Hong Kong is renowned for its low tax regime which makes it a place where foreign investors choose to engage in business activities. The corporate tax system in Hong Kong follows a flat-rate and territorial principle. In addition, many tax incentives have been introduced in order to increase the region’s competitiveness. For further details on corporate tax in Hong Kong and other legal tax issues, it is recommended to seek counsel from a Hong Kong law firm.
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Current Hong Kong corporate tax rate
Corporate tax rate in this region has averaged 16.5% from 1997 to 2015 and it has reached its highest point in 2004 at 17.5% and its lowest point in 1999 of 16%. Momentarily the corporate tax rate in Hong Kong is as follows:
– 16.5% for corporations;
– 15% for unincorporated businesses.
Hong Kong has adopted a territorial basis of taxation, therefore tax is payable by every person (including corporations, sole proprietorships, and partnerships) engaging in trade, a profession or a certain business on its territory, on the profits arising from those operations carried on in Hong Kong. A company is considered a Hong Kong resident, and thus fully liable for corporate taxation if it is incorporated in Hong Kong or managed/controlled from the city.
Corporate tax is not applicable on profits derived from carrying on a business, a profession or a trade whose source is outside Hong Kong. Our lawyers in Hong Kong can provide you with further details on profits tax and its implications.
The territorial principle applies to both residents and non-residents, thus, if a non-resident gains profit from Hong Kong, he is liable to pay the corporate tax in the area.
There is no surtax applicable in Hong Kong and no alternative minimum tax. The Special Administrative Region does not use a participation exemption nor a holding company regime.
Requirements when filing corporate tax in Hong Kong
Generally, every year in April, the Inland Revenue Department (IRD) issues the corporate tax returns. Businesses should file the profits tax return in a month’s time after the date of issue. For newly registered businesses, the IRD issues the profits tax return eighteen months after the date of incorporation.
A set of returns has to be filed by the company, which includes:
- • the specific profits tax return form (as received from the IRD);
- • an additional form (for the company’s tax and financial data);
- • a certified copy of the balance sheet;
- • a tax computation stating the profit and loss.
The tax year in Hong Kong starts of April 1 and ends the next year on March 31. Companies in Hong Kong may receive an extended period for filing tax returns if their financial year ends on a different date.
Our law firm in Hong Kong can advise you on any legal tax issues, as well as on corporate tax in Hong Kong, so do not hesitate to contact us.