Part of a series on
Taxation
An aspect of fiscal policy
Policies Government revenue Property tax equalization Tax revenue Non-tax revenue Tax law Tax bracket Flat tax Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax amnesty Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Tax withholding Double taxation Representation Unions Medical savings account
Economics General Theory Price effect Excess burden Tax incidence Laffer curve Optimal tax Theories Optimal capital income taxation Distribution of Tax Tax rate Flat Progressive Regressive Proportional
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Tax collector Private tax collection Tax farming
Noncompliance General Tax avoidance Repatriation tax avoidance Tax evasion Tax resistance Tax shelter Debtors' prison Smuggling Black market Unreported employment Corporate Tax inversion Transfer mispricing Base erosion and profit shifting (BEPS) Double Irish Dutch Sandwich Single Malt CAIA Locations Tax havens Corporate havens Offshore financial centres (OFCs) Offshore magic circle Conduit and sink OFCs Financial centres Financial Secrecy Index Major examples Ireland as a tax haven Ireland v. Commission Leprechaun economics Liechtenstein tax affair Luxembourg Leaks Offshore Leaks Paradise Papers Panama Papers Swiss Leaks United States as a tax haven Panama as a tax haven
Types Direct Indirect Per unit Ad valorem Aviation Airport improvement Landing Solidarity Capital gains Expatriation Consumption Departure Hotel Sales Stamp Television Tourist Value-added Dividend Environmental tax Carbon Landfill Natural resources consumption Severance Steering Stumpage Excise Alcohol Cigarette Fat Meat Sin Sugary drink Tobacco General Georgist Gift Gross receipts Hypothecated Income Inheritance (estate) Land value Luxury Payroll Pigouvian Property Single Surtax Turnover Use User charge/fee Congestion Fuel Road/GNSS Toll Vehicle miles traveled Corporate profit Excess profits Windfall Negative (income) Wealth
International Financial transaction tax Currency transaction tax European Union Common Consolidated Corporate Tax Base (CCCTB) Global minimum corporate tax rate Tobin tax Spahn tax Tax equalization Tax treaty Exchange of Information Permanent establishment Transfer pricing European Union FTT Foreign revenue rule
Trade Custom Duty Tariff Import Export Tariff war Free trade Free-trade zone Trade agreement ATA Carnet
Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Ronen Palan Joel Slemrod Gabriel Zucman Advocacy groups Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Justice Network (TJN) Tax Policy Center (US)
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
By country All Countries List of countries by tax rates Tax revenue to GDP ratio Tax rates in Europe Individual Countries Albania Algeria Argentina Armenia Australia Azerbaijan Bangladesh Bhutan Brazil Bulgaria BVI Canada China Colombia Croatia Denmark Finland France Germany Greece Hong Kong Iceland India Indonesia Iran Ireland Israel Italy Japan Kazakhstan Lithuania Malta Morocco Namibia Netherlands New Zealand Norway Pakistan Palestine Peru Philippines Poland Portugal Russia South Africa Sri Lanka Sweden Switzerland Taiwan Tanzania United Arab Emirates United Kingdom United States Uruguay
Business portal  Money portal
v t e

Under Article 108 of the Basic Law of Hong Kong, the taxation system in Hong Kong is independent of, and different from, the taxation system in mainland China. In addition, under Article 106 of the Hong Kong Basic Law, Hong Kong has independent public finance, and no tax revenue is handed over to the Central Government in China.^[1] The taxation system in Hong Kong is generally considered to be one of the simplest, most transparent and straightforward systems in the world.^[2] Taxes are collected through the Inland Revenue Department (IRD).

Since the Common Law System is applied in Hong Kong, judgements by the Courts and Boards of Review in tax law cases are used to assist the interpretation of taxation rules and concepts. Furthermore, the Inland Revenue Department issues Departmental Interpretation and Practice Notes (DIPNs) from time to time to clarify and elaborate on the tax rules and to smooth the tax collection process.^[3]

Taxes collected in Hong Kong can be generally classified as:

• Direct tax – including Salaries Tax, Property Tax and Profits Tax; the guiding statue is Inland Revenue Ordinance (Cap 112);
• Indirect tax – including Stamps Duty, Betting Duty, Estate Duty (abolished on 11 February 2006) and others.

In the fiscal year 2013/14, Profits tax, an income tax on corporations, constituted the largest source of tax collected by the government, followed by Salaries Tax, an income tax on individuals.^[4]

Income Tax

Unlike most countries which apply both residential jurisdiction and territorial jurisdiction in determining the tax liability of a person, Hong Kong uses only the territorial source jurisdiction and disregards the concept of residence.^[5] Thus, only profits sourced in Hong Kong are taxable whereas overseas income is not taxable. (As an exception, certain kinds of worldwide deemed trading receipts are taxable for non-residents.)

Salaries Tax

The wages and incomes received from employment are subjected to tax. Income tax rate in Hong Kong is 2% when net taxable income is from 1 to 50000 Hong Kong dollars, 6% when net taxable income is between 50001 and 100000 Hong Kong dollars, 10% when net taxable income is between 100001 and 150000 Hong Kong dollars and 14% when net taxable income is between 150001 and 200000 Hong Kong dollars. Taxable income above 200000 Hong Kong dollars is subjected to income tax rate of 17%^[6]

Profits Tax

Hong Kong Profits Tax is levied on the net profits of businesses. Companies and individuals (sole proprietors) carrying out business in Hong Kong are liable to Profits Tax^[7] if the profits arise in Hong Kong. The source of profits is one of the most controversial topics in Hong Kong taxation. Principally, it is guided by an established set of tests and judgments in court cases. The Departmental Interpretation and Practice Notes provides viewpoints from the IRD's perspective but these are subject to revision if major inconsistencies with court judgments are subsequently found. Certain kinds of deemed trading receipts are taxed irrespective of the source rule.^[8] Tax on these deemed trading receipts are collected by agents or other persons on withholding basis.^[9][10] Tax liability may be measured by reference to gross income or turnover for deemed trading receipts and in case where profits cannot reliably ascertained.^[11][12] Capital gain is out of the scope of Hong Kong Profits Tax. However, whether a gain is in capital nature is debatable.

Certain tax deductions are granted when expenses are incurred.^[13] Capital expenditure is not tax-deductible in general.^[14] Nevertheless, several kinds of capital expenditure are tax-deductible in the year of purchase or spreading over years, subject to the requirements in specific provisions. Allowances are granted for the purchase or construction of buildings and plants and machinery.^{[15][16][17][18]}

For the fiscal year 2014/15, the Profits Tax rate is 16.5% for companies and 15% for individual sole proprietors. Half of the original rates will be charged on concessionary receipts including income derived from qualifying debt instruments and offshore reinsurance business.^[19][20][21]

Property Tax

Property Tax is levied on the income from the letting of immovable property in Hong Kong. Property tax carries an immaterial proportion of the revenue of the government. For the year of assessment 2013/14, property tax amounts to 0.01% of the total revenue.^[4] The tax rules are straightforward and simple.

Both individuals or corporate owners (including joint tenants) are liable to Properties Tax. However, corporate owners who carry out business in Hong Kong may either:

• apply for exemption of Property Tax;^[22] or
• deduct Property Tax from one's Profits Tax assessment.^[23]

The tax is paid on 15% of the net assessable value, equal to assessable value minus deductions.^[24] Assessable Value includes:

• Rental income payable to the owner during the year of assessment;^[25]
• Other considerations not specifically attributable to a particular year of assessment (e.g. key money and non-refundable rental deposit). The amount will be spread over the tenancy period and subject for a maximum of 36 months.^[25] For illustration purpose, key money of HK$60,000 paid for the tenancy from 1 April 2014 to 31 March 2016 will be assessed as: HK$60,000 for the year of assessment 2014/15 and HK$60,000 for the year of assessment 2015/16.

Deductions include:

• Standard deduction: 20% allowance on the assessable value less deducted rates, representing the repair expenses for the property;^[26]
• Other deductions: Rates paid by the owner of the property^[26] and irrecoverable rental income.^[27]

Transfer Tax

Stamp Duty

Stamp Duty is collected upon existence of certain transactions in Hong Kong. The three major types of transactions that attract stamp duties are transfers of Hong Kong immovable properties, transfers of Hong Kong shares and leases of immovable properties. Stamp Duties are chargeable on dutiable instruments.

Betting Duty

Turnover Tax

No turnover tax (e.g. Value-Added Tax and Goods and Services Tax) has been imposed in Hong Kong. As a result, Hong Kong is considered to be favourable for profit shifting and conducting re-invoicing activities. In July 2006, Proposal of legislation of Goods and Services Tax (“GST”) was made by the Government, who argues that tax base in Hong Kong was urged to be broadened. Subsequently, due to fierce opposition of the general public, the proposal was dropped.^[28][29]

Tax Administration

Individual Tax Return

Taxpayers who received Individual Tax Return are required to fill out the return in order to notify the IRD their Profits Tax, Salaries Tax and Property Tax positions.

For regular taxpayers, normally IRD issues Salaries Tax Return to them on the first working day of May every year.^[30] They are also required to furnish the return within 1 month in normal case.^[31]

Employer's Return

In Hong Kong, it is IRD's general practice to issue Employer's Returns to Hong Kong Company in every April in the year. The employer is obliged to file the form within 1 month from the date of issue in order to notify IRD the amount of wages, salaries and other kinds of remuneration paid to the employees during the year of assessment ending 31 March every year. No Employer's return is required to be furnished for those employees who received HK$120,000 or less during the Year of Assessment.^[32]