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Profits
tax is levied under the Inland Revenue
Ordinance on the "assessable profits"
of corporate entities, partnerships, trusts
and sole proprietorships. It is levied according
to the "territorial principle" meaning
that it is the source of the income rather
than the residential or non-residential status
of the entity that determines whether or not
trading income is or is not subject to Hong
Kong profits tax.
The
territorial principle means that only income
which meets the following 3 preconditions
is subject to Hong Kong profits tax:
The entity must trade in Hong Kong
The income must arise from such a trade
The income must arise in or be derived from
Hong Kong
The
residential or non-residential status of the
entity is irrelevant as is the fact that the
income is or is not exempt from tax in a foreign
jurisdiction. Advance tax rulings are available
in the SAR and are particularly favored and
recommended on the question of whether or
not for profits tax purposes trading income
is deemed onshore and taxable or offshore
and tax exempt.
"Source
of income" for profits tax purposes has
been defined as the geographical location
of the operation which substantially gave
rise to the income, but the Inland Revenue's
Practice Note No 21 adds more precise criteria:
The establishment of an office in Hong Kong:
does not of itself render a company liable
to profits tax where that office is not generating
profits from within the territory.
Place where the contract was negotiated and
executed: A key criterion is the place
where the contract was negotiated and signed.
Income relating to a sale contract negotiated
by the seller from the territory by way of
facsimile or telephone where the negotiation
did not require travel outside the territory
is deemed Hong Kong source income for profit
tax purposes. Likewise if the contract is
negotiated and signed outside the territory
and the goods sold are not sourced from within
the territory then any income arising is not
deemed Hong Kong source income for profits
tax purposes. This is often achieved by utilizing
an offshore company which re-registers in
the territory as a foreign company but whose
directors both remain non resident and negotiate
and execute the contract from the offshore
jurisdiction.
Booking Center: Where the Hong Kong
entity is merely a booking center in the sense
that it does not negotiate or draft the sale
agreement (which is carried out abroad) but
merely issues an invoice on instructions,
operates a bank account and maintains accounting
records covering the transaction then the
income from such a transaction is not deemed
Hong Kong source income for profits tax purposes.
Shares & Securities : Gains from
shares and securities purchased and sold on
the territory's stock exchange are deemed
Hong Kong source income for profit tax purposes
(assuming the entity is subject to profit
tax on such an activity).
Cross
Border Land Transportation:
Income from cross-border land transportation
is deemed Hong Kong source income if the passengers
or goods are normally uplifted in Hong Kong.
Loans : Loan interest on a loan made available
to the borrower within the jurisdiction of
Hong Kong is deemed to be Hong Kong source
income for profits tax purposes and taxable
in the hands of the Hong Kong lender whereas
loan interest on a loan made available to
the borrower in a foreign jurisdiction is
not deemed Hong Kong source income and is
therefore not taxable.
Companies
pay a standard rate of 16.5% on assessable
profits.
Businesses other than corporate entities
pay a rate of 15% on assessable profits.
These
rates have applied from the year of assessment
2008/9.
A
tax rate at 50% of the normal profits tax
rate will be applied to trading profits and
interest income received or derived from qualifying
debt instruments issued in Hong Kong, and
to offshore business of professional reinsurance
companies.
All
taxpayers are subject to the same corporation
or unincorporated business tax rate irrespective
of their residential status.
Special concessionary rates of profits tax which
are substantially less than the standard rates
apply to the following businesses or sources
of income:
Trading
profits and interest income derived
from debt instruments issued in Hong
Kong with an original maturity of not
less than 5 years will be chargeable
to tax at a concessionary rate, being
50% of the normal profits tax rate.
The
re-insurance of offshore risks is taxed
at a concessionary
rate, being 50% of the normal profits
tax rate.
Life
insurance businesses are assessed at
5% of the value of the premiums arising
in Hong Kong.
An
entity whose business is to grant rights
to use a trademark, copyright, patent
or know how pays a flat profit tax of
30%
of 16.5% (4.95%, or 4.5% for an unincorporated
business)
of the payment received with all related
expenses being non tax deductible. If
the recipient of the payment is a related
offshore licensing company the Hong
Kong company must withhold and hand
over 4.95 % of the fee paid over.
Income
from the international operations of
shipping companies is exempt from tax
unless the ships are operating in Hong
Kong waters or proximate to the same
in which case only that proportion of
income earned in Hong Kong is subject
to local tax of 16.5%. Shipping profits
meeting the conditions of the double
taxation agreement with the USA are
exempt from profits tax in Hong Kong.
Irrespective
of whether or not the company is managed
and controlled from Hong Kong assessable
profits are the proportion of income
arising within Hong Kong (from the uplift
of passengers and freight locally) to
the proportion of worldwide income.
Under a number of international aircraft
double taxation agreements the government
has agreed to include income arising
abroad for taxation in Hong Kong where
that income is exempted abroad under
the agreement. Likewise profits meeting
the conditions of the double taxation
agreements are exempt from profits tax
locally. The rate is 16.5% of assessable
profits.
The
sale of goods on consignment from Hong
Kong on behalf of a non resident is
subject to a tax of 1% of the turnover
without any deductions unless the non
resident can produce accounts to show
that he would have paid less profit
tax than consignment tax in which case
a normal rate of tax will apply. The
selling of goods on consignment is deemed
to be the equivalent of creating a permanent
establishment.
An
entity whose business is to rent out
a film, tape or sound recording for
use in any cinema or television program
pays a profit tax of 30%
of 16.5% (4.95%, or 4.5% for an unincorporated
business) of
the payment received with all related
expenses being non tax deductible.
Hong
Kong Special Administrative Region (HKSAR)
Chief Executive, Donald Tsang, announced during
his Policy Address to the Legislative Council
in October 2007, cuts in both salaries and
profits taxes in 2008-09.
"Given
the significance of profits tax on the Government's
revenue, I intend to adopt a prudent approach
by initially offering a one percentage point
cut to 16.5 percent in 2008-09."
The
rate of tax for unincorporated businesses
was also but by 1% for 2008/9, to 15%.
In
the February 2008 budget, Financial Secretary
John Tsang announced that small and medium
businesses would be in line for a one-off
tax reduction, with a proposed 75% concession
of profits tax for 2007-08, up to a maximum
of HKD25,000. Business registration fees were
also waived for 2008-09.
Budget
2010/2011 Profits Tax Measures
To encourage the business
sector to purchase more electric vehicles,
hybrid vehicles and other environment-friendly
commercial vehicles, the Financial Secretary
proposed to accelerate the tax deduction for
capital expenditure on environment-friendly
vehicles.
According to the Inland
Revenue Ordinance (Cap. 112), businesses are
entitled to a total of 72% of the capital
expenditure as deduction of depreciation allowance
in the first year of its purchase of the specified
machinery (taking the category of motor vehicle
as example). Starting from the second year
onwards, businesses will be granted annual
allowances at the rate of 30% (applicable
for the category of motor vehicle) of the
reducing value for that specified machinery.
Under the proposed tax relief, the tax deduction
provided to a business in the first year of
purchase of an eligible Environment-friendly
Vehicle will be increased from 72% to 100%
of the capital expenditure. Thus, the deduction
of cost is accelerated.
The Inland Revenue
(Amendment) (No.3) Ordinance was gazetted
on 18 June 2010.
Currently, a concessionary
profits tax rate at 50 per cent of the normal
rate is applied to the interest income and
profits derived from qualifying debt instruments
with a maturity period of less than seven
years but not less than three years. The Financial
Secretary proposed to extend this concession
to cover qualifying debt instruments with
a maturity period of less than three years.
Further, to better
meet market requirements, the Financial Secretary
also planned to amend the provisions under
the Inland Revenue Ordinance (“IRO”)
that require such qualifying debt instruments
to be issued to the public in Hong Kong. The
government announced in February 2010 that
these proposals would take effect upon the
enactment of the law amendments.
To promote wider application
of intellectual property by enterprises and
the development of creative industries, the
Financial Secretary proposed to expand the
existing regime of tax deductible capital
expenditure on the purchase of patent rights
and industrial know-how to cover registered
trademarks, copyrights and registered designs.
It was announced in
February 2010 that the Inland Revenue Department
would conduct a thorough study of the proposal
(including scope of deductions) and submit
the Inland Revenue Amendment Bill to the Legislative
Council as soon as possible.
Budget 2010/2011 also
brought about clarification by the Inland
Revenue Department of the meaning of "central
management and control" in the Departmental
Interpretation and Practice Notes No. 43 to
address the industry's concern about the residency
requirement for directors of the management
committee of offshore funds in their applications
for profits tax exemption.
Fees
for 1-year Business Registration Certificates
and 1-year Branch Registration Certificates
have been waived as a result of the 2010/2011
budget for the period from August 1, 2010
until July 31, 2011. Businesses are still
required to pay the levy for the Protection
of Wages on Insolvency Fund.
A number of factors including the territorial
principle have created an extremely attractive
fiscal regime exempting categories of income
which in most other jurisdictions would normally
be subject to a profits tax:
Dividend
income received by a Hong Kong parent company
from either a resident or foreign subsidiary
is not deemed income in the holding company's
hands and is thus not subject to an assessment
to profits tax.
There
is no separate schedule of capital gains
tax in Hong Kong. Nor does the territory
follow the practice of other jurisdictions
and tax capital gains as trading income
which is subject to profits tax. However
by way of exception a business whose activities
is to trade in capital assets is assessed
to profits tax on any profits made on the
sales of those capital assets as if these
gains were trading income. Likewise if the
asset is deemed a revenue asset as opposed
to a capital asset then any profits made
on its disposal are deemed trading income
and assessed to profits tax. The absence
of capital gains tax (often together with
other factors) has had a number of fiscal
consequences:
Profits
remitted to a Hong Kong parent which
represent the profitable disposal of
its shareholding in a resident or non
resident subsidiary are not assessed
to tax in the territory both because
the gains are capital gains and because
(in the case of a non resident company)
income arising outside jurisdiction
is exempt from tax under the principle
of territoriality.
The
profitable disposal by a Hong Kong entity
of foreign real estate is not assessed
to tax in the territory both because
the gains are capital gains and because
of the principle of territoriality.
This includes a disposal effected by
means of the Hong Kong entity selling
100% of the shares in a company whose
sole asset is the foreign real estate.
Since
currency gains and losses are considered
to have a capital nature they are neither
taxable profits nor deductible losses.
The
transfer by a Hong Kong entity of capital
assets to a foreign or resident subsidiary
or branch at market value and at a profit
is considered a capital gain and thus
does not attract tax in Hong Kong (unless
the assets are classified as revenue
assets).
Rental
income from foreign real estate is not assessable
income in Hong Kong for profit tax purposes.
(However depreciation & interest payments
on loans made to finance the real estate
tax are non deductible in the territory).
The profits and losses of the foreign branch
or subsidiary of a Hong Kong company are
neither taxable profits nor deductible losses
in Hong Kong owing to the territoriality
principle.
Interest income received by a resident or
non resident business entity on deposits
lodged with a financial institution are
exempt from profits tax (By way of exception
if the deposit was made by a "financial
institution" then any interest received
by the financial institution is deemed trading
income for profits tax purposes and taxed
accordingly).
The tax treatment of loan interest payments
and receipts requires a special mention.
3 situations apply:
Loan
interest repayments made by a
Hong Kong borrower to a foreign lender
are only tax deductible in Hong Kong
if the foreign lender is a "financial
institution". If the foreign lender
is not a financial institution but is
the parent or subsidiary of the Hong
Kong borrower the interest payments
are not tax deductible in the territory
unless the parent or subsidiary is a
connected company and is subject to
Hong Kong profits tax on the loan interest
receipts.
Loan
interest repayments received
by a Hong Kong company on a loan made
to a 3rd party are not taxable income
in the hands of the Hong Kong lender
if the loan was advanced to the borrower
from a foreign jurisdiction such as
Gibraltar. If the loan was advanced
to the borrower from Hong Kong then
the loan interest repayments are taxable
in the territory.
A
Hong Kong parent company which borrows
money to set up a subsidiary or a branch
in a foreign country cannot deduct the
cost of the loan for profit tax purposes
since the income earned by the borrower
has a foreign source. Therefore the
loan should always be sourced by the
foreign subsidiary or the foreign branch
in the foreign jurisdiction in which
it will be tax deductible.
Owing
to the principle of territoriality there
is no controlled foreign company
legislation under which the profits and
capital gains of non resident subsidiaries
can be taxed as if they were the profits
of a resident parent company.(The converse
applies in both the United States and the
United Kingdom).
Consolidated
group accounting under which the profits
of one company in the group can be set off
against the losses of another company in
the group so as to reduce the over all profit
subject to profits tax does not exist
in Hong Kong.
Losses can be carried forward indefinitely.
This compares favorably with other jurisdictions
which only allow losses to be carried forward
for a fixed period of time (usually 5 years).
Since there are no debt/equity thin capitalization
rules in Hong Kong a foreign parent can
set up a resident subsidiary with a minimum
of share capital and a maximum of loan capital
and thereby reduce taxable profits arising
in Hong Kong through excessive interest
payments.
The repayment by a foreign subsidiary to
its Hong Kong parent of the principal of
loan capital or share capital is free of
tax in the territory including where the
repayment is by way of a capital reduction
or a final dividend distribution in a liquidation.
The following sources of trading income
are exempted from profits tax:
Interest
received or capital gains made on the
purchase, retention or sale of a Government
bond issued under the Loans (Government
Bonds) Ordinance;
Exchange
fund debt instruments;
Hong
Kong dollar denominated multi
agency debt instruments;
Specified
investment schemes which comply with
the requirements of a government supervisory
authority are exempt from tax. Specified
investment schemes include investments
in unit trusts and mutual funds.
Profits Tax Deductible Allowances
The
following allowances are deductible from assessable
profits for profits tax purposes.
A
deduction is allowed for a contribution
(or provision for a contribution) by an
employer amounting to not more than 15%
of the employee's annual salary into a recognized
retirement scheme registered under the Occupational
Retirement Schemes Ordinance. (It is
in any event an offence for an employer
to operate a pension scheme that is not
registered under this Ordinance). Since
the Mandatory Provident Fund Scheme
came into effect on 1st December 2000 allowable
deductions are either 5% of an employee's
gross salary or a maximum of USD2,560 per
month.
Charitable
donations made to approved charitable institutions
or trusts of a public character or to the
government of the Hong Kong Special Administrative
Region, amounting in aggregate not less
than HKD100 but not exceeding 35% (10% for
years of assessment up to and including
2002/03; and 25% for years of assessment
2003/04 to 2007/08) of the adjusted assessable
profits before deduction of donations, are
allowable for deduction in computing the
assessable profits.
Hong Kong tax paid on foreign income which
by law is chargeable to profits tax in Hong
Kong is an allowable deduction for profits
tax purposes. (N.B. foreign source income
is not normally subject to tax in the territory).
Any property tax
already paid is deductible from income for
profits tax purposes;
Depreciation allowances for capital equipment
are as follows:
60% of the cost of all other plant and
machinery can be written off in the
first year with a rate of 10-30% written
off thereafter.
20% of the cost of construction of an
industrial building can be written off
in the 1st year with 4% per annum thereafter.
Expenditure
incurred refurbishing or renovating
business premises can be written off
in 5 equal installments.
In
May, 2004, LEGCO
expanded the scope of deduction for
research and development expenses under
profits tax to cover design-related
expenses.
Hong
Kong does not currently have a sales tax,
but there has been much discussion of the
need for one. In March, 2004, Financial
Secretary Henry Tang announced that the introduction
of a sales tax was likely to be at least three
years away. But the Hong Kong government said
in December 2006, that it will abandon plans
for a goods and services tax.
Tang
used his maiden budget speech to make the
case for the introduction of a GST-style indirect
tax. “Hong Kong's tax base is narrow. In the
long run, we need to broaden it to secure
a steady source of revenue,” he observed,
adding that:
“In
Hong Kong, non-tax revenue accounts for about
40 per cent of total revenue, whereas the
figure for OECD economies is around 14 per
cent. This shows that Hong Kong has a far
heavier reliance than those economies on non-tax
revenue, such as land revenue and investment
income.”
He continued: “Hong Kong is the only developed
economy that does not have one. GST is broad-based
and equitable, and is capable of yielding
a sizeable and steady revenue. Depending on
any exemptions, a GST of 5 per cent would
generate around $20-30 billion revenue for
the government in a full year."
“Besides,
being less sensitive than direct taxes to
the cyclical movement of the economy, GST
can enhance the government's ability to withstand
the pressure on public finances brought about
by an economic downturn.”
Tang announced at the time that the government
had established an internal committee to conduct
a detailed survey into the implementation
of a sales tax in the territory, drawing upon
the experiences of other nations. The committee
was expected to report to the Financial Secretary
by the end of 2004. “After that, I will announce
what will be done next. We are likely to need
at least three years to implement GST.”
In
his 2006 budget speech, Mr Tang said that
while Hong Kong's financial position had been
improving gradually, the jurisdiction still
faced the problem of a narrow tax base: At
the time, about one in three employed people
paid tax and most of the revenue from salaries
tax comes from the minority of taxpayers.
To
broaden the tax base, Mr Tang reiterated that
he will consider introducing a goods and services
tax - after publishing a consultation paper
on the subject later in the year to seek the
public's views.
In
a surprising about turn, the Hong Kong government
said in December 2006, that it will abandon
plans for a goods and services tax in the
face of widespread public hostility to the
idea.
Public
consultation has showed that people have concerns
that a GST would be inflationary, would be
regressive and would discourage tourists.
“We
have heard clearly a strong opposition to
the GST from the public,” said Financial
Secretary Henry Tang Ying-yen. He said that
the government would still put forward ideas
for widening the tax base, something that
has been strongly urged on Hong Kong by the
IMF and other bodies, but that they would
not include the GST as an option.
Commenting
on the motion at the time, Henry Tang said
that: "We are disappointed at the outcome.
Actually the biggest difference between the
government and the Hon Yeung Sum's motion,
that this Council opposes the introduction
of a Goods and Services Tax, is that the actual
effect of the motion will suffocate further
discussion on broadening the tax base and
a Goods and Services Tax. I hope in this incident,
that LegCo members have not misjudged public
sentiment nor have they lost a valuable chance
to discuss a very important subject in the
community."
He
continued: "Actually, there was a lot
of discussion today regarding various different
types of taxes. New taxes, for example capital
gain tax, progressive tax or dividend tax
and indeed they have raised a number of questions
as well as concern about the GST. This is
exactly why we should continue this discussion
and we should continue to consult."
Hong Kong Property Tax
Property tax is levied annually on the owner
or occupier of real estate located in Hong
Kong. Since ownership may be split (eg an
entity with a 100 year lease may grant a 50
year sublease to a 3rd party) separate assessments
may be made on the same parcel of land. Property
tax which is governed by the provisions of
the Inland Revenue Ordinance has the
following characteristics:
The
annual assessment to property tax is based
on 100% of the annual rental income of the
property less any rates paid, any bad debts,
a repairs and outgoings allowance constituting
a maximum of 20% of the annual rental income
(irrespective of whether or not more was
actually spent) and other allowable deductions.
In determining "rental income"
the Inland Revenue will include any premiums,
service charges, management fees, rates,
repairs and outgoings paid by the tenant
either to the owner or on behalf of the
owner under the terms of the lease. In order
to assist the inland revenue to assess the
rental income the owner is obliged to keep
records for up to 7 years and inform the
tax authorities of the actual sums received.
Property
tax is based on the territorial principle
and is levied on buildings, parts of buildings,
wharves, piers and other structures located
in Hong Kong. The fact that the owner is
non resident, non domiciled or a national
of a foreign country is completely irrelevant
and does not exempt him from having to pay
this tax.
The
tax rate is 15% (2008/9 onwards) of the
assessed annual rental income.
Property
tax is levied on a provisional assessment
basis which takes into account the previous
year's rental income with a tax credit being
granted where the previous year's rental
income exceeds the current year's rental
income. Relief is also given where part
of the assessed rental income is a bad debt.
The
following types of property are exempted
from this tax:
The
properties of foreign governments;
Charitable
bodies exempted from taxation;
Business
entities who derive profits from and
pay profits tax on rental income derived
from ownership of real estate are entitled
to a set-off of property tax against
profits tax with a tax credit being
granted where the property tax exceeds
the profits tax;
A
corporation which purchases a property
for its own occupation does not pay
property tax on the deemed rental income
which it could have earned if it had
rented out the building.
It
is advisable for properties to be owned
by Hong Kong corporate entities since property
tax does not make allowances for either
depreciation or interest costs on a loan
to finance the purchase, while such costs
are deductible for corporate profits tax
purposes. A foreign company cannot own real
estate in Hong Kong unless it is registered
as a foreign
company under the provisions of the
Companies Ordinance.
The
laws on stamp duty are set out in the Stamp
Duty Ordinance. Stamp duty is either a
fixed fee or is calculated ad valorem depending
on the nature of the transaction. It is payable
on:
Leases,
assignments and conveyances of immovable
property.
The transfer of shares or marketable securities
The transfer of bearer instruments (being
instruments under which ownership is transferred
through physical delivery).
Immovable Property Stamp Duty Rates
2
separate rates of stamp duty are payable on
immovable property:
The
Conveyance of a Freehold or the Assignment
of a Leasehold: With effect from April
1, 2010, the rate of stamp duty is progressive
and varies from HKD100 to 4.25% if the value
of the transferred interest is more than
HKD21,739,120. The
2007 Finance bill reduced the stamp duty
rate on transactions of properties with
a value between HKD1 million and HKD2 million
from 0.75% to a fixed amount of HKD100.
The
Granting of a Short-Term Lease: The
stamp duty rate is progressive and varies
between 0.25% and 1% of the annual rental
value depending on whether the lease is
for less than one year or more than 3 years.
Any agreement which increases the rent reserved
by a chargeable stamped lease is itself
chargeable to stamp duty in respect of the
additional rent which it makes payable.
Immovable Property Transactions Exempted
from Stamp Duty:
The
following immovable property transactions
are exempt from stamp duty:
Non-Residential
Property: Instruments transferring "non
residential property" are exempt from
stamp duty. Non-residential property is
defined as property which may not by law
be used at any time for residential purposes.
Gifts
to Charitable Institutions or Public Trusts:
Instruments transferring immovable property
by way of gift to a charitable institution
or public trust are exempt from stamp duty.
Approved
conveyances on sale to diplomatic or consular
bodies.
A
transaction conveying an interest in immovable
property between "associated corporate
bodies". Entities are defined as
associated corporate bodies when one entity
holds over 90% of the share capital of the
other or when a 3rd entity holds over 90%
of the share capital of both entities. The
association must remain for 2 years after
the transfer in default of which the full
level of stamp duty must be paid over retrospectively.
The financing of the transaction cannot
come from an unassociated body.
There
are elaborate anti avoidance provisions in
place aimed at deterring speculation. Thus
where the beneficial owner of real estate
executes an instrument in favor of a third
party under which he undertakes to hold the
real estate on trust for the third party duty
is payable on this instrument as if a conveyance
had taken place. Likewise stamp duty is payable
where under an uncompleted contract of sale
the vendor is deemed by law to hold on trust
for the purchaser.
Stamp Duty Payable on Shares & Marketable
Securities
Stamp
duty of 0.2% is payable on the transfer of
shares or marketable securities whereas 0.1%
stamp duty is payable on the issued share
capital of a company.
Securities Transactions Exempted from Stamp
Duty
The
following transactions are exempt from stamp
duty:
Loan
capital transactions, bills of exchange,
promissory notes, certificates of deposit,
exchange fund debt instruments and Hong
Kong multilateral agency debt instruments.
Transactions involving debentures, loan
stocks, funds bonds or notes that are not
denominated in Hong Kong currency except
to the extent that they are redeemable in
that currency.
Stock donated to charitable bodies or public
trusts which are exempt from taxation in
Hong Kong.
A transaction conveying stock between "associated
corporate bodies". Entities are defined
as associated corporate bodies when one
entity holds over 90% of the share capital
of the other entity or when a 3rd entity
holds over 90% of the share capital of both
entities. The association must remain for
2 years after the transfer, in default of
which the full level of stamp duty must
be paid over retrospectively. The financing
of the transaction cannot come from an unassociated
body.
Stamp Duty Payable on Bearer Instruments
The
amount of stamp duty payable is 3% of the
value of the instrument transferred.
Stamp
Duty Concession in Respect of ETFs
The Financial Secretary
proposed in the 2010/2011 budget to extend
the stamp duty concession in respect of the
trading of exchange traded funds (ETFs) to
cover ETFs with the value of Hong Kong stock
not exceeding 40% of the aggregate value of
the underlying portfolio. The measure was
to be implemented with immediate effect. ETFs
satisfying the requirement can apply to the
Inland Revenue Department for the concession
under section 52 of the Stamp Duty Ordinance.
The
tax year starts on April 1. The assessment
to profits tax is provisional and is based
on the previous year's assessable profits
with 75% of the assessment being due by the
3rd quarter and the final 25% being due at
the year-end. Tax payments delayed less than
6 months are subject to a 5% non-deductible
surcharge whereas payments overdue by more
than 6 months are subject to a 10% non-deductible
surcharge. A tax credit is granted where the
previous year's assessment exceeds the currents
year's assessable profits.
There are no withholding taxes in Hong Kong
as such, but there are certain circumstances
in which a company making a payment to a foreign
associate (subsidiary or holding company)
which is deemed to be Hong Kong source income
needs to needs to withhold the tax.
For
instance, when a Hong Kong entity pays royalties
for the use of intellectual property to its
own offshore licensing affiliate, then tax
is due of 30% of 16.5% = 4.95% (4.5% for an
unincorporated business) and this must be
withheld by the Hong Kong paying company.
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