Hong Kong Corporate Tax

The tax experts at Hawksford get asked questions daily about how to better manage personal taxes in Hong Kong and how to best file them, so we've listed below their guidance.

If you have a question not covered below, please use the form after the questions to contact us.
  • What are the corporate tax rates in Hong Kong?

    Hong Kong has a flat corporate tax rate of 16.5% both for resident and non-resident companies incorporated in Hong Kong. To calculate estimate taxes in Hong Kong and to find our how they stack up to those in your home country, refer to Online Tax Calculator.

  • Are there any concessionary tax rates that apply to Hong Kong companies?

    A concessionary tax rate is available only for certain qualifying profits, such as qualifying debt instrument profits and qualifying reinsurance business profits. To promote the development of the bond market, profits from qualified debt instruments with a maturity period of 3-7 years are eligible for a 50% concession on profits tax while those with a maturity period of seven years and above will qualify for a 100% concession. To encourage offshore reinsurance business, companies in the business of reinsuring offshore risks are eligible for a 50% concession on profits tax.

    According to the 2010-2011 budget, the 50% concessionary tax rate will be extended to qualifying debt instruments with a maturity period of less than three years.

  • What is the basis period for profits tax assessment in Hong Kong?

    The basis period for profits tax assessment is the period of the assessment year during which the company earns profits. Generally, the year of assessment commences on 1 April and ends on 31 March of the following year.

  • Are profits distributed to shareholders taxable in Hong Kong?

    No. Shareholders are not liable to pay any tax on the dividends they receive from a company. There is no dividend tax in Hong Kong.

  • My company has not made any profits for the year. Do I still need to file a tax return?

    Yes. As per Hong Kong law, every company is obliged to furnish the Inland Revenue Department with annual tax returns, irrespective of whether or not profits were made. For more information refer to Hong Kong Company Compliance and Filing Requirements guide

  • What is the taxation policy of foreign-sourced income remitted into Hong Kong?

    Hong Kong follows a territorial system of taxation. In other words, taxes are only levied on income "derived from or arising in" Hong Kong and not on foreign sourced income, even if the profits arising abroad are remitted into Hong Kong.

  • What is the tax treatment of business losses incurred by a Hong Kong company?

    Losses made in an accounting year can be carried forward and set off against future profits of that trade. A corporation carrying on more than one trade may have losses in one trade offset against profits of the other trade. To qualify for deduction, losses should have arisen during the course of carrying on a business in Hong Kong. Losses can be carried forward indefinitely until they are fully utilized, subject to certain conditions such as no substantial change in shareholders.

  • Can losses be carried back in Hong Kong?

    Losses made in an accounting year can be carried forward and set off against future profits of that trade. A corporation carrying on more than one trade may have losses in one trade offset against profits of the other trade. To qualify for deduction, losses should have arisen during the course of carrying on a business in Hong Kong. Losses can be carried forward indefinitely until they are fully utilized, subject to certain conditions such as no substantial change in shareholders.

  • Can a Hong Kong company claim group relief for losses?

    No. Hong Kong does not allow for group relief of losses i.e. transfer of losses between companies in the same corporate group.

  • Is rent paid by a company tax deductible in Hong Kong?

    Yes. Rent paid by a company for occupying business premises is a tax deductible expense. Due to the shortage of commercial real estate rentals, often firms have to pay a lump-sum premium amount to the landlord at the time of signing a new lease. Such premium paid by the company at the time it signs a new lease for the premises is considered a capital expense and not "rent"; it is therefore not deductible.

  • Are bad debts tax deductible?

    Bad debts are tax deductible, subject to the following conditions:

    • The debts should have been incurred in a trade, business or profession
    • The debts should have become bad during the period of claim

    Furthermore, to qualify for a deduction the debt in question should have been originally brought in as a trading receipt. For example, a non-recoverable loan to a customer is not deductible as it does not represent a trading receipt. The exception to this rule is a loan to a customer in the ordinary course of a money-lending business. In this case money is the trading stock of the business; therefore debt in relation to money lent in the ordinary course of a money-lending business is deductible.  

  • What is the tax policy towards R&D expenses?

    R&D expenditure incurred by the company is tax deductible, subject to the following conditions:

    • Only expenditure incurred on research and development related to the company's trade or class of trade is tax deductible.
    • Deductions are allowed for payments made only to "approved research institutes" for research and development related to the company's trade, profession or business.
    • When research and development is subsidized by the government, only the part of the cost that is incurred by the company is tax deductible.
    • Expenditure incurred in acquiring rights in research and development is not tax deductible. However, the cost of acquiring patented rights is tax deductible.
    • Deductions are allowed for capital expenditure incurred on plant and machinery to be used for R&D.
    • R&D expenditure incurred outside Hong Kong is deductible in full only if the company carries out business solely in Hong Kong. If only part of the company's business activities are carried out in Hong Kong, only the proportion of R&D expenditure that relates to the Hong Kong based business activities can be deducted. 
  • Is the purchase of patents or know-how from an associate partner a tax deductible expense for a Hong Kong company?

    Expenditure incurred by a company on the purchase of patent or know-how rights is a tax deductible expense. However, no deduction is allowed if the rights were purchased wholly or partially from an associate. An associate could be:

    • An associated corporation
    • A person who controls the corporation, the controller's partner or the controller's relative
    • A director or principal officer of the corporation or associated corporation, or a relative of that director or officer
    • A partner of the corporation or a relative of the partner
  • Do legal expenses qualify for tax deduction?

    Yes. Legal expenses incurred in the course of the business are tax deductible, as they have been incurred in the production of trade/business income.

  • What is the taxation policy towards property rental income?

    Rental income received by a Hong Kong company from leasing movable property is subject to income tax. Only the net amount after deductions for depreciation and capital allowances is taxable.

  • What is the taxation policy towards royalty income?

    Royalty income is income received for the right to use copyrights, patents and trademarks and is subject to income tax as per Hong Kong law.

  • Can a company deduct payments that were made in relation to winding up its business?

    No. Any payment made in connection to closing down of a business is not tax deductible. Only expenses incurred in the production of business profits are tax deductible.

  • What types of capital expenditure qualifies for a tax deduction in Hong Kong?

    A Hong Kong company is entitled to a deduction on capital expenditure only if it is incurred on the provision of certain prescribed fixed assets such as:

    • Specified items of plant or machinery which are used specifically and directly for any manufacturing process
    • Computer hardware
    • Computer software 
    • Computer system

     

  • What is the tax filing deadline for Hong Kong companies?

    The Inland Revenue Department (IRD) of Hong Kong generally issues the corporate profits tax returns on the 1st of April every year. Normally, businesses should file the profits tax return within 1 month from the date of issue.

    Typical filing deadlines are:


    Financial year ended Filing due date
    Between 1 January and 31 March 15 November of the calendar year in which the financial year ended
    Between 1 April and 30 November 2 May of the calendar year following which the financial year ended
    Between 1 December and 31 December 15 August of the calendar year following which the financial year ended
  • Are donations tax deductible in Hong Kong?

    Business donors who are chargeable to profits tax can claim deduction for the aggregate of approved charitable donation up to 35% of the assessable income or profits. An approved charitable donation is a donation of money either to a) a charitable institution or Trust of Public Character which is exempt from tax or b) to the government for charitable purposes. Additionally, to qualify for deduction, the aggregate of donations must be not less than HK$ 100. Note that the amount must not qualify for deduction under any other profits tax provision.

  • Can a Hong Kong company claim a deduction for expenses connected with borrowing money?

    Yes. Business expenses incurred in connection with borrowing money from financial institutions for the purpose of producing profits are tax deductible, subject to certain conditions. Examples of such expenses include interest payable upon the borrowed sum, legal fees, procurement fees, stamp duty etc.

  • What are the Requirements for Keeping Business Records in Hong Kong

    The Inland Revenue Ordinance requires every person carrying on a trade, profession or business in Hong Kong to keep sufficient business records, either in English or Chinese, for his income and expenditure so as to enable his assessable profits to be ascertained. He must keep such records for at least 7 years. Failure to do so may render him liable to a penalty of HK$100,000.

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