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Hong Kong has its territorial tax system with a low rate of tax coupled with a sound legal framework and banking system make Hong Kong an ideal jurisdiction for fiscal planning involving cross border transactions.

As stated, Hong Kong has a territorial tax system and only Hong Kong sourced income is subject to tax in Hong Kong. This concept applies equally to all corporations irrespective of their country of incorporation.

A corporation is taxable on Hong Kong source income at the rate of 16.50%. The tax rate for individuals and unincorporated businesses is 15%.

  • There is no capital gains tax in Hong Kong.

  • There is no tax on dividends in Hong Kong.

  • There is no tax on bank interest income in Hong Kong.

  • There are no withholding taxes on dividends or interest paid to non-residents.

On 21 March 2018, the Inland Revenue (Amendment) (No.7) Bill 2017 – The Two-tier profits tax system passed its third reading in the Legislative Council. Commencing from the year of assessment 2018/2019, tax relief will be provided to small and medium-sized enterprises by the two-tier profits tax system. Each group of connected entities can nominate one enterprise to enjoy such tax relief.


The Relief for Corporations

Although there is no legislation requiring tax to be withheld from royalty payments, the legislation places the onus on a Hong Kong company or person who pays royalty to a non-resident on such royalty income. Consequently, the payer may withhold tax thereon. Tax is usually withheld at the effective rate of 4.95% of gross royalty paid to a non-resident company.

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