No profit tax for business activities carried out outside Hong Kong
There is only one kind of tax for a HK company i.e. Profits Tax which is at 16.5% on its assessable profits. There is no VAT, and no tax on dividend or interest income in HK. Basically a HK company is not subject to HK taxes if its operations are not carried out in HK. The location of where a company’s activities take place is the key to whether a company’s profits are taxable in Hong Kong. If profits are earned from activities that take place entirely outside of Hong Kong, then these profits would not be taxable even if the company’s transactions are carried out through the company’s Hong Kong bank account.
For illustration, a Hong Kong trading company with an account in Hong Kong wouldn't become subject to Hong Kong taxes if:
- The company has no physical office in Hong Kong and simply uses our address for receipt of mail;
- The organization has no staff in Hong Kong and its staff rarely visits Hong Kong (e.g. total visits are less than 60 days a year);
- The company has an overseas office where its staff are based and work;
- The organization negotiates and signs contracts with its people and suppliers past Hong Kong;
- The organization has no people based in Hong Kong and doesn't have payments from customers' Hong Kong bank accounts;
- The organization has no suppliers based in Hong Kong and doesn't make payment to suppliers' Hong Kong bank accounts;
- The organization's merchandise don't enter Hong Kong.
Low Profit Tax rate for business activities carried out in Hong Kong
Profits tax is levied at a rate of 16.5% on taxable profits arising from activities taking place in Hong Kong. Deductions and exemptions are given for business expenses that are incurred in earning the assessable profits and income.
- Dividends received are excluded from the assessable profits of the recipient
- Exemption from payment of tax on interest derived from any deposit placed in HK with an authorized institution (not applicable to interest received by or accrued to a financial institution).
Expenses (Generally, all expenses, to the extent to which they have been incurred by the taxpayer in the production of chargeable profits)
- Bad and doubtful debts (any recoveries to be treated as income when received).
- Repairs of articles, premises, plant and machinery used in producing the profits.
- Expenditure for registration of a trade mark, design or patent and expenditure on the purchase of patent rights or rights to any know-how for use in HK in the production of chargeable profits. No deduction is, however, allowable in respect of patent rights or rights to any know-how purchased by a person wholly or partly from an associated or related person.
- Expenditure on scientific research including market, management and business research and payments for technical education subject to certain rules.
- An employer's annual contribution to a fund under a recognized occupational retirement scheme, or annual premium payment in respect of a contract of insurance under such a scheme, or any provision for these purposes, but limited in respect of any one employee to 15% of his total emoluments for the relevant period.