Mitsuba International - Taxation Notes

Useful Notes about Hong Kong Taxation
The Hong Kong Government imposes both direct and indirect taxes of which direct taxes are the major source of tax revenue of Hong Kong. The basic structure of Hong Kong tax system is rather simple. The types of tax are few and the tax rates are low in comparison with other developed countries. Besides, no tax is levied on profits arising abroad, even if they are remitted to Hong Kong! The following sections provide more information about Hong Kong Taxation.
Basic Features of the Hong Kong Tax System Profits Tax Rates Property Tax Rates Salaries Tax Rates Tax Deductions Tax Deductions - Non-deductible Tax Items Tax Exemptions

Basic Features of the Hong Kong Tax System
The basic features of the Hong Kong Tax System are:
	Simple tax system, Low tax rates, Territorial source concept (Tax is levied only on tax bases which relate to Hong Kong territory but not overseas), No total income tax, No capital gains tax, Very few withholding taxes, Very few anti-avoidance tax legislations, and Very few tax treaties with other countries.
Top
Profits Tax Rates
Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business.
*For Corporations:*
Year of Assessment		Tax Rate
2008/09 onwards*		16.5%
2007/08		17.5%
2006/07		17.5%
2005/06		17.5%
2004/05		17.5%
2003/04		17.5%
2002/03		16%
2001/02		16%
2000/01		16%
1999/00		16%
1998/99		16%
1997/98		16.5%

For Unincorporated Businesses:
Year of Assessment		Tax Rate
2008/09 onwards*		15%
2007/08		16%
2006/07		16%
2005/06		16%
2004/05		16%
2003/04		15.5%
2002/03		15%
2001/02		15%
2000/01		15%
1999/00		15%
1998/99		15%
1997/98		15%
* Per 2012-13 Budget, 75% of the 2011/12 profits tax will be waived subject to a ceiling of $12,000 per case. (Legislative amendments are required for implementing the proposed measures) .
Top
Property Tax Rates
Property Tax is charged on the owners of land and/or buildings in Hong Kong and is computed at the standard rate (the below table) on the net assessable value of the property.

Year of Assessment		Tax Rate
2008/09 onwards		15%
2007/08*		16%
2006/07		16%
2005/06		16%
2004/05		16%
2003/04		15.5%
2002/03		15%
2001/02		15%
2000/01		15%
1999/00		15%
1998/99		15%
1997/98		15%
* 75% of the 2007/08 property tax is waived subject to a ceiling of $25,000 per assessment.
Top
Salaries Tax
Net Chargeable Income, i.e. assessable income after deductions and allowances, is charged at progressive rates as tabulated below. The amount of tax charged, however, shall not exceed the amount charged by applying the standard rate (see the below table) to the net total income, i.e. assessable income after deductions but before allowances.
*Year of Assessment 2008/09 to 2012/13 :**

	Net Chargeable Income	Rate	Tax
	HK$		HK$
On the First	40,000	2%	800.00
On the Next	40,000	7%	2,800.00
	80,000		3,600.00
On the Next	40,000	12%	4,800.00
	120,000		8,400.00
Remainder		17%
* For 2011/12, a 75% waiver of the final tax payable under salaries tax and tax under personal assessment, subject to a ceiling of $12,000 per case. (Legislative amendments are required for implementing the proposed measures) .

*Standard Rate:*
Year of Assessment		Tax Rate
2008/09		15%
2007/08		16%
2006/07		16%
2005/06		16%
2004/05		16%
2003/04		15.5%
2002/03		15%
2001/02		15%
2000/01		15%
1999/00		15%
1998/99		15%
1997/98		15%
Top
Tax Deductions
Deductible Expenses:
Generally, all outgoings and expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions. Reference can be made to Section 16 of the Inland Revenue Ordinance. A transfer of certain allowable head office administrative expenses by means of a charge to a local branch or subsidiary in Hong Kong would be allowed as a deduction for Hong Kong tax purposes, to the extent to which they were incurred during the basis period for the year of assessment in the production of profits chargeable to tax.

Donations:
Charitable donations made to approved charitable institutions or trusts of a public character or to the Government of the Hong Kong Special Administrative Region, amounting in aggregate not less than $100 but not exceeding 25% (10% for years of assessment up to and including 2002/03) of the assessable profits, are allowable for deduction from the assessable profits.

Expenditure on Building Refurbishment:
A person who incurs capital expenditure on the renovation or refurbishment of business premises is allowed to deduct that expenditure over a period of 5 years in equal instalments commencing in the year in which the expenditure is made.

Expenditure on plant and machinery specially related to manufacturing, and on computer hardware and software:
Immediate write-off in full amount is to be allowed.

Depreciation Allowances:
(1) Industrial Building Allowances on Industrial Buildings and Structures Initial allowance: 20% on the cost of construction of the premises Annual allowance: 4% on the cost of construction of the premises Balancing allowance or charge will be due upon disposal of the premises (2) Commercial Building Allowances on Commercial Buildings and Structures Annual allowance: 4% on the cost of construction of the premises Balancing allowance or charge will be due upon disposal of the premises (3) Plant and Machinery Initial allowance: 60% on the cost Annual allowance: at rates of 10%, 20% or 30% as prescribed by the Board of Inland Revenue in the Inland Revenue Rules, on the reducing value of the asset. Items qualifying for the same rate of annual allowance are grouped under one "pool". A balancing allowance is available only on cessation of a business to which there is no successor. A balancing charge can, however, arise whenever the disposal proceeds of one or more assets exceed the reducing value of the whole "pool" of assets to which the disposed items belong.
Top
Non-deductible Tax Items
In computing the assessable profits deduction is specifically prohibited in respect of the following:
domestic or private expenses and any sums not expended for the purpose of producing the profits; any loss or withdrawal of capital, the cost of improvements and any expenditure of a capital nature; any sum recoverable under insurance or contract of indemnity; rent of or expenses relating to premises not occupied or used for the purpose of producing the profits; taxes payable under the Inland Revenue Ordinance, except Salaries Tax paid in respect of employees' remuneration; any remuneration or interest on capital or loans payable to or, subject to section 16AA, contribution made to a mandatory provident fund scheme in respect of the proprietor or the proprietor's spouse or, in case of a partnership, to its partners or their spouses.
Top
Tax Exemptions
The following income and profits are excluded from the assessable profits:
dividends received from a corporation which is subject to Hong Kong Profits Tax; amounts already included in the assessable profits of other persons chargeable to Profits Tax; interest on Tax Reserve Certificates; interest on, and any profit made in respect of a bond issued under the Loans Ordinance (Cap. 61) or the Loans (Government Bonds) Ordinance (Cap. 64), or in respect of an Exchange Fund debt instrument or in respect of a Hong Kong dollar-denominated multilateral agency debt instrument; interest income and trading profits derived from long term debt instruments; sums received or accrued in respect of a specified investment scheme by or to the person as:- a person chargeable to Profits Tax in respect of a mutual fund, unit trust or similar investment scheme that is authorized as a collective investment scheme under section 104 of the Securities and Futures Ordinance (Cap. 571); or a person chargeable to Profits Tax in respect of a mutual fund, unit trust or similar investment scheme where the Commissioner is satisfied that the mutual fund, unit trust or investment scheme is a bona fide widely held investment scheme which complies with the requirements of a supervisory authority within an acceptable regulatory regime; offshore profits derived outside Hong Kong (Dipn 21);