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Hong Kong Tax Rates and Recent Amendments

Update Time:2010.10.30 Source: YOUFU ACCOUNTANTS LIMITED Clicks:3937

Hong Kong Tax Rates and Recent Amendments
Hong Kong is characterized as a low tax jurisdiction and the Hong Kong government strives to maintain the nation's tax friendly position by introducing timely and progressive tax measures. Recent tax amendments such as lowering corporate tax (also commonly known as profits tax in Hong Kong) and personal tax (commonly referred to as salaries tax in Hong Kong) rates, tax concessions for individuals, and other measures ensure that the Hong Kong tax regime remains competitive for companies and individuals.

This guide provides a summary of the recent tax amendments in Hong Kong. 

Current Tax Rates in Hong Kong
Tax Rates for Companies
Income Tax Rate
Tax rate for corporations 16.5%
Tax rate on capital gains 0%
Tax rate on shareholder dividends 0%
Tax rate on foreign-sourced income 0%

For a comprehensive overview of corproate taxes, refer to Hong Kong Corporate Tax guide.

Tax Rates for Individuals
Income (in HKD currency) Tax rate
1 - 40,000 HKD 2%
40,001 - 80,000 HKD 7%
80,001 - 120,000 HKD 12%
Above 120,000 HKD 17%
Tax rate on capital gains 0%
Tax rate on income earned overseas 0%
Tax rate on dividends from a Hong Kong company 0%

For a comprehensive overview of personal taxes, refer to Hong Kong Personal Tax guide.

To estimate your Hong Kong taxes and compare them with those in your home country, refer to Online Tax Calculator.

History of Tax Amendments in Hong Kong
Tax Amendments: 2010-2011 Budget
The 2010-2011 budget focuses on consolidating economic recovery, post the financial crisis, and further developing the Hong Kong economy in an increasingly competitive global business environment. The following tax measures have been announced for the tax year April 1, 2010 - March 31, 2011.

Reduction of business registration fees: It is mandatory for all Hong Kong companies to register their business with the Inland Revenue Department's Business Registration Office and obtain a Business Registration Certificate or Branch Registration Certificate. There are two types of certificates - a one-year certificate and a three-year certificate. The fee for a one-year Business Registration Certificate is HK$2,450 and for a three-year certificate, HK$6,550. The fee for a one-year Branch Registration Certificate is HK$523 and for a three-year certificate, HK$1,539. 
According to the 2010-2011 Budget, business registration fees has been reduced by HK$2,000 for a Business Registration Certificate and HK$73 for a Branch Registration Certificate for all companies.

Extension of stamp duty concession in relation to the trading of Exchange Traded Funds (ETFs): Currently, stamp duty is waived for the trading of ETFs with no Hong Kong stock in their portfolios, while ETFs with Hong Kong stocks are not entitled to this concession. 
According to the 2010-2011 budget, the stamp duty concession will be extended to ETFs that track indices comprising not more than 40% of Hong Kong stocks. This measure is designed to reduce the trading cost and promote the diversification and healthy growth of the ETF market.

Extension of concessionary corporate tax rate to qualifying debt instruments: Currently, a concessionary corporate tax rate i.e. 50% of the normal rate of 16.5% is applied to interest income and profits derived from qualifying debt instruments with a maturity period of less than seven years but not less than three years.  
According to the 2010-2011 budget, the concessionary tax rate will be extended to qualifying debt instruments with a maturity period of less than three years. Additionally, the government proposes to amend the provisions under the Inland Revenue Ordinance that require such debt instruments to be issued to the public in Hong Kong.

100% tax deduction for capital expenditure on environment friendly vehicles: In order to encourage the business sector to purchase more electric vehicles, hybrid vehicles and other environment-friendly commercial vehicles, business enterprises will be entitled to a 100% tax deduction for capital expenditure on environment-friendly vehicles.  
Cash Rebate Scheme for Research and Development: To encourage business organisations to increase their investment in R&D and strengthen their co-operation with R&D institutions, the government has proposed to introduce an R&D Cash Rebate Scheme in April 2010. 
Extension of tax deductions for capital expenditure incurred in relation to purchase of IP rights: Currently, businesses are entitled to tax deductions for capital expenditure incurred in relation to purchase of patent rights and industrial know-how.  
According to the 2010-2011 budget, the tax deduction will be extended to capital expenditure incurred in relation to purchasing registered trademarks, copyrights and registered designs. This measure is intended to promote the wider application of intellectual property by enterprises and the development of creative industries.

100% reduction of "Government rate" on properties for first two quarters of 2009-2010: "Government rate" is one of Hong Kong's indirect taxes levied on the owners or tenants of properties and is payable to the Government on a quarterly basis in advance. Government rate is calculated as 5% of the estimated annual rental value of a property. The annual rental value of a property is calculated on the basis of the prevailing market rental rates. Note that Government rate is a tax on the occupation of property and must not be confused with property tax.
According to the 2010-2011 Budget, there will be a 100% reduction of government rate on properties, subject to a ceiling of HK$1,500 per quarter for each property. 

One-time tax reduction on salaries tax for 2009-2010: Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% on net income (i.e. income after deductions only), whichever is lower.  
Hong Kong resident individual taxpayers who are liable to pay profits tax and/or property tax in addition to salaries tax can reduce their tax burden by electing for personal assessment. Under personal assessment, tax is calculated at progressive tax rates on the aggregated income from all sources.

According to the 2010-2011 Budget, individuals will receive a one-time tax reduction of 75% on salaries tax or tax under personal assessment for 2009-2010, subject to a ceiling of HK$6,000.

Increase in stamp duty on property transactions: With effect from 1 April 2010, the rate of stamp duty on transactions of properties valued more than HK$20 million will be increased from 3.75% to 4.25%. Additionally, buyers will no longer be allowed to defer payment of stamp duty on such transactions. 
Abolishment of duty-free concessions on tobacco products for incoming passengers: The government has proposed to abolish the duty-free concessions on tobacco products for incoming passengers. To facilitate law enforcement, small amounts of tobacco products for personal consumption will be exempted. 
Tax Amendments: 2009-2010 Budget
The 2009-2010 budget was focused on protecting jobs, stabilizing the financial system and increasing Hong Kong's overall competitiveness. In this regard, the government announced the following tax concessions and tax relief measures for the tax year April 1, 2009 - March 31, 2010.

The key tax relief measures included:

Reduction of business registration fees: It is mandatory for all Hong Kong companies to register their business with the Inland Revenue Department's Business Registration Office and obtain a Business Registration Certificate or Branch Registration Certificate. There are two types of certificates - a one-year certificate and a three-year certificate. The fee for a one-year Business Registration Certificate is HK$2,450 and for a three-year certificate, HK$6,550. The fee for a one-year Branch Registration Certificate is HK$523 and for a three-year certificate, HK$1,539.
According to the 2009-2010 Budget, business registration fees has been reduced by HK$2,000 for a Business Registration Certificate and HK$73 for a Branch Registration Certificate. The reduction applies to certificates with a commencement date that falls within the period of August 1, 2009 to July 31, 2010.
 

Tax concession under salaries tax and personal assessment: Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% on net income (i.e. income after deductions only), whichever is lower. 
Hong Kong resident individual taxpayers who are liable to pay profits tax and/or property tax in addition to salaries tax can reduce their tax burden by electing for personal assessment. Under personal assessment, tax is calculated at progressive tax rates on the aggregated income from all sources.

According to the 2009-2010 Budget, taxpayers who have to pay salaries tax or tax under personal assessment can enjoy a 100% reduction of their 2008-09 final tax, subject to a ceiling of HK$8,000. Note that if a married couple elects for joint assessment, the ceiling will apply on the couple and not on each individual.

100% reduction of "Government rate" on properties for first two quarters of 2009-2010: 
"Government rate" is one of Hong Kong's indirect taxes levied on the owners or tenants of properties and is payable to the Government on a quarterly basis in advance. Government rate is calculated as 5% of the estimated annual rental value of a property. The annual rental value of a property is calculated on the basis of the prevailing market rental rates. Note that Government rate is a tax on the occupation of property and must not be confused with property tax. According to the 2009-2010 Budget, there will be a 100% reduction of government rate on properties for the first two quarters of 2009-2010, subject to a ceiling of HK$1,500 per quarter for each property.
 
Increase in tobacco duty by 50%: Effective February 25, 2009 tobacco duty will be increased by 50% from around HK$0.8 to about HK$1.2 per stick.
 
Proposal to amend tax legislation to enhance exchange of tax information: The tax legislation will be amended to comply with the international requirements on exchange of tax information under Avoidance of Double Taxation Agreements.
 
Proposal for tax related changes for Islamic financial products: There is a proposal to make changes to or clarifications of the arrangements for stamp duty, profits tax and property tax, to create a level playing field for Islamic financial products vis-à-vis conventional ones.
 
Extension of First Registration Tax Exemption for electric vehicles: In Hong Kong a "First Registration Tax" is charged on the first registration of any motor vehicle. The exemption of electric vehicles from First Registration Tax will be extended for another five years. The Government first granted the tax exemption for electric vehicles in 1994-95 and has extended it three times - in 1997-98, 2000-01 and 2003-04.
 
No increase in government fees or charges: There will be no increase in the fees or charges for services provided by Government agencies until March 31, 2010. Some examples of government fees include visa charges, utilities connection fees for gas, water and electricity etc.
 
Rental concession for government properties and land: There will be a 20% rental reduction that will last for three months for most government properties and short-term tenancies of government land.  
Tax Amendments: 2008-2009 Budget
Profits tax rate cut by 1%: The profits tax rate was reduced by 1% i.e. from 17.5% to 16.5% for corporations and from 16% to 15% for unincorporated businesses.
 
One-time tax reduction of profits tax for 2007-2008: With a view to support SMEs, businesses received a one-time tax reduction of 75% on profits tax for 2007-08, subject to a ceiling of HK$25,000.
 
Waiver of business registration fee: Business registration fees for registering a business with the Inland Revenue Department was waived for all companies for 2008-2009.
 
Profits tax deduction for capital expenditure: To encourage the business community to use environment friendly machinery and equipment, businesses received a 100% profits tax deduction for capital expenditure on environment-friendly machinery and equipment in the first year of purchase. The depreciation period for environment-friendly installations to buildings was shortened from the usual 25 years to five years.
 
Increase in ceiling of tax-deductible donations: The ceiling for tax-deductible donations under profits tax was raised from 25% to 35% of the assessable profits. This measure was designed to encourage more charitable donations from the business community. 
Standard rate of salaries tax cut by 1%: The standard rate of salaries tax was reduced by 1% from 16% to 15%. This standard rate is also applicable to tax under personal assessment. Under personal assessment, tax is calculated at progressive tax rates on the aggregated income from all sources.
 
One-time tax reduction on salaries tax for 2007-2008: Individuals received a one-time tax reduction of 75% on salaries tax or tax under personal assessment for 2007-08, subject to a ceiling of HK$25,000.
 
Restoring basic allowance, married person's allowance and single parent allowance to the 2002-2003 level: There was an increase in the basic allowance and single parent allowance from HK$100,000 to HK$108,000. Furthermore, the married person's allowance was raised from HK$200,000 to HK$216,000.
 
Widening of tax brackets: The tax brackets and corresponding tax rates for 2007-2008 were as follows: Tax rate of 2% on the first HK$35,000, 7% on the next HK$35,000, 12% on the next HK$35,000, and 17% on the remaining HK$. According to the 2008-2009 Budget, all the marginal tax brackets were widened by HK$5,000 from HK$35,000 to HK$40,000. The tax rates remained unchanged.
 
Increase in ceiling of tax-deductible donations: The ceiling for tax-deductible donations under salaries tax and personal assessment will be raised from 25% to 35% of the assessable income. 
One-time tax reduction of property tax: There was a one-time tax reduction of 75% on property tax for 2007-08, subject to a ceiling of HK$25,000.
 
100% reduction of "Government rate" on properties:  "Government rate" is one of Hong Kong's indirect taxes levied on the owners or tenants of properties and is payable to the Government on a quarterly basis in advance. Government rate is calculated as 5% of the estimated annual rental value of a property. The annual rental value of a property is calculated on the basis of the prevailing market rental rates. Note that rate is a tax on the occupation of property and must not be confused with property tax. According to the 2008-2009 Budget, there was a 100% reduction of government rate on properties, subject to a ceiling of HK$5,000 per quarter for each property.
 
Reduction in the First Registration Tax for environment-friendly commercial vehicles: In Hong Kong a "First Registration Tax" is charged on the first registration of any motor vehicle. To reduce air-pollution, there was a reduction in the First Registration Tax of buyers of commercial vehicles meeting the Euro V emissions standards. The First Registration Tax was reduced by 30% for van-type goods vehicles; 50% for goods vehicles other than van-type vehicles; and 100% for taxis, light buses, non-franchised buses and special purpose vehicles.
 
Waiver of Hotel Accommodation tax: In a bid to promote tourism and enhance the competitiveness of Hong Kong's hotel industry, hotel accommodation tax was waived. Hotel accommodation charges paid by guests were previously taxed at 3%.
 
Property tax rate cut by 1%: The property tax rate was cut by 1% i.e. from 16% to 15%.
 
Exempt duties on certain alcoholic beverages: In order to facilitate the import, export and storage of certain alcoholic beverages and expand the wine trading and distribution business, the government proposed to exempt duties on wine, beer and all other alcoholic beverages except spirits.  
Tax Amendments: 2007-2008 Budget
Salaries tax rate cut and widening of tax brackets: The tax brackets and corresponding tax rates for 2006-2007 were as follows: Tax rate of 2% on the first HK$30,000, 7% on the next HK$30,000, 13% on the next HK$30,000, and 19% on the remaining HK$. According to the 2007-2008 Budget, the tax brackets and the corresponding tax rates were changed as follows: Tax rate of 2% on the first HK$35,000, 7% on the next HK$35,000, 12% on the next HK$35,000, and 17% on the remaining HK$.
 
Increase in child allowance: In order to reduce the burden of parents in raising their children, child allowance was increased from HK$40,000 to HK$50,000 for each child. In addition, parents received an additional one-time child allowance of HK$50,000 for each child, in the year of the child's birth.
 
Increase in deductions for self-education expenses: The maximum amount of deduction for self-education expenses was increased by HK$20,000 from HK$40,000 to HK$60,000. This measure was designed to facilitate the development of Hong Kong into a knowledge-based economy.
 
One-time tax reduction on salaries tax for 2006-2007: Individuals received a one-time tax reduction of 50% on salaries tax or tax under personal assessment for 2006-07, subject to a ceiling of HK$15,000.
Stamp duty reduction on property transactions: The rate of stamp duty on property transactions with a value between HK$1 million and HK$2 million was reduced from 0.75% to a fixed amount of HK$100. This was the same level of duty as for properties with a value at or below HK$1 million.
 
Reduction of duty on alcoholic beverages: The duty rate on beer and other types of liquor containing not more than 30% of alcohol was reduced from 40% to 20% and that on wine from 80% to 40%.
 
100% reduction of "Government rate" on properties for the first two quarters of 2007-2008: "Government rate" is one of Hong Kong's indirect taxes levied on the owners or tenants of properties and is payable to the Government on a quarterly basis in advance. Government rate is calculated as 5% of the estimated annual rental value of a property. The annual rental value of a property is calculated on the basis of the prevailing market rental rates. Note that rate is a tax on the occupation of property and must not be confused with property tax. According to the 2007-2008 Budget, there was a 100% reduction of government rate on properties for the first two quarters of 2007-2008 subject to a ceiling of HK$1,500 per quarter for each property.
 
Reduction in the First Registration Tax for environment-friendly petrol private cars: To encourage the use of environment-friendly petrol private cars with low emissions and high fuel efficiency, a 30% reduction in the First Registration Tax (FRT) from April 1, 2007 was offered to buyers of newly registered environment-friendly petrol private cars, subject to a cap of HK$50,000 per car.  

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