How to
calculate Profits Tax in Hong Kong
How to
calculate Profits Tax in Hong Kong
Double
taxation arrangement between Hong Kong and China
Exemption
of Profits Tax on interest income¡@
Profits Tax Rate
Salaries Tax Rate Property Tax Rate Allowances Deductions¡@
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A person who carries on a trade, profession or business in Hong Kong is chargeable to Profits tax on his profits from that trade, profession or business which arise in or derive from Hong Kong. The tax residence of a person is generally irrelevant for profits tax purposes.
Whether or not a person is carrying on a trade, profession or business in Hong Kong and whether or not income or profits have a Hong Kong source is a question of fact. The mere carrying on of business in Hong Kong is insufficient for a person to be subject to profits tax. The general rule is that profits are sourced where the operations which essentially give rise to the profits take place. The application of this territorial concept has given rise to numerous disputes between taxpayers and the Inland Revenue Department (''IRD''). In March 1998, the IRD issued a revised Departmental Interpretation and Practice Notes No. 21 on the "Locality of Profits" indicating the IRD's views on source of income under different situation. From April 1998, the IRD has provided an advance ruling service on the source of profits.
The assessable profits are computed by taking the profit or loss disclosed in the company accounts and adjusting this for tax purposes. The adjustments would typically include the disallowance of accounting depreciation, and substitution of tax deductible capital allowances. Other disallowance of expenses include domestic or private expenses, expenditure of a capital nature and tax paid under the Inland Revenue Ordinance.
Dividends are generally not subject to profits or withholding tax.
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In order to minimise double taxation of cross-border activities between China and Hong Kong, the arrangement for the avoidance of double taxation was entered into between China and Hong Kong in February 11, 1998.
The profits of a Hong Kong enterprise are taxable only in Hong Kong unless the enterprise carries on business in China through a permanent establishment.
Employment income derived by a Hong Kong resident providing services in China is exempt from individual income tax in China provided that the taxpayer stays in China for a period or periods not exceeding 183 days in the calendar year concerned.
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With effect from June 22, 1998, Profits Tax is exempted on interest income derived from deposits placed in approved financial institutions in Hong Kong.
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| ¡@ | 2004/2005 | 2003/04 |
|---|---|---|
| Corporates | 17.5 % | 17.5 % |
| Unincorporated businesses | 16 % | 15.5 % |
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| 2004/2005 | 2003/04 | |
|---|---|---|
| First HK$30,000 at (2003/4: $32,500) | 2 % | 2 % |
| Next HK$30,000 at (2003/4: $32,500) | 8 % | 7.5 % |
| Next HK$30,000 at (2003/4: $32,500) | 14 % | 13 % |
| On the remainder | 20 % | 18.5 % |
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| ¡@ | 2004/2005 | 2003/04 |
|---|---|---|
| ¡@ | 16 % | 15.5 % |
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| 2004/05 (HK$) | 2003/04 (HK$) | |
|---|---|---|
| Basic allowance | 100,000 | 104,000 |
| Married person's allowance | 200,000 | 208,000 |
| Child allowances | ||
| 1st and 9th child (each) | 30,000 | 30,000 |
| Dependent parent/grandparent allowance | ||
| - not residing with taxpayer | 30,000 | 30,000 |
| - residing with taxpayer | 60,000 | 60,000 |
| Dependent brother/sister allowance | 30,000 | 30,000 |
| Single parent allowance | 100,000 | 104,000 |
| Disabled dependent allowance | 60,000 | 60,000 |
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| 2004/05 | 2003/04 | |
| Self-education expenses | 40,000 | 40,000 |
| Home mortgage interest | 100,000 | 100,000 |
| Elderly residential care expenses | 60,000 | 60,000 |
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