Hong Kong - Tax and Accounting Regulations

A coherent offshore tax planning strategy is essential to maximize the effectiveness of offshore companies. Eltoma can assist by structuring the most tax efficient strategy to satisfy your requirements. Eltoma will guide you as to which jurisdictions offer the best tax structure by identifying the types of tax payable as well as applicable exemptions and incentives. Eltoma will provide tax planning advice that will identify which is the most favourable tax efficient jurisdiction in which to incorporate. The information below shows the main features of the tax system in Hong Kong.

Although Hong Kong is considered by many to be an ‘offshore’ jurisdiction this is not the how the government classifies it. It is instead a low tax area with a territorial tax system. The tax laws are relatively simple therefore Hong Kong can be summarized as having an advantageous low tax rate coupled with a Territorial Tax System.

Corporation Tax – The Corporation Tax rate is currently 16.5%

Income tax - Hong Kong operates territorial taxation principle so any income earned outside of Hong Kong is not a subject to Hong Kong Income Tax. Taxpayers are taxed not on a residence status but on territorial principle i.e.: where profit was earned.

Foreign source income is exempt from income tax in Hong Kong. Income is not considered to be derived from Hong Kong if:

  • A contract is concluded and signed outside of Hong Kong
  • Services are rendered outside of Hong Kong
  • Capital is employed outside of Hong Kong
  • Title of goods is passed outside of Hong Kong
  • Payment of expenses incurred in provision of services or delivery of goods is done outside of Hong Kong
  • The location where goods are stored and maintained is outside of Hong Kong
  • Hong Kong income and deemed Hong Kong source income is subject to income tax.

If any of the above activities are performed in Hong Kong then the revenue generated will be classified as Hong Kong income and therefore subject to income tax.

It is worth noting that the purchase or sales of commodities manufactured in Hong Kong is treated as a Hong Kong based income. Trade in commodities is considered as wholly offshore or onshore for a tax assessment purpose so even a small amount of trading activity in Hong Kong leads to the whole profit classified as originating onshore and therefore subject to Hong Kong income tax. With regards to the issue of agency agreements, the source of income is where duties are performed.

Capital Gain Tax (CGT) – There is no capital gains tax in Hong Kong

Withholding Tax – Royalty income received from Hong Kong source is subject to income tax however generally there is no withholding tax on interest paid to non-residents.

Dividends – Dividend income is excluded from income tax and is no withholding tax on outgoing dividends.

Capital Duties - Capital duty on increase of share capital is 0.01%

International Aspects of Cyprus Taxation:

  • Anti-Avoidance Regulation – Hong Kong Tax Code replicates the Australian Income Tax Model for anti-avoidance rules.
  • Transfer Pricing - There is specific transfer pricing legislation in Hong Kong which is based on 1918 UK tax regulation.
  • Double Taxation Treaties – Because of the territorial tax system there are no double taxation treaties in place for a Hong Kong Limited Company.

Annual Reporting Requirements:

  • All Hong Kong Companies are required to keep accounts
  • Accounts are required to be audited on an annual basis