Companies incorporated in Hong Kong benefit from one of the most tax-friendly jurisdictions in the world. It imposes no estate tax, no capital gains tax, no sales tax, no withholding tax, no taxes on dividends, and no estate tax. In fact, the World Bank’s Doing Business 2019 Report ranks Hong Kong as the world’s lowest tax region.
Types of Taxes in Hong Kong
Hong Kong Government imposes only three direct taxes on individuals and companies, which itself are imposed at very low rates and comes out to be even lower with generous allowances and deductions. These are:
1) Profits tax
8.25% for the first HK$2 million of profits of companies; above this, profits are taxed at 16.5%. For unincorporated business (i.e. partnerships and sole proprietorships), the corresponding two-tiered tax rates are 7.5% and 15%.
It must be noted that companies, partnerships, or sole proprietorships, are charged tax on all profits (except that arising from the sale of capital assets arising in or derived from any business activities carried out in Hong Kong). So no taxes are levied on profits from business activities done overseas, even if those are remitted to Hong Kong. And Hong Kong makes no distinction between residents and non-residents.
In summary, a non-resident may have to pay taxes in Hong Kong if the business activities are carried out in the city, while a resident may escape taxation if the profits remitted were due to activities carried out overseas.
Also note that while Hong Kong doesn’t impose any capital gains tax, if the selling of real estate is part of a profit-making scheme, the sale may be regarded as a business. Tax will be imposed in such cases.
In terms of filing of tax forms, depending on whether you are a corporation, partnership business, or a non-resident person, you must file three series of Profits Tax return forms to report your profits tax liability:
- Form BIR51 – for corporations
- Form BIR52 – for persons other than corporations
- Form BIR54 – for non-resident persons
Do note that from this year, supplementary forms (BIRS1 to BIRS10) have been introduced to report information on preferential regimes and tax incentives. These are now also part of the tax returns and should be filed together with the tax returns.
2. Salaries tax – 15%
In Hong Kong, all individuals have to file tax returns by submitting the Form BIR60, if they receive it from the Inland Revenue Department (IRD). They must complete, sign and file it in time even if there’s no income to report. As noted above, the standard tax rate on salaries (net total income with no allowance) is 15%. From this year, three supplementary forms to tax returns – BIRSP1 to BIRSP3 – have been introduced, which must be filed along with Form BIR60. If spouses are filing the joint tax returns, all forms must be signed by both husband and wife.
3) Property tax – 15%
While the rate is similar to salaries tax i.e. 15%, the forms to fill and submit vary.
Form BIR57: Reporting income from property jointly owned or co-owned by yourself with another person(s) (including corporation and body of persons)
Filing of Profits Tax Returns in Hong Kong
All newly incorporated companies are required to file and will receive their first corporate tax return some 18 months after the date of Hong Kong company incorporation, or commencement of business. For continuing businesses, the corporate tax returns are issued on the first working day of April every year.
And when companies receive their returns, all corporate tax returns and any required supplementary forms must be filed within a time period of one month from the date of issue. This date of submission is always specified on the corporate tax return sent to each company.
Moreover, it’s not that all businesses are sent corporate tax returns. If the IRD feels that your business activities in Hong Kong have not risen to assessable profits, you may not be sent the corporate tax returns. However, if a company receives the corporate tax returns, they must be filled and filed, even if there have been no profits. IRD sometimes does that to review a company’s future tax potential.
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Frequently Asked Questions on Variable Capital Company Incorporation in Singapore
- The government only imposes 3 direct taxes in Hong Kong, which are profits tax, salaries tax, and property tax.
- There are no taxes levied on profits derived from business activities done overseas. This is regardless of whether the person is a Hong Kong resident or not.
- To report your profits tax liability, you are required to file 3 series of Profits Tax return forms which are the following:
1. Form BIR51 – for corporations
2. Form BIR52 – for persons other than corporations
3. Form BIR54 – for non-resident persons
Additionally, you should file supplementary forms (BIRS1 to BIRS10) to report on preferential regimes and tax incentives that are classified under tax returns.