Summary of Taxation

in Hong Kong
 CONTENTS
Preface ...........................................................................................................................

Overview of Hong Kong Taxation ......................................................................

Main Taxes ...................................................................................................................

• Profits Tax
• Salaries Tax
• Property Tax
• Stamp Duty
• Customs Duty

Major Tax Issues ........................................................................................................

• Holdover of Provisional Tax
• Illegally Declaring Dutiable Goods and Its Penalty
• Advance Ruling
• Personal Assessment

Cross-border Tax Issues ............................................................................................

• Avoidance of Double Taxation

• Offshore Claim
• International Tax on Inbound Investment
• International Tax on Outbound Investment
Conpak’s Taxation Service Scope ........................................................................

Contact Us ....................................................................................................................

1 Summary of Taxation in Hong Kong

Preface
The Journal is formulated on the basis of Hong Kong’s current tax legislation, public information of HKIRD,
and tax relief measures for 2017/18 Hong Kong Budget.

We hope the Journal will help investors understand more about Hong Kong's tax environment of
"simplicity and low tax rate", so that they can expand their business by taking advantage of the
Hong Kong platform.

As a summary, the Journal explains the tax legislation of Hong Kong only in an extensive manner. For
detailed information and consultation, please contact us.

Conpak CPA Limited

Tax Department
October 2019

Summary of Taxation in Hong Kong 2

 Overview of Hong Kong Taxation
Hong Kong is acclaimed for low tax rates and few tax types. At present, its taxes, only include profits tax,
salaries tax, property tax, stamp duty, and customs duty (applicable to a few commodity categories).The
current Inland Revenue Ordinance of Hong Kong is under heavy influence of the UK Legal System. Ever
since its first promulgation in 1947, Censorship Review Committee had been established for many times,
desiring to reform Hong Kong taxation. As of today, Hong Kong taxation, however, has not been adjusted
on a large scale.

Hong Kong Taxation and Basic Law

On 1 July 1997, Hong Kong returned to the People's Republic of China. In accordance with the Basic Law
of the Hong Kong Special Administrative Region of the People's Republic of China, the Inland Revenue
Ordinance, the Inland Revenue Rule and the Stamp Duty Ordinance, which took effect from 30 June 1997,
are still legally effective in Hong Kong, and the basic tax policy remains unchanged.

Tax Jurisdiction
Under the guidance of the "Territorial Source Principle", tax is collected only on the incomes arising in
Hong Kong no matter whether they are made by businesses registered in Hong Kong or Hong Kong
residents.

3 Summary of Taxation in Hong Kong

Main Taxes
Profits Tax
Scope of Charge
Profits arising in or derived from Hong Kong made by any individuals through business activities (including
trade, profession or business) in Hong Kong

Assessment Guidelines
• Tax payers include individuals (sole-proprietors), corporations, partnerships, trusts, and organizations.
• Profits tax shall be collected on the profits arising in Hong Kong made by businesses or organizations,
whether registered or incorporated in Hong Kong or not, except for the profits of capital in nature.
• In no event shall profits tax be collected on profits made outside of Hong Kong, even if remitted to
Hong Kong.
• Whether profits arise in or are derived from Hong Kong is determined by the operation itself.

Tax Rate
The profits tax rate for the first $2 million of the limited company is 8.25% and profits above that amount
will continue to be subject to the tax rate of 16.5%; the profits tax rate for the first $2 million of the
company in sole proprietorship or partnership is 7.5% and profits above that amount will continue to be
subject to the tax rate of 15%.

Note: To ensure that small and medium enterprises account for the majority of the beneficiaries, a related
company may nominate only one company to benefit from the lower tax rate.

Basis of Assessment
• Tax shall be collected according to the assessable profits of each year of assessment.
• The basis period of year of assessment is generally based on the accounting year of tax payers.
• Except for the tax of the current year, the tax for the next year of assessment shall be prepaid in
accordance with the evaluated assessable profits.
• The paid-in provisional tax may be counted in the final tax of next year of assessment, with balances paid
to either side as the case may be.
• If a business is newly incorporated, tax shall be collected according to the assessable profits from the
date of commencement of business to the accounting year-end date of the current year.
• If a business is ceased, tax shall be collected according to the assessable profits from the end of basis
period of the previous year of assessment to the date on which the business is ceased.
• HKIRD adopts the principle of "assess first, review later", and therefore a notice of assessment sent by
HKIRD to tax payers may not mean that HKIRD has acknowledged the tax amount. HKIRD reserves its
right to audit the account later and appropriately adjust the tax amount according to tax legislation.
• HKIRD has the right to investigate the accounts and recover payable tax of up to seven years in the near
past.

Exemption and Deduction

The expenses paid by tax payers pursuant to the business for the assessable profits, except for those of
capital in nature or stipulated otherwise, may be deducted as paid-in tax. In addition, dividend income or
profits of capital in nature may be exempted from tax.

1. Expenses which are deductible as paid-in tax for the benefit of assessable profits include but
are not limited to:

Summary of Taxation in Hong Kong 4

 • Loan interests
• Rent
• Bad debts and bad loans
• Repair fee or repair charge
• Research and development expenditure
• Registration fee for royalty, design and patent
• Purchase expenditures on royalty, design and patent used in Hong Kong
• Education expenditures pursuant to the business paid to the accreditation bodies
• Charitable donation in conformity with provisions
• The contribution of the employer in the beginning of the recognized occupational retirement schemes
or special contribution may be deducted in five years, and the upper deduction limit of each year's
defined contribution is 15% of the employee's annual salary.
• As for sole proprietors or partners of a partnership, the upper limit of deduction from mandatory
contribution paid in as self-employed persons is 18,000 HKD per person in accordance with the legal
liability stated in the Mandatory Provident Fund Schemes Ordinance.

2. Expenses which may not be deducted as paid-in tax include but are not limited to:
• Family or private expenses and any other expenses not intended for assessable profits
• Investments for improvement and any expenses of capital in nature
• Depreciation or amortization of fixed assets
• Recoverable expenses according to an insurance plan or contract of indemnity
• Rent and related expenses arising from building occupation, not for the purpose of assessable profits
• Various kinds of taxes paid in according to Inland Revenue Ordinance, except for salaries tax arising in
paying salaries to employees or board directors
• Salaries, capital interests and loan interests paid to the sole proprietor or his/her spouse and the
partner of a partnership or his/her spouse
• Contribution or provision as per unrecognized occupational retirement schemes

Tax Incentive
• The direct and exclusive expenses on purchase of industrial units and machines for manufacturing or
production purposes may be deducted at a time in the year of purchase.
• The expenses on purchase of computer hardware, software or peripherals may be deducted at a time in
the year of purchase.
• The capital expenditure on renovation of the business place or building may be amortized in five tax
years.
• Accelerated deduction is applicable for the capital expenditure on indicated eco-friendly facilities or
equipment added to buildings or structures.
• The capital expenditure on purchasing indicated environment-friendly vehicles or machines may be
deducted at a time in the year of purchase.
• Interest income and profit made through eligible "long-term debt instruments" may be exempted from
tax.
• The interest income and profit from treasury debt in RMB may be exempted from tax.
• The profits from offshore business of a captive insurance company may be levied at a half of general tax
rate.
• The interest accrued on a deposit in accreditation bodies in Hong Kong may be exempted from tax.
• The profits, if categorized as offshore funds, gained in Hong Kong through securities, futures contract
and foreign exchange contract by corporations and authorized financial institutions, which were licensed
or registered according to Securities and Futures Ordinance, may be exempted from tax.

5 Summary of Taxation in Hong Kong

Loss Treatment
• The tax loss in a certain accounting year may be carried forward to offset the assessable profit of the
next accounting year.
• Provided a tax payer engages in several industries, the tax loss of an industry may offset the assessable
profit of another one.

Depreciation Allowance
• As for the expenditure on purchase of fixed assets, 60% of tax may be exempted at a time in the first
year and 10%, 20% or 30% of the balance after that tax exemption may be deducted (which is
determined by the nature of the fixed assets). Thereafter, the same proportion of tax will be deducted
annually from the balance of the previous year.
• As for the qualifying construction expenditure on industrial buildings and structures, an initial allowance
of 20% is provided, and thereafter, an annual allowance of 4% is provided.
• As for the qualifying construction expenditure on commercial buildings and ancillary structures, an
annual allowance of 4% is provided.

Book of Account and Recorde

• Breakdown of revenue and expenditure shall be kept and recorded in Chinese or English so as to
determine the assessable profits.
• Business record, after the transaction is finished, shall be kept for at least seven years.
• A business could be fined a maximum of 100,000 HKD for failure to keep a proper record.

Summary of
Summary of Taxation
Taxation in
in Hong
Hong Kong
Kong 6
 Salaries Tax
Scope of Charge
Income of any individual arising in or from Hong Kong, including the position allowance, remuneration,
and pension

Assessment Guidelines
1. Remuneration
• Jobs are divided into Hong Kong employment and non-Hong Kong employment so that the tax
rates are different.
• Provided that an employee negotiates, enters into and works under an employment contract
with an employer residing in Hong Kong and the employee's salary is paid in Hong Kong,
the employee is regarded as a "Hong Kong employed worker".
• The following table may serve as a reference for ascertaining salaries tax rate in the case of
Hong Kong employment and non-Hong Kong employment:

Tax Payment
Working Condition
Hong Kong employment Non-Hong Kong employment

All service is provided in Hong Kong. Total income shall be assessable. Total income shall be assessable.

The income assessable is

Only part of the service is provided
Total income shall be assessable. calculated based on days of the
in Hong Kong.
stay in Hong Kong.

All service is provided outside

No need to pay salaries tax. No need to pay salaries tax.
Hong Kong.

The employee usually resides

outside Hong Kong and renders
service only during his/her visits to No need to pay salaries tax. No need to pay salaries tax.
Hong Kong, which total 60 days or
less in a year of assessment.

The employee usually resides

outside Hong Kong and renders
The income assessable is
service only during his/her stays in
Total income shall be assessable. calculated based on days of the
Hong Kong, which total 60 days or
stay in Hong Kong.
less in a year of assessment. Such a
stay is not interpreted as a visit.

The employee usually resides

outside Hong Kong and renders The income assessable is
service only during his/her visits to Total income shall be assessable. calculated based on days of the
Hong Kong, which total more than stay in Hong Kong.
60 days in a year of assessment.

7 Summary of Taxation in Hong Kong

 • Other stipulations shall apply for crew, aircraft crew, Chinese citizens and people who have already
paid similar salaries tax outside of Hong Kong.

2. Position Allowance
• Regardless of the place of residence, salaries tax shall be levied on all income of an individual who
holds office as a board director in a company subject to central control and administration in
Hong Kong even though none or only part of service is provided in Hong Kong.
• Provided decision-making board meetings of a company are convened in Hong Kong, the company is
generally viewed as being subject to central control and administration in Hong Kong.

3. Pension Income
• If the pension fund of a retiree is managed outside Hong Kong, the retiree is exempted from any
salaries tax pursuant to his/her pension.
• If the pension fund of a retiree is managed in Hong Kong, the retiree shall pay salaries tax only
regarding the pension arising from service in Hong Kong (which may be distributed proportionately).

Tax Rate
There are two types of tax basis and tax rate:

1. Net assessable income with tax allowance deducted

• Net assessable income = assessable income – deductible items – tax allowance
• Progressive tax rate of 2%-17% shall apply (see the following table):

Progressive Tax Rate Current Year

First HK$50,000 2%

Next HK$50,000 6%

Next HK$50,000 10%

Next HK$50,000 14%

On the remainder 17%

2. Net assessable income with tax allowance

• Net assessable income = assessable income – deductible items
• Standard tax rate of 15%.

In order to ease the burden of tax payers, HKIRD chooses an above-mentioned method which gets lower
tax.

Basis of Assessment
• The basis period is from 1 April of the current year to 31 March of the next year.
• Except for the tax of the current year, the tax for the next year of assessment should be prepaid in
accordance with the evaluated assessable income.
• The paid-in provisional salaries tax may be counted in the final tax of next year of assessment, with
balances paid to either side as the case may be.

Summary of Taxation in Hong Kong 8

 Deductible Items and Maximum Limit
The following items may be deducted when calculating salaries tax:

Deductible Items Maximum limit

Charitable donation 35% of assessable income

Expenses of self-education HK$100,000

Home loan interest HK$100,000

Elderly residential care expense HK$100,000

Contribution to recognized occupational retirement scheme HK$18,000

Qualifying Voluntary Health Insurance Scheme Policy Premiums HK$8,000

Tax Allowance
The tax allowance of salaries tax/personal assessment is as follows:

Allowance Amount

Basic allowance HK$132,000

Married person's allowance HK$264,000

Child Allowance

1st to 9th child (each):

Year of birth HK$240,000
Other years HK$120,000

Dependent Parent / Grandparent Allowance

Aged 60 or above:
Not residing with taxpayer HK$50,000
Residing with taxpayer throughout the year HK$100,000
Aged 55 to 59:
Not residing with taxpayer HK$25,000
Residing with taxpayer throughout the year HK$50,000

Dependent Brother / Sister Allowance

HK$37,500
(for whom no child allowance has been claimed by his / her parent)

Single Parent Allowance HK$132,000

Disabled Dependent Allowance

HK$75,000
(in addition to any allowances already granted for the disabled person)

Introduce a personal disability allowance for eligible taxpayers HK$75,000

9 Summary of Taxation in Hong Kong

Property Tax
Scope of Charge
The owner of a rental property (land, building or parking lot) in Hong Kong shall pay property tax
regarding the net assessable value arising from the rental property whether the owner is a person or a
company.

Tax Rate
The property tax shall be 15% (the standard tax rate) of the net assessable value.

Basis of Assessment
• The property tax shall be collected at the standard tax rate of the net assessable value of each year of
assessment.
• The basis period is from April 1 of the current year to March 31 of the next year.
• Net assessable value is the assessable profits deducted by the rates paid by the owner and 20%
statutory allowance for repairs and outgoings.
• If the rent is not collected, it may be deducted, but if the same rent is collected thereafter, property tax
shall be paid in the collecting year.
• Assessable profits are stipulated according to the consideration of the owner for the purpose of
obtaining the right to use land or real estate, including:
Total amount of rent received or receivable
License fee paid for the purpose of obtaining the right to use building
Total amount of royalties
Service charge and administrative fee paid to the owner
Owner expenditure paid by the dweller, such as the repair charge
• Except for the property tax of the current year, the property tax for the next year of assessment should
be prepaid in accordance with the evaluated net assessable value.
• The paid-in provisional property tax may be counted in the final tax of next year of assessment, with
balances paid to either side as the case may be.

Deduction Items
• Rates paid by the owner
• Annual 20% statutory allowance for repairs and outgoings (whether the owner has it maintained or not)
• Irrecoverable rent

Tax-exempt Items
Property tax may be exempted for the following real estate or income:
• Real estate owned by the government and consuls
• The company which has already paid profits tax regarding the rent income arising from leasing or
subleasing real estate is eligible to apply for property tax exemption from HKIRD in writing (in default of
tax exemption application, the property tax paid may be counted in the payable profits tax).

Stamp Duty
Scope of Charge
Stamp duty is collected on documents. For this reason, the tax payers, whether a person or a company,
shall pay stamp duty if their documents are dutiable. Dutiable documents are classified into four types:
• Documents certifying the transfer or lease of the immovable property in Hong Kong
• Documents certifying the transfer of Hong Kong securities
• Published Hong Kong non-bearer instruments

Summary of Taxation in Hong Kong 10

 • Duplicates and counterparts of dutiable documents
(If stamp duty has already been collected on the original dutiable document, another 5 HKD of fixed
duty shall still be levied on each and every duplicate or copy of it.)

Assessment Guidelines
• Any dutiable documents on which stamp duty is not collected shall not be generally accepted as
evidence in any legal procedures.
• In any case, if the Collector of Stamp Revenue considers that the price declared for transfer of the
immovable property or stocks in Hong Kong is underestimated (for instance, below the market price),
the stamp duty on such transfer may be collected in accordance with the market price of the date of
transfer.

Tax Rate
1. Ad Valorem Stamp Duty
According to the revised “Stamp Duty Ordinance”, for instance:
• Any company or individual who acquires a residential or non-residential property in Hong Kong on or
before 22 February 2013;
• A Hong Kong permanent resident and his/ her non-HKPR close relative (i.e. spouse, parents, child or
siblings) jointly acquired residential property in Hong Kong, who are acting on his/ her own behalf and
neither the Hong Kong permanent resident nor his/ her close relative owns any residential property in
Hong Kong at the time of acquisition;
• Close relatives acquire or transfer residential property, irrespective of whether they are HKPRs and
whether they own residential property in Hong Kong at the time of acquisition;
• Nomination of a close relative(s) (be they HKPRs or not) to take up the assignment of a residential
property; or
• A Hong Kong permanent resident acquires a Hong Kong residential property on or after 23 February
2013 who is acting on his/ her own behalf and does not own any residential property in Hong Kong
at the time of acquisition; then

stamp duty is chargeable at the higher of the purchase consideration or market value of the acquired
property at ad valorem rates at Scale 2 below.

Ad Valorem Stamp Duty (Scale 2)

Consideration or Market Value of the Property (whichever is higher) Tax Rate

Up to HK$ 2,000,000 HK$ 100

HK$ 2,000,001 – HK$ 2,351,760 HK$ 100 + 10% of excess over HK$ 2,000,000
HK$ 2,351,761 – HK$ 3,000,000 1.5%
HK$ 3,000,001 – HK$ 3,290,320 HK$ 45,000 + 10% of excess over HK$ 3,000,000
HK$ 3,290,321 – HK$ 4,000,000 2.25%
HK$ 4,000,001 – HK$ 4,428,570 HK$ 90,000 + 10% of excess over HK$ 4,000,000
HK$ 4,428,571 – HK$ 6,000,000 3%
HK$ 6,000,001 – HK$ 6,720,000 HK$ 180,000 + 10% of excess over HK$ 6,000,000
HK$ 6,720,001 – HK$ 20,000,000 3.75%

HK$ 20,000,001 – HK$ 21,739,120 HK$ 750,000 + 10% of excess over HK$

Above HK$ 21,739,120

11 Summary of Taxation in Hong Kong

Ad valorem rates at Scale 1 should be applied to the following situations:
• Any company or individual who acquires a non-residential property in Hong Kong on or after 23
February 2013;
• Any company or non-Hong Kong permanent resident who acquires a residential property in
Hong Kong on or after 23 February 2013 to 4 November 2016;
• A Hong Kong permanent resident who acquires a residential property in Hong Kong on or after 23
February 2013 to 4 November 2016, and he / she already owned a residential property in Hong Kong
at the time of acquisition; or
• A Hong Kong permanent resident who acquires a non-residential property in Hong Kong on or after
23 February 2013, and he / she already owned a residential property in Hong Kong at the time of
acquisition.

Ad Valorem Stamp Duty (Scale 1)

Consideration or Market Value of the Property (whichever is higher) Tax Rate

Up to HK$ 2,000,000 1.5%

HK$ 2,000,001 – HK$ 2,176,470 HK$ 30,000 + 20% of excess over HK$ 2,000,000

HK$ 2,176,471 – HK$ 3,000,000 3%

HK$ 3,000,001 – HK$ 3,290,330 HK$ 90,000 + 20% of excess over HK$ 3,000,000

HK$ 3,290,331 – HK$ 4,000,000 4.5%

HK$ 4,000,001 – HK$ 4,428,580 HK$ 180,000 + 20% of excess over HK$ 4,000,000

HK$ 4,428,581 – HK$ 6,000,000 6%

HK$ 6,000,001 – HK$ 6,720,000 HK$ 360,000 + 20% of excess over HK$ 6,000,000

HK$ 6,720,001 – HK$ 20,000,000 7.5%

HK$ 20,000,001 – HK$ 21,739,130 HK$ 1,500,000 + 20% of excess over HK$ 20,000,000

Above HK$ 21,739,130 8.5%

New Ad Valorem Stamp Duty

On 4 November 2016, the Hong Kong Government announced that an increase in the ad valorem stamp
duty rates for residential property transactions. A flat rate of 15% for Ad Valorem Stamp Duty on
residential property transactions would be applied to the following situations:
• Any company or non-Hong Kong permanent resident who acquires a residential property in Hong Kong
on or after 5 November 2016; or
• A Hong Kong permanent resident who acquires a residential property in Hong Kong on or after 5
November 2016 and he / she already owned a residential property in Hong Kong at the time of
acquisition.

Note: A Hong Kong permanent resident acquired a new residential property, if he signed an agreement for sale and
purchase (“ASP”) and disposed of his only original property within 12 months after the date of assignment of the
new property, he could benefit from the mechanism of acquiring a new residential property as replacement before
disposing of their original one, entitling refund of the difference between the old and new ad valorem stamp duty
rates.

Summary of Taxation in Hong Kong 12

 2. Special Stamp Duty
On top of the ad valorem stamp duty, special stamp duty is also imposed on any individual or company
for disposal of residential properties acquired during certain relevant periods and resold within specific
time limit of ownership.

If the residential property is acquired on or after 27 October 2012, higher Special Stamp Duty rates will
apply:

Holding Period of Property (Months) Tax Rate

3. Buyer’s Stamp Duty

On top of the ad valorem stamp duty and the Special Stamp Duty, 15% Buyers’ Stamp Duty is imposed
on any person, including Hong Kong companies and overseas companies, on the acquisition of
Hong Kong residential properties on or after 27 October 2012, except for buyer who is a Hong Kong
Permanent Resident.

Tax Exemption
The situations in which tax may be exempted include but are not limited to:
• Where the rights and interests of Hong Kong immovable property or securities are transferred between
associated body corporates, tax exempt may only be obtained on condition that such transfer is in
compliance with the relevant definitions and other requirements of Inland Revenue Ordinance pursuant
to "associated body corporate" and is adjudicated by the Collector of Stamp Revenue. In addition, the
association relationship between the transferor and the transferee must be maintained for at least two
years or more as of the date of such transfer.
• Transfer the rights and interests of Hong Kong immovable property or securities to exempt organizations
by way of donation (for instance, qualified charity organizations).
• Transfers that do not involve substantial rights and interests (for instance, the consignee is in possession
of the property on behalf of the owner, or the consignee returns the property to the beneficiary), but
the transfer instrument should record the relevant exemption information.

Customs duty
Customs duty, tariff-rate quota, or surcharge is not collected on import and export of goods in Hong Kong.
At present, customs duty is collected only on liquor (grape wine and liquor with alcohol concentration less
than 30% excluded), tobacco, hydrocarbon oil, and methyl alcohol.

13 Summary of Taxation in Hong Kong

Major Tax Issues
Holdover of Provisional Tax
Provisional tax is a kind of pre-collected revenue based on the evaluation of the tax payer in the coming
year and may be used to offset the tax to be paid in the coming year. The tax payer can apply for holdover
of part or all of provisional tax for a reason stipulated in Hong Kong's Inland Revenue Ordinance.

Time-limit of Application
• 28 days before the deadline of paying provisional tax
• Within 14 days from the date when the notice of paying provisional tax is sent
Either time limit, whichever is later, shall apply.

Holdover of Profits Tax

Holdover of profits tax is applicable in any of the following situations:
• The assessable profits of the coming year of assessment is less than or may be less than 90% of the
assessable profits in the previous year of assessment.
• Any amount of loss carried forward in the coming year of assessment for the purpose of offset is
unnoticed or inauthentic.
• A business is ceased or a business will be ceased before the ending of the coming year of assessment,
and the assessable profits evaluated in the coming year of assessment is less than or may be less than
that of the previous year of assessment.
• Personal assessment is selected in the light of the year of assessment for provisional tax, and the amount
of tax will be short paid according to such method.
• Objection was made to the profits tax assessment of the previous year.

Summary of Taxation in Hong Kong 14

 Holdover of Salaries Tax
Holdover of salaries tax may be applicable in any of the following situations:
• The tax payer has the right to obtain the amount of tax exemption which is not calculated in the notice
of provisional tax.
• The net assessable income of the tax payer in the year of assessment for provisional tax is less than or
may be less than 90% of that of the previous year.
• The tax payer has ceased to earn or will cease to earn assessable income before the ending of the year
of assessment for provisional tax.
• Objection was made to the salaries tax assessment of the previous year.

Holdover of Property Tax

Holdover of property tax may be applied in any of the following situations:
• The net assessable profits of property in the year of assessment for provisional tax is less than or may be
less than 90% of that of the previous year.
• The tax payer is or will no longer be the owner of a certain property before the ending of the year of
assessment for provisional tax, which reduces the net assessable profits for provisional tax.
• Personal assessment is selected in the light of the year of assessment for provisional tax, and the amount
of tax will be short paid according to such method.
• Objection was made to the property tax assessment of the previous year.

lllegally Declaring Dutiable Goods and Its Penalty

According to Hong Kong Inland Revenue Ordinance, providing a false tax return or deterring tax
application is deemed illegal, and any serious violation will be punished according to legislations.

False Tax Return

Every tax return has a statement, on which the tax payer should sign his/her name to guarantee that all
information provided in the tax return is authentic and complete. Any understatement or omission of profit
or income or providing wrong information is deemed illegal.

Penalty for Wrong Tax

• Any person who provides false information in the tax return without reasonable excuses will be fined
10,000 HKD, and an additional penalty of 3 times of the tax shortage will also be executed.
• The action of providing a false tax return with an intention to conceal facts to avoid proper taxation is a
serious violation of law. Such action will be fined a maximum of 50,000 HKD, and an additional penalty
of 3 times of the tax shortage will also be executed. In addition, the tax payer in question will be
imprisoned for 3 years.

Delinquent Tax
According to Inland Revenue Ordinance, any legal amount of tax shall be paid by way of the designated
method in the notice of assessment on or before the scheduled date. If the amount of tax is not paid on
time, it will be regarded as delinquent tax.

Penalty for Delinquent Tax

• If the tax payer fails to pay the amount of tax of phase one till the designated date in the notice of
assessment, the amount of tax of phase two will become due immediately and the unpaid total amount
of tax dutiable in the notice of assessment will be regarded as tax arrears.
• Commissioner of Inland Revenue may take statutory recovery actions of tax immediately, including
collection of 5% surcharge, dispatching of notice of recovery of tax and legal action.

15 Summary of Taxation in Hong Kong

Advance Ruling
Advance ruling will help reduce the disputes between Inland Revenue Department and the tax payers,
providing the tax payers with the guidance for execution of Inland Revenue Ordinance. Any person may
present to the Commissioner of Inland Revenue a written application for a nominal charge, which however,
cannot be taken as an excuse for delaying the filing of the tax return.

Ruling Items
Commissioner of Inland Revenue may give a ruling of how a clause in Inland Revenue Ordinance applies to
the applicant or the application arrangement, regardless of whether the applicant refers to such a clause.

Personal Assessment
Relax the requirement for the election of Personal Assessment commencing from the year of assessment
2018/19 by allowing married persons the option to elect personal assessment separately. The tax payer
may choose to calculate personal assessment on the basis of total income so as to avoid dividing the total
amount of assessable income into several assessable items.

Situations Covered
• Financing interest expenses will be paid in terms of property on which property tax should be collected
according to the rental income.
• Income was made from profits tax and property tax, but the total income has not reached the taxable
balance yet.
• Salaries tax may be collected according to the marginal tax rate, which is lower than standard tax rate,
with assessable profit of profits tax or net assessable value of property tax.
• Charitable donation may not exceed the legal limit applied to salaries tax or profits tax, with net
assessable value of property tax.
• There is applicable tax loss in profits income, whereas there is assessable income or net assessable value
in salaries tax or property tax.

Persons Covered
Hong Kong permanent residents or temporary residents who are over 18 years old or whose parents are
deceased (or whose spouse is a Hong Kong permanent resident or a temporary resident, if married).

Summary of Taxation in Hong Kong 16

 Cross-border Tax Issues
Avoidance of Double Taxation
Double taxation may occur when two or more regions collect tax on the same income or profit made by
the same tax payer. Hong Kong government has signed avoidance of double taxation agreements with
many countries and regions in the world and explicitly determined the taxing rights in order to reduce
double taxation on Hong Kong residents or corporations, or residents or corporations from other side of
agreement.

Avoidance of Double Taxation Agreements and Tax Information Exchange

Agreements
As of 26 September 2019, Hong Kong has already signed 42 comprehensive avoidance of double taxation
agreements and 7 tax information exchange agreements with countries and regions around the world.

Comprehensive avoidance of double taxation agreements including:

AUSTRIA BELARUS BELGIUM BRUNEI

CAMBODIA CANADA CZECH ESTONIA

FINLAND FRANCE GUERNSEY HUNGARY

INDIA INDONESIA IRELAND ITALY

JAPAN JERSEY KOREA KUWAIT

LATVIA LIECHTENSTEIN LUXEMBOURG MAINLAND CHINA

MALAYSIA MALTA MEXICO NETHERLANDS

NEW ZEALAND PAKISTAN PORTUGAL QATAR

ROMANIA RUSSIA SAUDI ARABIA SOUTH AFRICA

SPAIN SWITZERLAND THAILAND UAE

UNITED KINGDOM VIETNAM

Tax information exchange agreements including:

DENMARK FAROES GREENLAND ICELAND

NORWAY SWEDEN USA

Revenue Arrangement between Hong Kong and Mainland China

On 21 August 2006, Hong Kong and Mainland China signed Arrangement between the Mainland of
China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income. Hong Kong and Mainland China also signed
the Second Protocol, the Third Protocol and the Forth Protocol on 30 January 2008, 27 May 2010 and 1
April 2015 respectively

Types of Taxes Covered

Mainland China: Individual Income Tax and Corporate Income Tax
Hong Kong: Profits Tax, Salaries Tax and Property Tax

17
Time of Application
Mainland China: income earned on or after 1 January 2007
Hong Kong: income earned on or after 1 April 2007

Offshore Claim
Considering that Hong Kong adopts "Territorial Source Principle", the tax payers who make their income
outside of Hong Kong may not pay tax in Hong Kong, but need to apply for tax exemption or advance
ruling from the HKIRD.

General conditions for offshore claim:

• Do not have an office in Hong Kong.
• Preparation, negotiation and signing of quotation, agreement and order are not made in Hong Kong.
• The freight is not transported by way of or stored in Hong Kong.
• No staff or agent is employed in Hong Kong to engage in purchasing or marketing on behalf of the
company concerned.
• Board directors, administrative staff, purchasing or marketing personnel of the company concerned have
never come to Hong Kong for the purpose of purchasing or marketing or negotiating with clients.
• Provision of services is outside of Hong Kong.

International Tax on Inbound Investment

Inbound investment refers to the investment in Hong Kong by non-Hong Kong residents through
establishing a branch or a subsidiary. The following factors should be considered:

Summary of Taxation in Hong Kong 18

 Permanent Establishment and Business Operation
If an avoidance of double taxation agreement has been signed between Hong Kong and the place of
residence of the person who invests in Hong Kong, such agreement will prevail, whereas tax should be
paid to Hong Kong government given the condition that permanent establishment (according to the
definitions of relevant avoidance of double taxation agreement) is set up in Hong Kong. However, it should
not be construed as per local laws that the person undertakes business activities in Hong Kong and has tax
liabilities.

Determination of Assessable Profits

Assessable profits refer to profits made by the enterprise through trade, profession or business in
Hong Kong. Hong Kong government collects tax on any profits arising in Hong Kong, which is not subject
to avoidance of double taxation agreement.

Expense Deduction for Branch and Subsidiary

1. Branch: considering the fact that the headquarters and branches belong to the same enterprise entity
and that no agreement shall be entered into between them, no tax deduction shall be made in terms of
any expenses levied on a branch by headquarters.
2. Subsidiary: any administrative fee levied by overseas parent enterprise may be deducted as tax if it
produces for the purpose of assessable profits for the subsidiary and is reasonable.

International Tax on Outbound Investment

Outbound investment refers to overseas investment made by Hong Kong enterprises. The following factors
should be considered:

Assessment of Overseas Profits

Where a Hong Kong enterprise invests overseas, the profits of such investment will generally be regarded
as profits coming from outside of Hong Kong, and no profits tax shall be paid in Hong Kong.

Unilateral Exemption on Avoidance of Double Taxation

Hong Kong government only collects tax on income and profits arising in or from Hong Kong. Hence, no
exemption of double taxation shall be declared.

Bilateral Exemption on Avoidance of Double Taxation

Bilateral exemption on avoidance of double taxation applies to avoidance of double taxation agreements
signed with other countries and regions. The range of application will be further expanded as Hong Kong
government signs agreement with a growing number of countries and regions.

Withholding Tax
Where a Hong Kong enterprise invests overseas, it may be required to pay withholding tax to the local
government in terms of dividend, interest, royalty, rent or service fee. As Hong Kong government does not
collect tax on dividend, no exemption of avoidance of double taxation will be given out with regard to
overseas withholding tax in terms of dividend.

19 Summary of Taxation in Hong Kong

Conpak’s Taxation Service Scope
Tax Consultation
After understanding the client's enterprise operation, we provide professional opinions on tax planning,
and help enterprises evaluate potential tax risks.

On the basis of the latest development of Hong Kong’s tax policy, we provide guideline on definitions and
execution, allowing the clients to grasp the latest information to adjust operation plan.

Tax Compliance
According to the information provided by the client, we prepare and submit tax returns and tax
computation on behalf of the client.

Tax Field Audit/Tax Investigation

During the tax field audit/tax investigation by Inland Revenue Department, we act as a tax representative
for the client to answer the enquiry from the department and negotiate the taxable amount.
In some situations, we will accompany the client to meet with the assessor, and assist in answering some
relevant questions on the site.

Offshore Claim
We will assist the client in applying for offshore claim or advance ruling to the department and check the
client's operation mode at regular intervals so as to increase opportunities for continual application for tax
exemption.

Summary of Taxation in Hong Kong 20

 Personal Tax
We will assist individuals in declaring dutiable goods and formulating tax plans to provide them with
access to various kinds of tax exemption.

Tax Due Diligence of Merger and Acquisition and Restructuring

We evaluate the risks pursuant to tax items of the target company, and provide holding structure plan that
aims to improve the tax efficiency as a whole after the restructuring.

Service of Transfer Pricing

We evaluate transfer pricing policy and relevant risks, and assist in preparing transfer pricing documents.

Permanent Tax Consultant

We act as a permanent tax consultant and provide corresponding tax consultation, scheme design and
implementation guide in corporation operation, investment, money management, structural change and
before and after various trading activities.

21 Summary of Taxation in Hong Kong

Contact Us
Hong Kong Headquarters
Address: Rooms 05-15, 13A/F, South Tower, World Finance Centre, Harbour City,
17 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong
Tel: +852 2666 2888
Fax: +852 2233 2888
Email: [email protected]

Beijing Office
Address: Rooms 2205-2207, 22/F, Tower B, Gemdale Plaza, 91 Jianguo Road,
Chaoyang District, Beijing 100022, China
Tel: +86 10 5659 1111
Fax: +86 10 5825 5899
Email: [email protected]

Shanghai Office
Address: Rooms 2702-2703, 27/F, 2 Grand Gateway, 3 Hongqiao Road, Xuhui District,
Shanghai 200030, China
Tel: +86 21 5389 6666
Fax: +86 21 6448 6268
Email: [email protected]

Shenzhen Office
Address: Rooms 2711-2712, 27/F, Shenzhen International Chamber of Commerce Tower,
168 Fuhua 3rd Road, CBD Futian District, Shenzhen 518048, China
Tel: +86 755 8882 0088
Fax: +86 755 8831 3533
Email: [email protected]

Conpak Website

Summary of Taxation in Hong Kong 22

About Conpak
Founded in Hong Kong, Conpak is a practicing accounting firm providing “one-stop” professional services. With support and trust from
our clients, Conpak currently has offices in Hong Kong, Beijing, Shanghai and Shenzhen. The quality and standard of our professional
services are highly recognised.

Focusing on the long-term growth of enterprises, we endeavour to devise the best tailor-made solutions for our domestic and overseas
clients for their business development, ranging from auditing, accounting, tax advisory, company incorporation, corporate financing, IPO
in Hong Kong, trademark registration, patent application, valuation services and etc. We also actively participate in community services
such as charity, environmental protection and voluntary works to fulfil our social responsibilities.

The information contained herein is of a general nature and for general discussion. Endeavour has been made to provide timely and
accurate information, but no guarantee can be made to ensure that the information is accurate and complete at all times. Anyone should
seek appropriate professional advice before acting upon such information.

For more information, please visit www.conpak.com

© 2019 Conpak CPA Limited. All rights reserved.

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