In November last year, the Hong Kong government released the Tax Clarity Enhancement Plan on its official website, which will enhance tax clarity, reduce tax risks, reduce compliance costs and speed up tax determination for existing and potential investors, thereby enhancing Hong Kong's tax competitiveness.
As an international financial centre, Hong Kong's low tax rate and simple tax system are very attractive to investors from all over the world. Many mainland investors also choose to register companies or develop in Hong Kong. Hong Kong's tax rate is relatively low. Compared to some other countries and regions, Hong Kong's corporate income tax rate is relatively low. This allows companies incorporated in Hong Kong to enjoy a lower tax burden, which increases profitability.
NO.1. Hong Kong taxation principles
Hong Kong adopts the territorial source principle. Income earned in Hong Kong is taxable. If a person or company obtains income abroad, then this part of the income does not need to be taxed in Hong Kong.
Moreover, there are no capital gains tax, interest or dividend taxation provisions in Hong Kong, which makes investors do not need to bear additional tax burdens when making investments in stocks, bonds, etc. Secondly, there is no sales tax in Hong Kong, which can reduce the cost of goods and services for consumers.
In Hong Kong, whether you are self-employed or working, you need to file your own tax returns. This means that individuals or businesses need to report and pay the estimated tax amount to the tax department on time based on their income. The purpose of this provision is to ensure the fairness and rationality of tax policies and to prevent the occurrence of tax evasion and evasion.
NO.2. Principles of taxation in the Mainland
The mainland adopts the principle of taxation based on residence, which means that taxes are levied according to the taxpayer's place of residence. If a person resides in Chinese mainland, the income he earns worldwide is subject to tax according to the tax policy of Chinese mainland.
You are considered a tax resident if you have a residence in Chinese mainland or stay in Chinese mainland for 183 days or more in a tax year. Non-residents who stay in China for less than 183 days in a tax year are usually taxed only on income earned from Chinese mainland.
NO.3. The main taxes in Hong Kong
According to the Inland Revenue Ordinance of Hong Kong, there are only three direct taxes in Hong Kong, namely profits tax, salaries tax and property tax. There are three main types of taxes for Hong Kong companies:
Profits tax (equivalent to corporate income tax in the Mainland) is 16.5%.
Salaries tax (equivalent to personal income tax in the Mainland), with a minimum annual allowance of HK$120,000 per person.
Property tax, which is taxed at a rate of 15%, is only payable if the property rented out in Hong Kong is closed. Special consumer goods (such as tobacco and alcohol) are subject to customs duties on import and export, and most of the remaining products are not subject to customs duties.
NO.4. Hong Kong tax deduction / tax exemption items
In Hong Kong, whether you are married, have children, adopt parents, live with parents, support younger siblings, divorce single parents, injury or illness, buy a house, study abroad, or do charity, you can reduce the tax amount very highly. Taking giving birth to a child as an example, the annual tax exemption for giving birth to a child in Hong Kong is HK$120,000, with an average monthly tax exemption of HK$10,000.
NO.5. 8 kinds of duty-free items in Hong Kong
Basic allowance: 132,000
Married person allowance: 264,000
Child Allowance (1st-9th Member, by name): 120,000
Dependent sibling allowance: 37,500
Elderly person aged 60 and above (by name): 50,000
Elderly person aged 55 and above (by name): 25,000
Single parent allowance: 132,000
Disability Allowance: 75,000
Disabled Dependant Allowance (nominal basis): 75,000
NO.6. 5 kinds of deduction items in Hong Kong
Expenses of self-education: 100,000 (cap)
Residential Care Expenses for the Elderly: 100,000 (Maximum)
Home Loan Interest: 100,000 (capped)
MPF contributions: 18,000 (cap)
Charitable donations: 35%