Hong Kong: Taxation

Many countries consider Hong Kong an 'offshore' jurisdiction; the attitude of the government however is that the territory is not an offshore centre in the traditional sense of the word but rather a low tax area which levies tax according to the territorial principle. The tax laws of Hong Kong are extremely simple compared to other onshore jurisdictions and the fiscal advantages of operating there could be summarized as follows:

• Tax rates are extremely low by OECD standards. (See below for further details). Taxation case law is minimal since the low tax rate means that the costs associated with challenging a decision of the revenue authorities usually outweigh any monetary gain.
• Taxes are levied according to the "territorial principle" meaning that taxes are only levied on income "derived from or arising in" Hong Kong and not on income sourced outside the Territory.
• A number of taxes that exist in most jurisdictions do not exist in Hong Kong. Thus there are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them. In the long term it is intended to completely phase out stamp duty on the sale and issue of shares and securities and to reduce direct taxes further.

Tax Rates in 2011

Individual

• The standard rate of Salaries Tax is 15%.

Corporate

• The normal rate of Profits Tax is 16.5% for corporations and 15% for unincorporated businesses.

Capital gains

• Hong Kong does not levy capital gains tax.

Indirect Taxes

• Hong Kong does not levy value-added tax (VAT), goods and services tax (GST) or sales tax.

Other Taxes

• Estate Tax was abolished in 2005.
• Stamp duty on immovable property is charged at rates up to 4.25%, depending on the sale or transfer price of the property. However, to curb property speculation, the government introduced a Special Stamp Duty (SSD) on residential property in November 2010. Further measures to discourage speculation in the property market have not been ruled out by the government.

Withholding Taxes

• There are no domestic withholding taxes on dividends, interest or royalties