Hong Kong SAR Tax Profile

Updated on July 18, 2022

o
The Hong Kong Special Administrative Region

In this section, you will find a summary of

This page was last updated on June 15, 2015.

In collaboration with the

Asia Pacific Tax Center of KPMG LLP

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 2

Contents

Taxes on corporation’s income 1

Conventions to Avoid Double Taxation on Income 2

VAT/GST are examples of indirect taxes.

Fourth, personal taxation is an important consideration.

5 Other Fees and Charges 9

6 Agreements on Trade in Services 11

7 Office of Tax Administration 12

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 1

a tax imposed on corporations

The tax on profits

Once a British Crown Colony, Hong Kong SAR is now a part of the People’s Republic of China.

The People’s Republic of China Two articles of legislation control the relationship between the PRC and Hong Kong SAR.

Basic Law of the Hong Kong Special Administrative Region’s Joint Declaration on Hong Kong

Region in which the executive branch of government is located.

16.5 percent is the tax rate (15 percent for unincorporated bodies).

Because Hong Kong SAR’s tax system is territorial in nature, a company’s place of business isn’t taken into consideration when assessing its tax liability.

As a result, a statutory definition of the term is superfluous. There are several drawbacks to the idea of residence, though.

transfer pricing, off-shore fund exemptions, and tax planning all rely on this information.

treaties. Unless otherwise stipulated, the common law idea of residence governs.

A “assess first, then audit later” approach to tax return assessment is used by the tax authority.

A tax return is typically due one month after it was issued. When a business uses a tax authority to submit its tax returns,

representative, the following deadlines apply to tax returns):

between 1 April and 30 November In the next year, if the accounting year-ends are between 1 April and 30 November

15 August of the next year, for accounting year-ends between 1 December and 31 December of the preceding calendar year

15 November of the same year, for fiscal years ending between January 1 and March 31, for all other businesses

Dividends, interest, and other types of income, whether paid to citizens or non-residents, are not subject to international withholding taxes.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 2

rates However, certain royalties paid to individuals who do not own a business are subject to an effective withholding tax.

PRC to use intellectual property in PRC or to use intellectual property from PRC outside of PRC

The recipient is not a resident of the Special Administrative Region of Hong Kong

The profits tax in Hong Kong SAR is based on a deemed profit of 30% of the royalties. In light of

With the current 16.5 percent corporate tax rate, the effective withholding tax rate comes to 4.95 percent per cent of gross income. If royalty is involved,

Unless no one is running a business in the country where the royalty is being paid to a foreign associate, the entire payment is taxable.

The intellectual property that led to the payment was owned by a Hong Kong SAR business at one point or another.

Withholding tax does not apply to profits on some speculative transactions in the Hong Kong Special Administrative Region (HKSAR).

if a trade, profession, or business endeavour is regarded to be an adventure, it may be subject to a profit tax.

It was manufactured in Hong Kong SAR.

Foreign-sourced revenue is not subject to Hong Kong SAR profits tax since it is taxed based on the source of the income, rather than the source itself. Dividend

Distributions to residents and non-residents are not subject to withholding tax.

Tax losses Tax losses can be carried forward indefinitely, but not back to previous years.

Losses can’t be used to offset future earnings under an anti-avoidance rule. The

If the shareholding in the losing firm changes and, as a result of that change, profits have increased or decreased, the provision applies.

arose within the corporation, and the change in ownership was made only for the sake of exploiting the

against the earnings of the corporation.

Tax grouping / consolidation

relief

Tax laws in Hong Kong do not provide for collective relief for losses or asset transfers. There are numerous businesses.

the tax treatment of each company within a corporate group is different.

Transfer of stock Stamp duty is charged at a rate of 0.2 percent on the greater of the consideration or the Hong Kong SAR stock being transferred.

paid or the market value of the transfer instrument plus HKD5.

Immovable property in Hong Kong SAR is subject to stamp duty, which varies depending on the value of the property.

The maximum percentage rate is 4.25 percent, regardless of the quantity or value of the consideration. Special Stamp Duty (SSD) is a tax that must be paid when a document is issued by the government.

Property purchases that occurred after November 20, 2010 and that were resold within 24 months SSD is here to stay.

Stamp Duty is charged in addition to the ad valorem rates. Additionally, a Buyer’s Stamp Duty has been enacted as part of legislation.

Any person, including corporations, who acquires a residential property outside of Hong Kong is subject to the (BSD).

Improve the SSD by extending its service life and optimizing data transfer speeds.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 3

Hong Kong SAR does not have a CFC regime.

There are no comprehensive transfer pricing regulations under Hong Kong tax law. As outlined by the government’s tax agency,

Departmental Interpretation and Practice Note No. 46 contains the department’s views and practices on transfer pricing.

In order to prevent profits from leaving Hong Kong, a unique inter-company pricing provision has been put in place.

SAR to a person with whom you have a deep personal relationship. It is also possible to benefit from a tax treaty between Hong Kong SAR and the PRC.

the tax authorities to make modifications to transfer pricing for transactions involving affiliated companies.

An advance pricing arrangement (APA) program was launched in Hong Kong SAR in April 2012, and the details are included in this document.

Practice Note No. 48, Departmental Interpretation and Interpretation.

Hong Kong SAR tax treaties allow mutual agreement processes to be initiated if the actions of the competent authorities are deemed to be inconsistent with each other.

both countries will be taxed in violation of the rules of the tax law if one or both jurisdictions fail to cooperate with each other

treaty.

There are no thin capitalization rules in Hong Kong SAR, although interest is deductible if it meets at least one of the following conditions:

In addition to passing the general requirement of being incurred in the development of assessable earnings, the expenditures must also meet six specific criteria.

Specific criteria are designed to ensure that interest deductions are not granted where the relevant taxable income is lower than the amount of interest paid.

The Special Administrative Region (SAR) of Hong Kong does not charge tax on any of your earnings.

Hong Kong SAR has two broad anti-avoidance rules that permit the tax administration to ignore:

a transaction that decreases or would reduce a person’s taxable income if it is determined that

transacting in a way that does not exist

A decision that is not implemented.

Contraventions of tax treaties in Hong Kong SAR’s tax treaties generally include anti-treaty shopping provisions for dividends and interest

provisions.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 4

Specific anti-avoidance measures are also available.

rules

Countermeasures are in place to prevent the alleged exploitation of taxation systems by using service businesses.”

There are two basic kinds of arrangements:

Employees who provide services to their employers in disguised employment arrangements are referred to as “employees.”

a company owned and controlled by the employees that has entered into a tax agreement

employment contracts that are effective.

Type II: Service firms are formed by the owners of unincorporated businesses (e.g., sole proprietorships, partnerships, and corporations).

partnerships). The proprietors of these corporations then offer their personal services to the unincorporated businesses.

fee-paying businesses in exchange for management services

any provision of the Hong Kong Inland Revenue Ordinance can be applied to the tax authority for an official ruling.

relates to a specific layout. Only after a transaction is being seriously considered and all of the pertinent details are provided will a decision be made.

The Commissioner is bound by the decision and can rely on it when assessing the next tax bill.. The tax collector

releases a selection of important decisions for future reference.

There aren’t any special incentives for the protection of intellectual property rights.

Incentives for R&D No special incentives exist for R&D. (refer to below comments).

Quasi-incentives are also available in Hong Kong SAR tax law, which grants deductions for certain expenses.

Scientific research, for example, is an example of an expenditure that would otherwise not be deductible.

acquisition of patent rights or rights to know-how, as well as fixed assets. The investment of money

Over the course of five years, copyrights, registered designs, and trademarks can be deducted in equal installments.

Concessions for offshore reinsurance firms and eligible debt products are also available.

Incentives are frequently viewed as such. In addition, there are significant provisions for depreciation and write-off, which are also considered an

a reason to put money into real estate or manufacturing equipment.

Hybrid instruments are not subject to any additional rules. The tax authorities examines a financial instrument to see whether it is

a position according to which the first step is to determine the nature of the entity based on its legal form rather than the

The fundamentals of the economy.

There are no specific regulations for hybrid entities, and there are no constraints on the types of hybrid entities that can be created.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

See also  The Overheated Jogger?

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 5

Exceptional tax treatment for

specific types of businesses or industries

The tax code does not offer any unique advantages. Outright deductions for specific expenditures that qualify for a quasi-incentive can be granted.

Scientific research and expenditure on some fixed assets, for example, may not otherwise have been deductible. Capital

A company can deduct the cost of copyright, registered trademarks and registered designs over the course of five years.

years that begin the year after the acquisition was made.

Concessions are offered for offshore reinsurance businesses and loan instruments that meet certain criteria. If specific conditions are met,

non-resident individuals, partnerships or trustees of trusts can invest in offshore funds if certain conditions are met.

Certain securities, futures contracts, and leveraged foreign currency transactions are immune from dealings by fund administrators.

trading on the Hong Kong stock exchange.

Conventional bonds and Islamic bonds are now on same footing, eradicating a disparity.

Hong Kong’s alleged barrier to the emergence of a sukuk market. Before the essential information was presented,

restriction of interest payments and asset transfers in Islamic finance led to legislation, which resulted in Islamic finance.

When compared to economically equal loan arrangements, financial goods are taxed at a higher rate.

Tax treatment for financial products with comparable economic content is guaranteed by the legislation. The

instead of using the name “Sukuk,” legislation uses the term “alternative bond scheme” (ABS).

designate the arrangements that are subject to the tax treatment.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 6

Avoiding Double Taxation Through Tax Treaties

Hungary Luxembourg Spain is currently in effect in Austria.

Internationally, these countries are Belgium, Indonesia, Malaysia, and Switzerland

Thailand Brunei Ireland Malta

United Kingdom Canada Japan Mexico

Jersey from China Jersey from Vietnam

Republic of the Czechs

France

Kuwait

Liechtenstein

In New Zealand,

Portugal

A deal has been struck, but is not yet in effect.

at the time of writing

Guernsey, Italy, and Qatar have all agreed to new treaties or protocol amendments, although none have been finalized as of the time of this writing.

not in effect just yet.

Inland Revenue Division of Hong Kong

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 7

3 Taxes levied in a manner other than directly by the taxpayer

There is no sales tax, VAT, or GST in the Hong Kong Special Administrative Region (SAR).

N/A as a baseline rate

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 8

4 Taxes on Individuals

Taxes on earnings

Pay-as-you-earn (PAYE) is not in use in Hong Kong SAR. The tax authority receives money from the taxpayer in the form of tax.

Although the top rate is 17%, the most effective rate is 15%.

Hong Kong SAR does not collect social security taxes.

Link to KPMG’s Thinking Beyond Borders for more details.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 9

Additional Taxes

Hong Kong SAR does not impose any customs taxes on imports or exports.

Excise tax Hydrocarbon oils, spirits, tobacco, cigarettes, and methyl alcohol are all subject to an excise tax.

Owners of land and buildings in the Hong Kong Special Administrative Region (HKSAR) are subject to an annual property tax.

a tax on the rental income in the year of assessment (minus any irrecoverable rent) and the only deductions

Rates (if the owner pays them) and a 20 percent repair and expense allowance are permissible.

following deductions for fees paid by the landlord.

A 15% tax on real estate is levied.

Duty on estates in Hong Kong SAR has been abolished since 2006.

Hong Kong SAR does not have a gift tax.

There is a tax levied on the amount of money bettors win from wagering on horse races or football games.

The Hong Kong Jockey Club is the custodian of the Mark Six lottery. The duty rate ranges from 25 to

in the range of 50 to 75%

Hong Kong SAR’s Business Registration Ordinance mandates that every person who operates a business in the territory pay a business registration tax.

Annual fees and taxes must be paid as well. A one-time cost of HKD 2,600 is required for annual registration and levy (HKD 7,000 for a company).

a three-year degree For the 2012/13 fiscal year, business registration fees were waived.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 10

Instruments evidencing transactions (i.e., documents) are subject to stamp duty, which is levied both at fixed and ad valorem rates.

Documents that show the following transactions are subject to rates:

According to the amount or value of consideration, Hong Kong SAR-based assignments of immovable property

Although there is a 4.25 percent cap,

Hong Kong SAR leases of immovable property (rates vary on the lease duration and whether or not the lease is renewed).

premiums and/or rental fees

Hong Kong SAR stock sales and purchases (total rate of 0.2 percent plus HKD 5 on the instrument of transfer)

Instruments that have the Hong Kong SAR’s name (rate of 3 percent)

It is possible to make a copy of any of the instruments listed above (HKD 5)

The transfer of stock and real estate within a group of companies is free from certain regulations. An

stock borrowing and lending transactions for certain purposes are also excluded from federal income tax.

For specific reasons and in accordance with predetermined criteria.

Residential property purchases made after November 20, 2010, are subject to a special stamp duty (SSD).

sold again in less than a year. Additional stamp duty (SSD) is charged on top of the ad valorem rates of stamp duty that are already in place.

with rates ranging between 5 and 15 percent (depending on the length of time the property was held).

To improve SSD, new legislation has been enacted to increase its coverage to 36 months and to alter the rates.

from 10% to 20% of SSD.

Buyer’s Stamp Duty (BSD) legislation has also been introduced for residential property purchases by anyone.

Hong Kong residents are exempt from this rule. The BSD tax will be levied at a 15% flat rate.

The ad valorem stamp duty rate has also been doubled as a result of new legislation.

It was eliminated on June 1, 2012, the first day of June.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 11

There are six FTAs.

EFTA members Iceland, Liechtenstein, Norway, and Switzerland are currently in effect.

Signed / completed

pending domestic issues

ratification)

Chile

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 12

7 Tax Administration

Inland Revenue Department is the tax collector

Inland Revenue Department’s web address

Assess first, then audit later (AFAL) is the tax authority’s technique to assessing or reporting losses.

Taxpayers are given refunds based on the returns they file.

Choosing which tax returns to audit is primarily based on risk for the tax authority. There could be a tax audit at some point

Tax returns can be accessed by anyone who has filed one. In our opinion, most businesses can expect an audit from the tax authorities.

authority every five to six years or so, depending on the circumstances.

The tax authority uses a computer-assisted case selection program under the AFAL system. What happens if…?

Each case will be assigned to an evaluating officer for a “desk audit” and to a field auditor for a

“field audit” or “investigation” by the investigators. A site visit is usually the first step in a tax audit.

letter asking additional analysis or information; questionnaire The IRS recommends that taxpayers contact

They should contact their tax advisor as soon as they receive notice of an impending audit or other correspondence from the IRS.

Most audits of tax returns span three to twelve months, although they can take longer to resolve if they are very complicated.

cases.

In recent years, the tax authorities has focused on the following areas during tax audits:

To put it another way:

Deductions for interest

Profit source

Field audits and investigations focus mostly on areas where non-compliance is clearly evident and rigid case definitions are in place.

Most people don’t use any sort of selection criteria. Some field auditors and investigators follow their instincts to a degree.

expertise and experience in making case selections. Random selection of cases can also be used to promote

voluntary adherence to the rules. Typically, a field audit or investigation is launched if there are signs of noncompliance. While conducting audits and investigations, the IRS uses mostly a manual process.

involve the submission of specific questions and the examination of relevant bills and documents.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 13

In the event that a taxpayer is dissatisfied with an assessment, they have one month from the date of the assessment to file an appeal.

an official evaluation announcement. In the absence of consensus, the tax authority makes a determination about an objection on its own. a taxpaying member of society

can file an appeal if they are not happy with the decision. In the first place, appeals are made to the Board of Review.

An unofficial hearing before a panel of strangers. An appeal on a point of law may be made by either the taxpayer or the tax authority from the

Court of First Instance or, with permission, the Court of Appeal, and finally the Court of Appeals.

The final word.

Tax administration is to promote voluntary compliance by informing taxpayers of their responsibilities. The general public should

Manage their tax risk by implementing tax methods that can be supported.

Professionals from KPMG’s Hong Kong member firm provided the information for this profile.

Information provided here is broad in nature and not tailored to the needs of any one person or organization in particular. Nevertheless, we make every effort

There is no guarantee that the information you receive is accurate at the time you receive it or that it will continue to be accurate in the future.

correct in the future. After conducting a comprehensive investigation of the problem, no one should take action based only on this knowledge.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

See also  VAT INCREASE FROM 14% TO 15%

International. There are no client services offered by KPMG International. As far as KPMG International is concerned, no one member firm can bind the organization or any other member firm to third parties, and neither can KPMG International do the same for any member firm. All copyrights and trademarks are retained.

KPMG International owns the trademarks “cutting through complexity” and the KPMG name and emblem.

We’d love to hear from you.

a.k.a. Charles K.

Tax on the principal

+1 852 2826 8070

[email protected]

www.kpmg.com/tax

o
The Hong Kong Special Administrative Region
In this section, you will find a summary of

This page was last updated on June 15, 2015.

In collaboration with the

Asia Pacific Tax Center of KPMG LLP

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 2

Contents

Taxes on corporation’s income 1

Conventions to Avoid Double Taxation on Income 2

VAT/GST are examples of indirect taxes.

Fourth, personal taxation is an important consideration.

5 Other Fees and Charges 9

6 Agreements on Trade in Services 11

7 Office of Tax Administration 12

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 1

a tax imposed on corporations

The tax on profits

Once a British Crown Colony, Hong Kong SAR is now a part of the People’s Republic of China.

The People’s Republic of China Two articles of legislation control the relationship between the PRC and Hong Kong SAR.

Basic Law of the Hong Kong Special Administrative Region’s Joint Declaration on Hong Kong

Region in which the executive branch of government is located.

16.5 percent is the tax rate (15 percent for unincorporated bodies).

Because Hong Kong SAR’s tax system is territorial in nature, a company’s place of business isn’t taken into consideration when assessing its tax liability.

As a result, a statutory definition of the term is superfluous. There are several drawbacks to the idea of residence, though.

transfer pricing, off-shore fund exemptions, and tax planning all rely on this information.

treaties. Unless otherwise stipulated, the common law idea of residence governs.

A “assess first, then audit later” approach to tax return assessment is used by the tax authority.

A tax return is typically due one month after it was issued. When a business uses a tax authority to submit its tax returns,

representative, the following deadlines apply to tax returns):

between 1 April and 30 November In the next year, if the accounting year-ends are between 1 April and 30 November

15 August of the next year, for accounting year-ends between 1 December and 31 December of the preceding calendar year

15 November of the same year, for fiscal years ending between January 1 and March 31, for all other businesses

Dividends, interest, and other types of income, whether paid to citizens or non-residents, are not subject to international withholding taxes.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 2

rates However, certain royalties paid to individuals who do not own a business are subject to an effective withholding tax.

PRC to use intellectual property in PRC or to use intellectual property from PRC outside of PRC

The recipient is not a resident of the Special Administrative Region of Hong Kong

The profits tax in Hong Kong SAR is based on a deemed profit of 30% of the royalties. In light of

With the current 16.5 percent corporate tax rate, the effective withholding tax rate comes to 4.95 percent per cent of gross income. If royalty is involved,

Unless no one is running a business in the country where the royalty is being paid to a foreign associate, the entire payment is taxable.

The intellectual property that led to the payment was owned by a Hong Kong SAR business at one point or another.

Withholding tax does not apply to profits on some speculative transactions in the Hong Kong Special Administrative Region (HKSAR).

if a trade, profession, or business endeavour is regarded to be an adventure, it may be subject to a profit tax.

It was manufactured in Hong Kong SAR.

Foreign-sourced revenue is not subject to Hong Kong SAR profits tax since it is taxed based on the source of the income, rather than the source itself. Dividend

Distributions to residents and non-residents are not subject to withholding tax.

Tax losses Tax losses can be carried forward indefinitely, but not back to previous years.

Losses can’t be used to offset future earnings under an anti-avoidance rule. The

If the shareholding in the losing firm changes and, as a result of that change, profits have increased or decreased, the provision applies.

arose within the corporation, and the change in ownership was made only for the sake of exploiting the

against the earnings of the corporation.

Tax grouping / consolidation

relief

Tax laws in Hong Kong do not provide for collective relief for losses or asset transfers. There are numerous businesses.

the tax treatment of each company within a corporate group is different.

Transfer of stock Stamp duty is charged at a rate of 0.2 percent on the greater of the consideration or the Hong Kong SAR stock being transferred.

paid or the market value of the transfer instrument plus HKD5.

Immovable property in Hong Kong SAR is subject to stamp duty, which varies depending on the value of the property.

The maximum percentage rate is 4.25 percent, regardless of the quantity or value of the consideration. Special Stamp Duty (SSD) is a tax that must be paid when a document is issued by the government.

Property purchases that occurred after November 20, 2010 and that were resold within 24 months SSD is here to stay.

Stamp Duty is charged in addition to the ad valorem rates. Additionally, a Buyer’s Stamp Duty has been enacted as part of legislation.

Any person, including corporations, who acquires a residential property outside of Hong Kong is subject to the (BSD).

Improve the SSD by extending its service life and optimizing data transfer speeds.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 3

Hong Kong SAR does not have a CFC regime.

There are no comprehensive transfer pricing regulations under Hong Kong tax law. As outlined by the government’s tax agency,

Departmental Interpretation and Practice Note No. 46 contains the department’s views and practices on transfer pricing.

In order to prevent profits from leaving Hong Kong, a unique inter-company pricing provision has been put in place.

SAR to a person with whom you have a deep personal relationship. It is also possible to benefit from a tax treaty between Hong Kong SAR and the PRC.

the tax authorities to make modifications to transfer pricing for transactions involving affiliated companies.

An advance pricing arrangement (APA) program was launched in Hong Kong SAR in April 2012, and the details are included in this document.

Practice Note No. 48, Departmental Interpretation and Interpretation.

Hong Kong SAR tax treaties allow mutual agreement processes to be initiated if the actions of the competent authorities are deemed to be inconsistent with each other.

both countries will be taxed in violation of the rules of the tax law if one or both jurisdictions fail to cooperate with each other

treaty.

There are no thin capitalization rules in Hong Kong SAR, although interest is deductible if it meets at least one of the following conditions:

In addition to passing the general requirement of being incurred in the development of assessable earnings, the expenditures must also meet six specific criteria.

Specific criteria are designed to ensure that interest deductions are not granted where the relevant taxable income is lower than the amount of interest paid.

The Special Administrative Region (SAR) of Hong Kong does not charge tax on any of your earnings.

Hong Kong SAR has two broad anti-avoidance rules that permit the tax administration to ignore:

a transaction that decreases or would reduce a person’s taxable income if it is determined that

transacting in a way that does not exist

A decision that is not implemented.

Contraventions of tax treaties in Hong Kong SAR’s tax treaties generally include anti-treaty shopping provisions for dividends and interest

provisions.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 4

Specific anti-avoidance measures are also available.

rules

Countermeasures are in place to prevent the alleged exploitation of taxation systems by using service businesses.”

There are two basic kinds of arrangements:

Employees who provide services to their employers in disguised employment arrangements are referred to as “employees.”

a company owned and controlled by the employees that has entered into a tax agreement

employment contracts that are effective.

Type II: Service firms are formed by the owners of unincorporated businesses (e.g., sole proprietorships, partnerships, and corporations).

partnerships). The proprietors of these corporations then offer their personal services to the unincorporated businesses.

fee-paying businesses in exchange for management services

any provision of the Hong Kong Inland Revenue Ordinance can be applied to the tax authority for an official ruling.

relates to a specific layout. Only after a transaction is being seriously considered and all of the pertinent details are provided will a decision be made.

The Commissioner is bound by the decision and can rely on it when assessing the next tax bill.. The tax collector

releases a selection of important decisions for future reference.

There aren’t any special incentives for the protection of intellectual property rights.

Incentives for R&D No special incentives exist for R&D. (refer to below comments).

Quasi-incentives are also available in Hong Kong SAR tax law, which grants deductions for certain expenses.

Scientific research, for example, is an example of an expenditure that would otherwise not be deductible.

acquisition of patent rights or rights to know-how, as well as fixed assets. The investment of money

Over the course of five years, copyrights, registered designs, and trademarks can be deducted in equal installments.

Concessions for offshore reinsurance firms and eligible debt products are also available.

Incentives are frequently viewed as such. In addition, there are significant provisions for depreciation and write-off, which are also considered an

a reason to put money into real estate or manufacturing equipment.

Hybrid instruments are not subject to any additional rules. The tax authorities examines a financial instrument to see whether it is

a position according to which the first step is to determine the nature of the entity based on its legal form rather than the

The fundamentals of the economy.

There are no specific regulations for hybrid entities, and there are no constraints on the types of hybrid entities that can be created.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 5

Exceptional tax treatment for

specific types of businesses or industries

The tax code does not offer any unique advantages. Outright deductions for specific expenditures that qualify for a quasi-incentive can be granted.

Scientific research and expenditure on some fixed assets, for example, may not otherwise have been deductible. Capital

A company can deduct the cost of copyright, registered trademarks and registered designs over the course of five years.

years that begin the year after the acquisition was made.

Concessions are offered for offshore reinsurance businesses and loan instruments that meet certain criteria. If specific conditions are met,

non-resident individuals, partnerships or trustees of trusts can invest in offshore funds if certain conditions are met.

See also  Quick Charts Value-added tax (VAT) rates

Certain securities, futures contracts, and leveraged foreign currency transactions are immune from dealings by fund administrators.

trading on the Hong Kong stock exchange.

Conventional bonds and Islamic bonds are now on same footing, eradicating a disparity.

Hong Kong’s alleged barrier to the emergence of a sukuk market. Before the essential information was presented,

restriction of interest payments and asset transfers in Islamic finance led to legislation, which resulted in Islamic finance.

When compared to economically equal loan arrangements, financial goods are taxed at a higher rate.

Tax treatment for financial products with comparable economic content is guaranteed by the legislation. The

instead of using the name “Sukuk,” legislation uses the term “alternative bond scheme” (ABS).

designate the arrangements that are subject to the tax treatment.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 6

Avoiding Double Taxation Through Tax Treaties

Hungary Luxembourg Spain is currently in effect in Austria.

Internationally, these countries are Belgium, Indonesia, Malaysia, and Switzerland

Thailand Brunei Ireland Malta

United Kingdom Canada Japan Mexico

Jersey from China Jersey from Vietnam

Republic of the Czechs

France

Kuwait

Liechtenstein

In New Zealand,

Portugal

A deal has been struck, but is not yet in effect.

at the time of writing

Guernsey, Italy, and Qatar have all agreed to new treaties or protocol amendments, although none have been finalized as of the time of this writing.

not in effect just yet.

Inland Revenue Division of Hong Kong

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 7

3 Taxes levied in a manner other than directly by the taxpayer

There is no sales tax, VAT, or GST in the Hong Kong Special Administrative Region (SAR).

N/A as a baseline rate

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 8

4 Taxes on Individuals

Taxes on earnings

Pay-as-you-earn (PAYE) is not in use in Hong Kong SAR. The tax authority receives money from the taxpayer in the form of tax.

Although the top rate is 17%, the most effective rate is 15%.

Hong Kong SAR does not collect social security taxes.

Link to KPMG’s Thinking Beyond Borders for more details.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 9

Additional Taxes

Hong Kong SAR does not impose any customs taxes on imports or exports.

Excise tax Hydrocarbon oils, spirits, tobacco, cigarettes, and methyl alcohol are all subject to an excise tax.

Owners of land and buildings in the Hong Kong Special Administrative Region (HKSAR) are subject to an annual property tax.

a tax on the rental income in the year of assessment (minus any irrecoverable rent) and the only deductions

Rates (if the owner pays them) and a 20 percent repair and expense allowance are permissible.

following deductions for fees paid by the landlord.

A 15% tax on real estate is levied.

Duty on estates in Hong Kong SAR has been abolished since 2006.

Hong Kong SAR does not have a gift tax.

There is a tax levied on the amount of money bettors win from wagering on horse races or football games.

The Hong Kong Jockey Club is the custodian of the Mark Six lottery. The duty rate ranges from 25 to

in the range of 50 to 75%

Hong Kong SAR’s Business Registration Ordinance mandates that every person who operates a business in the territory pay a business registration tax.

Annual fees and taxes must be paid as well. A one-time cost of HKD 2,600 is required for annual registration and levy (HKD 7,000 for a company).

a three-year degree For the 2012/13 fiscal year, business registration fees were waived.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 10

Instruments evidencing transactions (i.e., documents) are subject to stamp duty, which is levied both at fixed and ad valorem rates.

Documents that show the following transactions are subject to rates:

According to the amount or value of consideration, Hong Kong SAR-based assignments of immovable property

Although there is a 4.25 percent cap,

Hong Kong SAR leases of immovable property (rates vary on the lease duration and whether or not the lease is renewed).

premiums and/or rental fees

Hong Kong SAR stock sales and purchases (total rate of 0.2 percent plus HKD 5 on the instrument of transfer)

Instruments that have the Hong Kong SAR’s name (rate of 3 percent)

It is possible to make a copy of any of the instruments listed above (HKD 5)

The transfer of stock and real estate within a group of companies is free from certain regulations. An

stock borrowing and lending transactions for certain purposes are also excluded from federal income tax.

For specific reasons and in accordance with predetermined criteria.

Residential property purchases made after November 20, 2010 are subject to a special stamp duty (SSD).

sold again in less than a year. Additional stamp duty (SSD) is charged on top of the ad valorem rates of stamp duty that are already in place.

with rates ranging between 5 and 15 percent (depending on the length of time the property was held).

To improve SSD, new legislation has been enacted to increase its coverage to 36 months and to alter the rates.

from 10% to 20% of SSD.

Buyer’s Stamp Duty (BSD) legislation has also been introduced for residential property purchases by anyone.

Hong Kong residents are exempt from this rule. The BSD tax will be levied at a 15% flat rate.

The ad valorem stamp duty rate has also been doubled as a result of new legislation.

It was eliminated on June 1, 2012, the first day of June.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 11

There are six FTAs.

EFTA members Iceland, Liechtenstein, Norway, and Switzerland are currently in effect.

Signed / completed

pending domestic issues

ratification)

Chile

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 12

7 Tax Administration

Inland Revenue Department is the tax collector

Inland Revenue Department’s web address

Assess first, then audit later (AFAL) is the tax authority’s technique to assessing or reporting losses.

Taxpayers are given refunds based on the returns they file.

Choosing which tax returns to audit is primarily based on risk for the tax authority. There could be a tax audit at some point

Tax returns can be accessed by anyone who has filed one. In our opinion, most businesses can expect an audit from the tax authorities.

authority every five to six years or so, depending on the circumstances.

The tax authority uses a computer-assisted case selection program under the AFAL system. What happens if…?

Each case will be assigned to an evaluating officer for a “desk audit” and to a field auditor for a

“field audit” or “investigation” by the investigators. A site visit is usually the first step in a tax audit.

letter asking additional analysis or information; questionnaire The IRS recommends that taxpayers contact

They should contact their tax advisor as soon as they receive notice of an impending audit or other correspondence from the IRS.

Most audits of tax returns span three to twelve months, although they can take longer to resolve if they are very complicated.

cases.

In recent years, the tax authorities has focused on the following areas during tax audits:

To put it another way:

Deductions for interest

Profit source

Field audits and investigations focus mostly on areas where non-compliance is clearly evident and rigid case definitions are in place.

Most people don’t use any sort of selection criteria. Some field auditors and investigators follow their instincts to a degree.

expertise and experience in making case selections. Random selection of cases can also be used to promote

voluntary adherence to the rules. Typically, a field audit or investigation is launched if there are signs of noncompliance. While conducting audits and investigations, the IRS uses mostly a manual process.

involve the submission of specific questions and the examination of relevant bills and documents.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. Neither KPMG International nor any other member firm can be legally bound by any member firm.

Neither KPMG International nor any of its members have the ability to bind or oblige third parties. All copyrights and trademarks are retained. 13

In the event that a taxpayer is dissatisfied with an assessment, they have one month from the date of the assessment to file an appeal.

an official evaluation announcement. In the absence of consensus, the tax authority makes a determination about an objection on its own. a taxpaying member of society

can file an appeal if they are not happy with the decision. In the first place, appeals are made to the Board of Review.

An unofficial hearing before a panel of strangers. An appeal on a point of law may be made by either the taxpayer or the tax authority from the

Court of First Instance or, with permission, the Court of Appeal, and finally the Court of Appeals.

The final word.

Tax administration is to promote voluntary compliance by informing taxpayers of their responsibilities. The general public should

Manage their tax risk by implementing tax methods that can be supported.

Professionals from KPMG’s Hong Kong member firm provided the information for this profile.

Information provided here is broad in nature and not tailored to the needs of any one person or organization in particular. Nevertheless, we make every effort

There is no guarantee that the information you receive is accurate at the time you receive it or that it will continue to be accurate in the future.

correct in the future. After conducting a comprehensive investigation of the problem, no one should take action based only on this knowledge.

This is the year 2015 for the Swiss organization known as KPMG International Cooperative (“KPMG International”). There are separate KPMG firms affiliated with KPMG in the KPMG network

International. There are no client services offered by KPMG International. As far as KPMG International is concerned, no one member firm can bind the organization or any other member firm to third parties, and neither can KPMG International do the same for any member firm. All copyrights and trademarks are retained.

KPMG International owns the trademarks “cutting through complexity” and the KPMG name and emblem.

We’d love to hear from you.

a.k.a. Charles K.

Tax on the principal

+1 852 2826 8070

[email protected]

www.kpmg.com/tax