corporate tax.
In HK, any company conducting business on or offshore can be liable to corporate tax. Profits sourced in HK are taxed at a low rate of 16.5%, and unincorporated businesses are taxed at 15%. Profits that are sourced overseas, also known as 'offshore profits', benefit from a zero tax rate, even when remitted back to Hong Kong. Profits derived from operating ships in HK are treated as 'offshore profits' and are not liable to tax, but profits derived by professional reinsurers for reinsuring offshore risks will be taxed at 8.25% -i.e. half the corporate tax rate.
To note: offshore payments for intellectual property usage are liable to tax at 4.95%, goods sold by HK consignment agents on behalf of non-residents are also liable to tax on 0.5% of gross proceeds. On the other hand, bank deposit interest, interest on Tax Reserve Certificates, interest income on long-term debt instruments, dividends and capital gains are free from tax.
With the low tax rates there are also other regulations that protect business from unjustified taxes. Hong Kong is fully committed to its double tax agreement with thirty three nations, including PRC, Thailand and Belgium, to relieve companies from having to pay two taxes on one set of profits, as a result of multinational enterprise and multiple jurisdictions. For full details on HK's double tax agreements, see the website for the Inland Revenue Department (IRD).
Companies that conduct business through a branch or are incorporated in HK cannot offset losses against the profits of other members in a group of companies -through consolidated accounting systems, however the jurisdiction allows losses to be carried forward indefinitely. Assets are depreciated at authorized prescribed rates of depreciation, for example, computer equipment can be depreciated at 100% in the first year.
The general procedure for corporate taxation after incorporation in HK is straightforward. Typically an incorporated company will be tracked by the HK authority and sent a tax return at year end. Even when no tax return is issued to a company, they are responsible for notifying the government of any profits liable to tax. In standard practice, estimated tax assessments will be issued provisionally during the tax year based on historic profit information. A final assessment will then be released after filing of the tax return.
It should be noted that the tax year begins on April 1st. Also, companies liable to tax in HK are required to fulfill accounting and auditing standards i.e. be audited by a firm of HK accountants.
In Hong Kong, people also benefit from zero sales tax, zero value added tax and zero annual net worth taxes.
Healy Consultants is a leading corporate services firm providing international entrepreneurs with all Hong Kong company formation requirements. The firm provides a range of services for Asia business set up, tax planning and offshore investing. More information on company incorporation can be found by visiting http://www.healyconsultants.com.