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 arising in or derived from Hong Kong from such trade, profession or business (See Appendix I for tax rates).

There is no capital gains tax in Hong Kong.  However, profits tax will be charged on the profits of speculative transactions if they constitute a venture in the nature of trade.

Dividends received from a corporation which is subject to Hong Kong profits tax or otherwise exempted are excluded from the assessable profits of the recipient; accordingly there is no withholding tax on dividends.

No distinction is made between residents and non-residents.  As long as the profits are arising in or derived from Hong Kong, such profits are taxable, irrespective of whether the recipient is resident or non-resident.  On the other hand, if the income is not arising in or derived from Hong Kong, (e.g. off-shore trading), no tax is payable.

Hong Kong has made arrangements with Mainland China and several other countries for the avoidance of double taxation on income from cross-border activities.  Also double taxation relief arrangements have been made with the governments of a number of other countries in relation to tax on income derived from the international operation of ships by resident taxpayers and international air traffic by airlines of the countries involved on a reciprocal basis.

As incentives to encourage businesses, interest received and gains on disposal of certain qualified debt instruments and profits derived from the business of reinsuring offshore risks as a professional reinsurer are taxed at one-half of the normal tax rate.  Also is interest income on bank deposits in any currency earned by a person carrying on a business or profession in Hong Kong exempted from profits tax.

Tax is charged on the assessable profits for a year of assessment.  The assessable profits for the business which makes up annual accounts are calculated on the profits of the year of account ending in the year of assessment.  For the newly commenced business, for which accounts are consistently made up to the same day in each year, assessments will equal in total the profits, as adjusted for tax, earned during the life of the business.  In the year of assessment itself a provisional charge to tax is to be paid based on the profits assessed for the preceding year. 

The provisional payment is applied in the first instance against profits tax payable on assessable profits for that year of assessment when agreed in the following year, any excess is then applied against the provisional profits tax payable for that succeeding year.  Application may be made to holdover the provisional tax payment if the current year's assessable profit is less.

Generally, all expenses, to the extent that they have been incurred by the business in the production of chargeable profits, are allowed as deductions in arriving at the assessable profits.  Likewise, expenses relating to non-Hong Kong source income will not be admitted as tax deductions.

1. Interest on funds borrowed (subject to certain conditions being satisfied) and rent of buildings or land occupied for the purpose of producing the profits.
2. Bad and doubtful debts (any recoveries to be treated as income when received).
3. Repairs of articles, premises, plant and machinery used in producing the profits.
4. Registration of a patent or trademark used in the production of such profits.
5. Expenditure for scientific research and payments for technical education subject to certain rules.
6. Employers' annual contributions or premiums paid to recognized retirement scheme funds, limited in respect of anyone employee to 15% of his/her total emoluments for the relevant period.
7. Donations to approved charities up to 35% of assessable profits after depreciation allowances but before such donations.

Certain allowable head office administrative expenses charged 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.

Losses made in an accounting year can be carried forward indefinitely and set off against future profits of that business.  A corporation carrying on more than one trade may have losses in one trade offset against profits of the other.  However, there is no group relief of corporate losses in Hong Kong.

Allowances on capital expenditure incurred for the purpose of producing chargeable profits are deducted at specified rates in arriving at the assessable profits.  Special allowances are given in respect of capital expenditure incurred in the construction of industrial and commercial buildings or structures and building refurbishment expenditure. Full allowance is given for capital expenditure on certain prescribed fixed assets, such as manufacturing plant and computer systems.

This tax is imposed on all income arising in or derived from Hong Kong from any office or employment or any pension.  Income from any office or employment includes wages, salary ,leave pay, fees, commission, bonus, gratutity, perquisite and allowances whether derived from the employer or others.  Income also includes, inter alia, the value of quarters provided rent free by an employer. 

In general terms, 10% on the total income from the employer is to be included in the assessment as the value of quarters provided.  Special provisions apply to seamen, airmen and other persons who visit Hong Kong for short periods and also to those who have paid tax of substantially the same nature as Hong Kong salaries tax in any territory outside Hong Kong.

Husband and wife are individually responsible for all aspects of his or her own salaries tax affairs including lodgement of returns and payment of tax assessed.  However, if the overall tax liability of any married couple is greater than it would have otherwise been under the aggregation system, they may elect to be jointly assessed.

Liability to salaries tax is based on the actual income of the year of assessment, a charge being made for provisional salaries tax to be paid in the year of assessment itself.  Provisional tax paid in respect of a year of assessment is applied firstly against the salaries tax payable on the income of that year of assessment when assessed in the following year.  Any excess is then applied against the provisional tax liability for that following year.

The Ordinance provides a number of specific instances that are not subject to salaries tax. Some of these are:-

1. Staff of all official foreign government agencies provided they satisfy the nationality rule.
2. Sums received by way of commutation of pensions under a recognized retirement scheme.
3. Pensions attributable to services outside Hong Kong, other than Hong Kong Government servants.
4. Any amount arising from a scholarship, exhibition, bursary or similar educational endowment held by a person receiving full time education.
5. Alimony or maintenance payments received by a person from his/her spouse or former spouse.

In addition to the deduction of expenses wholly, exclusively and necessarily incurred in the production of income, not being expenses of a private or domestic nature, a deduction may be claimed up to 35% of the income less allowable expenses for donations paid to approved charities.

An individual is also entitled to various allowances in computing his/her net income chargeable to tax (See Appendix I for concessional allowances).

Salaries tax is charged at a progressive scale.  There is, however, an overriding limit which prevents the salaries tax of any person from exceeding the standard rate of the total income without any deduction for allowances (See Appendix I for tax rates).

Property tax is charged on the owner of land and/or buildings in Hong Kong at the standard rate (See Appendix II) on the actual rent received less a deduction of 20% to cover repairs and maintenance.

If the income from property chargeable to property tax is included in the taxpayer's profits for profits tax purposes, or if the property is occupied by the taxpayer for business purposes, the amount of property tax paid can be deducted from the amount of profits tax assessed.  Corporations carrying on a trade, profession or business in Hong Kong are exempted from paying the property tax which would otherwise be set off against their profits tax.

Other Charges administered by the Inland Revenue Department are as follows:-

Business Registration Fee

With certain exceptions, every business carried on in Hong Kong must be registered and pay an annual registration fee including a levy to the protection of wages on insolvency Fund (See Appendix II).  Every company incorporated in Hong Kong under the Companies Ordinance is deemed to be carrying on business and is liable to be registered, as is every overseas company which has established a place of business in Hong Kong.

Stamp Duty

Stamp duty is charged on Hong Kong share transactions and conveyance of real property (See Appendix II for rate of duty).

Estate Duty

Estate duty has been abolished since 11 February 2006.

Others