Hong Kong Tax Rates and Income Tax System
This article provides an overview of the tax system in Hong Kong and points the reader to more detailed articles on each specific topic.
By aligning its tax policy with growth-oriented economic goals, Hong Kong has emerged as one of the preferred locations for most global entrepreneurs and business enterprises.
Why foreign investors and entrepreneurs should choose Hong Kong as their preferred jurisdiction for establishing and expanding their business operations?
Some of the top factors for company formation in Hong Kong include:
- Ease of setting up and operating a business in Hong Kong
- Proximity to mainland Chinese market
- Highly attractive tax regime – low Hong Kong personal and corporate tax rates, no capital gains tax, no value added tax or sales tax, no withholding tax on dividends and interest or collection of social security benefits
Current Tax Rates in Hong Kong
Tax Rates for Companies
|Tax rate for corporations||First HK$2 million||8.25%|
|Over HK$2 million||16.5%|
|Tax rate for unincorporated businesses||First HK$2 million||7.5%|
|Over HK$2 million||15%|
|Tax rate on capital gains||0%|
|Tax rate on shareholder dividends||0%|
|Tax rate on foreign-sourced income||0%|
For a comprehensive overview of corporate taxes, refer to Hong Kong Corporate Tax guide.
Tax Rates for Individuals
|Net Chargeable Income (in HKD currency)||Tax rate|
|1 – 50,000 HKD||2%|
|50,001 – 100,000 HKD||6%|
|100,001 – 150,000 HKD||10%|
|150,001 – 200,000 HKD||14%|
|Above 200,000 HKD||17%|
|Tax rate on capital gains||0%|
|Tax rate on income earned overseas||0%|
|Tax rate on dividends from a Hong Kong company||0%|
For a comprehensive overview of personal taxes, refer to Hong Kong Personal Tax guide.
To estimate your Hong Kong taxes and compare them with those in your home country, refer to Online Tax Calculator.
Hong Kong Tax Facts
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The Hong Kong currency is called Hong Kong Dollar (HKD) – the 9th most traded country in the world. HKD is closely pegged to the US dollar at approximately 1 USD = 7.8 HKD.
Foreign Exchange Control
There are no foreign exchange controls in Hong Kong.
Taxes in Hong Kong are levied on the “territorial principle”. In other words, taxes are only levied on income “derived from or arising in” Hong Kong and not on income sourced outside Hong Kong. In simple terms, this means that a person who carries on a business in Hong Kong but derives profits from another place is not required to pay tax in Hong Kong on those profits.
No tax is levied on profits arising abroad, even if they are remitted to Hong Kong. The questions of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong are largely questions of fact.
However some guidance on the principles applied can be found in cases which have been considered by the courts in Hong Kong and in other common law jurisdictions.
In Hong Kong, corporations have two options for Profit Tax Rates. The first one is the traditional one: Single-Tier Corporate Tax System and the second one is Two-Tier Profits Tax Regime.
Hong Kong has an attractive corporate tax regime highlighted by low tax rates. In Hong Kong, for Single-Tier Tax System: corporations are taxed at 16.5% on assessable profits and unincorporated businesses are taxed at 15%.
The Two-Tier Profits Tax Rates Regime effective from Year of Assessment 2018/19
With effect from 1 April 2018, a two-tiered profits tax rates regime applies. The two-tiered profits tax regime applies to both corporations and unincorporated businesses by lowering the tax rate for the first $2 million of assessable profits. The two-tier profits tax rates will be effective from year of assessment 2018/19.
Capital Gains Tax
There is no capital gains tax in Hong Kong. Capital loss expenses are correspondingly not allowed as deductions.
Dividend income, whether from Hong Kong or overseas, is not taxable. Dividends paid to either a resident or non-resident of Hong Kong are not subject to any withholding tax.
Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and is capped at 17%; or 15% of net income (i.e. income after deductions only), whichever is lower. For further details, refer to Hong Kong Personal Income Tax guide.
Royalties and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong are subject to withholding tax on their assessable profits. There are no withholding taxes levied on dividends and interest. For further details, refer to Hong Kong Withholding Tax Guide.
Vaule Added Tax (VAT)
Also known as Goods & Services Tax (GST) in some countries, there is no VAT or sales tax imposed in Hong Kong.
Double Tax Treaties
Hong Kong has established a DTA network (37 treaties) that minimises exposure of Hong Kong residents and residents of the DTA partner to double taxation. For further details, refer to Hong Kong DTA Guide.
Since 1st January 2005, Hong Kong has adapted a Financial Reporting Standards (FRS) framework that has been modelled on International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).
The tax year in Hong Kong is 1 April – 31 March. Profits earned during an accounting year ending within the tax year will be deemed to be the profits for that tax year.
Property tax is charged on the owners of land and/or buildings in Hong Kong and is computed at the standard rate of 15% on the net assessable value of the property (i.e. property’s rental income).
Also known as death tax or inheritance tax in some countries, estate duty has been abolished since 10 February 2006.
Stamp duty is chargeable on certain documents (relating to stock & shares and immovable property) specified in the First Schedule to the Stamp Duty Ordinance, which imposes fixed duty on some documents and an ad valorem duty on others. Fixed duties vary from HKD 3.00 to HKD 100 whereas ad valorem duties range from 0.1% to 4.25%.
Customs and Excise Duty
Hong Kong is a free port. There is no tariff on general imports. However, there is duty on liquors, tobacco, hydrocarbon oil and methyl alcohol.
For tobacco, hydrocarbon oil and methyl alcohol, duties are charged at specific rates per unit quantity.
For liquors, duty is assessed at different percentages of their values on the basis of three different categories defined broadly according to alcoholic strength.
There is no tax or excise duty on exports from Hong Kong.
Hotel Accommodation Tax (HAT)
This tax is imposed on the proprietors who provide hotel and guest house accommodation. Effective from 1 July 2008, the Government waived the charge of HAT. The rate of tax is reduced to 0% (the tax rate was at 3% for the period up to 30 June 2008) on all accommodation charges paid by the guests.
Hong Kong Tax Governing Authority
The Inland Revenue Ordinance and its subsidiary legislation the Inland Revenue Rules is the governing statute regarding corporate and individual taxation matters in Hong Kong.
Furthermore, stamp duty and estate duty are imposed under the Stamp Duty Ordinance and Estate Duty Ordinance respectively.
The Inland Revenue Department is committed to collecting revenue in an efficient and cost-effective manner and aims at promoting compliance through rigorous enforcement of law, education and publicity programmes.
The Commissioner of Inland Revenue, who also holds the statutory appointments of Collector of Stamp Revenue and Estate Duty Commissioner, is responsible for the administration of the following Ordinances: Betting Duty Ordinance, Inland Revenue Ordinance, Estate Duty Ordinance, Stamp Duty Ordinance, Tax Reserve Certificates Ordinance, Business Registration Ordinance and Hotel Accommodation Tax Ordinance.
The Department’s revenue collection for 2017-18 was HKD 328.6 billion, an increase of 13.2% with the previous year.
Brief History of Tax Evolution in Hong Kong
The Inland Revenue Ordinance (IRO) was first enacted in 1947 to impose income taxes in Hong Kong. This was based on the legislative package developed by the UK for its colonies. As a result the IRO bears resemblance to the tax legislation in UK, Australia, South Africa and other Commonwealth countries.
When the tax system was first introduced in the 1940s, it was intended to be a temporary measure – one that was to be replaced within a year or so, with higher rates of tax.
The period between 1945 – 1970 saw no tax reform, despite two review committees that were constituted in 1954 and 1967.
During the 1970s Hong Kong was fast growing and emerging as a modern city-state and a significant international trading and financial centre. As a result, the need for structural reforms in the tax system was greatly required in order to increase public spending and rates of tax. Hence, the third review committee was formed.
However, the colonial government did not adopt the recommendations proposed. As a result, the tax system established in the 1940s remained largely unchanged.
In 1997, the Government issued a consultative document on the profits tax system which invited submissions on how to increase the competitiveness of Hong Kong’s tax and business environment.
As a result of this initiative, a number of concessions were introduced in 1998.
A subsequent review committee was set up in 2002, which suggested the introduction of a Goods and Services Tax (GST). The Government seriously considered introducing GST but dropped the idea in Dec 2006 due to wide-spread public opposition.