The taxation of a LLC in Hong Kong is performed on a territorial basis, with the corporate income tax being paid for the profits that are derived from trade or business in the Special Administrative Region.
The taxation of the private and the public limited company (LLC) follows the same principles and there are no differences in the number of taxes or the tax value for these two business forms.
Our tax lawyers in Hong Kong are able to provide foreign and local investors with complete information about the Inland Revenue Ordinance and other relevant tax laws. Our team also offers company formation services that can be suitable for all foreign investors looking to open a private or a public limited company.
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The corporate income tax for the LLC
The corporate income tax is levied on a territorial basis, meaning that companies are taxed according to their residency. A company is a resident when it is incorporated in Hong Kong or if it is managed from here. A limited liability company is taxed only on its Hong Kong-source income.
The corporate tax rate in Hong Kong is a two-tier one starting with the year of assessment 2018/2019 (from April 1 2018): the tax is 8.25% (7.5% for unincorporated companies) on the first 2 million HKD of taxable profits and 16.5% (15% for unincorporated companies) for the rest of the profits.
Groups of companies can nominate only one of the legal entities to benefit from the two-tier rates. This is done in order to avoid the abuse of the taxation system.
Dividends received from foreign companies are not taxed as they are treated as foreign-sourced income. One of our tax lawyers in Hong Kong can provide more information about the corporate income tax.
Other taxes for LLCs in Hong Kong
Hong Kong has a low tax regime and some of the taxes encountered in other jurisdictions are not applicable here. However, investors should also note the following taxes for LLCs:
- – 15%: the real property tax charted on the net assessable value of the property;
- – 5%: the regular mandatory contributions made by both the employer and the employee to the Mandatory Provided Fund for social security purposes.
- – 0.2%: this is the value of the stamp duty applicable on the transfer of shares in Hong Kong.
- – 8.5%: this is the maximum ad valorem stamp duty applicable on the sale of nonresidential property (calculated as a percentage of the property’s value).
- – 15%: the standard ad valorem stamp duty on the residual property (a flat rate, with exceptions in some cases).
There is no withholding tax on dividends, interest and royalties in Hong Kong. Other taxes that are not imposed in Hong Kong are the capital duty, the payroll tax, and the transfer tax. Moreover, Hong Kong does not impose a value-added tax.
Although it has a low-tax regime, Hong Kong has signed 41 double tax treaties for the purpose of reducing double taxation for investors who derive income both from Hong Kong and from another signatory state. The team of tax attorneys at our law firm in Hong Kong can give investors more details about these treaties.
The LLC in Hong Kong
The limited liability company, which can be private or public, is the most commonly used business form in Hong Kong. The private LLC is suitable for small and medium businesses while the public one is proper for larger corporations. Our attorneys in Hong Kong have assisted many foreign investors in opening this type of company. Below, we highlight the main reasons why the LLC is a preferred business form.
The advantages of the LLC are the following:
- Legal entity: the LLC is a legal entity that can enter into agreements, sue or be sued, and it is distinct from its members.
- Limited liability: as the name suggests, the members are only liable up to the extent of the capital they invest in the business.
- Succession: the members can opt-out of the company without affecting its activity just as new members may be admitted (in line with the limitations for the public/private form).
- Image: the LLC has a positive image and it is taken seriously in the business environment.
Investors who wish to know more about these business types, the registration and the requirements for licensing set forth by the Hong Kong Government can reach out to our attorneys in Hong Kong.
The tax benefits, in the form of a low corporate income tax, no VAT and no sales tax are one of the main reasons why investors choose to open a company in the Special Administrative Region.
Contact our law firm in Hong Kong for complete information about taxation for limited liability companies as well as other business forms.