Understanding your tax status

Hong Kong’s simple and business-friendly tax system is a major draw card for foreign investors. The city imposes only three direct taxes: on profits, salaries and property.

1. Profits Tax
People – including companies, partnerships and individuals – carrying on business in Hong Kong are liable to tax on profits arising in or derived from Hong Kong. The maximum profits tax rate for corporations is 16.5% and 15% for unincorporated businesses.

Deductible items include:
- all expenses incurred in the production of assessable profits
- losses of the company (may also be carried forward indefinitely)
- capital allowances on capital expenditure (varying between 4%-20%) and plant and machinery, up to an immediate write off of 100%
- certain trademark and patent registration fees
- contributions to an employee retirement scheme, up to specified limits
- some costs attributable to scientific research

Exempt items:
- interest income, other than that received by financial institutions, and dividends received from corporations
- capital gains

2.Salaries Tax
Salaries tax is charged on all income arising in, or derived from, Hong Kong. To be eligible, you must spend at least 60 days each fiscal year in Hong Kong.

The first HK$100,000 (or US$12,850) earned is tax free. Further allowances are offered for parents of children, contributions to the Mandatory Provident Fund (MPF), self-education fees, mortgage interest and charitable donations. Employees who perform services both within and outside Hong Kong, and who have paid overseas tax, may have this portion of salary exempted from Hong Kong salaries tax.

The standard tax rate is 15%. Over and above the first tax-free HK$100,000, the progressive tax rate rises from 2% to a maximum 17%. The 17% is only applicable to taxable income exceeding HK$105,000.

In addition, Hong Kong has no sales tax, no withholding tax and no tax on an individual’s estate.

For information on property tax, please see the Inland Revenue Department website below.