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Introduction on Taxation of Hong Kong Companies Operating Offshore
Hong Kong's tax system is simple and the tax rate is low. In addition, Hong Kong adopts a territorial basis for taxing profits derived from a trade, profession, or business carried on in Hong Kong. Profits Tax is only charged on profits which arise in or are derived from Hong Kong. In simple terms, this means that a Hong Kong registered company derives profits from another place outside Hong Kong is not required to pay tax in Hong Kong on those profits.
Hong Kong Salaries Tax – Child Allowance
As a Hong Kong taxpayer, you may claim child allowance if, during a year of assessment, you maintain an unmarried child who was below 18, or if 18 to 25: a full-time student, or if over 18: disable for work. No double claim of child allowance for a child. No sharing or splitting of child allowance among a couple unless the couple is living apart or divorced.
Hong Kong Profits Tax – Basis Period for Assessment
According to Section 18C of Hong Kong Inland Revenue Ordinance, there are three possible cases for the first accounting period:if the first accounts are made up to a day within that year of assessment, the basis period for the year of commencement is from the date of commencement to the date which the accounts are made up.
Hong Kong Salaries Tax – Tax Clearance on Leaving Hong Kong
Section 51(7) of the Hong Kong Inland Revenue Ordinance (“IRO”) states that a person chargeable to tax must notify the Hong Kong Inland Revenue Department (“IRD”) of his imminent departure from Hong Kong if the departure is for more than one month. Such notice must be given at least one month before the expected date of departure, although IRD can accept shorter notice with acceptable reasons.
Hong Kong Salaries Tax – Illustration of Computation of Salaries Tax
Mr. CHAN Tai Man, single, was employed as Senior Marketing Manager with a monthly salary of HK$60,000. In addition, his employer provided him with a flat as his place of residence. In his 2019/20 tax return, he claimed deduction for membership fee to Hong Kong Institute of Marketing of HK$2,000, contribution to Mandatory Provident Fund of HK$18,000 and expenses of self-education of HK$15,500.
Hong Kong Profits Tax Guide – Assessable Profits
What are assessable profits? The assessable profits are the net profits (other than profits arising from the sale of capital assets) for the basis period, arising in or derived from Hong Kong, calculated in accordance with the provisions of Part IV of the Inland Revenue Ordinance (“IRO”). IRO does not define “profits”. In business practice, profit means the net profit, or the net gain, or the surplus of incomes over expenses.
Hong Kong Salaries Tax – Dependent Brother or Dependent Sister Allowance
As a Hong Kong taxpayer, you may claim dependent brother or dependent sister allowance if, during a year of assessment, you or your spouse maintains an unmarried brother or sister who is under 18 years old; or if over 18 years old and under 25 years old: a full-time student; or if over 18 years old: disabled for work.
Hong Kong Profits Tax – Deemed Trading Receipts
Section 14 of the Inland Revenue Ordinance sets out the scope of the charge to profits tax. In addition, Section 15 deems the following to be taxable trading receipts in Hong Kong: Sums received from the exhibition or use in Hong Kong of cinematography or television film or tape, sound recording or their connected advertising materials [Section 15(1)(a)].
Hong Kong Profits Tax – Capital versus Revenue
Section 14 of the Inland Revenue Ordinance states that profits arising from the sale of capital assets are outside the scope of charge of profits tax. Therefore, such gains are not subject to tax.There are numerous court cases on the captioned question: drawing distinction between income from “fixed capital” and income from “circulating capital” – referring the former to “capital receipts” and the latter to “revenue receipts”.
Hong Kong Profits Tax – Exempt Receipts/Profits
The following are exempt from the assessable profits: Dividends received from a corporation; Profits already assessed to Profits Tax in the name of other persons, such as partnership; Interest income and trading profits derived from long-term debt instruments; Interest, profits or gains from qualifying debt instruments (issued on or after 1 April 2018);