The HK tax regime is on a territorial basis i.e. only profits derived from Hong Kong are taxable. The current profits tax rate for companies is 8.25% for the first HK$2 million and 16.5% on the balance. Profits derived outside of HK are not taxable but subject to review by the Inland Revenue Department (IRD). That said, if a company has been claimed offshore profits for years and the amounts are substantial, IRD may ask the company to confirm its tax residency.
HK has been following the global tax trend particularly the automatic exchange of financial information and common reporting standard.
In the past few years, much efforts have been made in promoting innovation and entrepreneurship here. A significant step was made in the 2018/19 budget, Research & Development (R&D) expenditures are given tax credits. Qualifying R&D expenses include payments made to designated local research institutions approved by the Innovation and Technology Commission as well as expenditures in relation to employees and consumable items. Tax deduction is 300% for the first HK$2 million and 200% for the balance. Other R&D expenditures not falling into this category still enjoy 100% deduction. This is to provide incentive for more local R&D activities.
For employees, there is a need to file Tax Return – Individuals and pay salaries tax for remuneration derived from HK. The tax rate is calculated at progressive rates from 2% to 17% or at a standard rate of 15%, whichever is the lower.
Buy and sale of shares is subject to a 0.2% stamp duty on the higher of the consideration or the fair market value of the shares. Stamp duty on the conveyancing of property ranges from 1.5% to 8.5%. Buyer’s stamp duty and special stamp duty may also be payable on residential properties depending on the status of the buyer / seller e.g. first time buyer, holding period of the seller. These are attempts to cool down the drastic rise in prices of the HK property market since 2010.
There is no withholding tax, sales tax nor inheritance tax. As such, the tax base in HK is rather narrow. The Government has been considering introducing sales tax but no progress has been made so far.