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Taxation

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.

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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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