Hong Kong's tax basis is territorial, therefore income derived by a resident from places outside Hong Kongwill generally not face double taxation in Hong Kong.

Many countries which tax their residents on a world-wide basis also provide their residents who operate businesses in Hong Kong with unilateral tax relief for Hong Kong tax paid on income derived from Hong Kong.

Hong Kong also allows a deduction for foreign tax paid in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.

Hong Kongdoes however have three comprehensive double tax agreements.

In August 2006, Hong Kong and the Mainland of China replaced the limited scope arrangement for the avoidance of double taxation with a comprehensive double tax arrangement. This is yet another example of the cross border agreements that are being developed to strengthen links between the two economies.

Hong Konghas double tax arrangements for shipping and airline income with a number of countries.

Property tax is charged at a standard rate of 16% on rentals received less rates and an allowance of 20% for repairs and maintenance.

Again the system of provisional payment of tax is similar to that for profits tax and salaries tax.

For corporations, rental income is included in their profits tax calculations so they are not subject to property tax.

Salaries Tax

Salaries tax is charged on emoluments arising in or derived from Hong Kong. The basis of assessment and method of payment (including provisional payments) are similar to the system for profits tax.

Taxpayers receive their salary gross ie the tax is not deducted. Salaries tax is demanded on a yearly basis, and is normally paid in two instalments between January and April. Employees must remember to save their tax in preparation for this bill!

Foreign nationals who spend not exceeding 60 days in Hong Kong in any year of assessment are exempt from salaries tax.

Employers will notify new employees with the authorities so that the tax authorities should automatically be notified when a new tax subject is around.

Taxable income includes:

commissions
bonuses
awards
gratuities
allowances, like housing allowance

Deductions include: allowances prescribed in the Ordinance, charitable donations and certain payments for relevant educational courses.

The earnings of husbands and wives are reported and assessed separately. However they may elect to be assessed jointly if this results in a lower tax bill or if allowances are unused.

Salaries tax is calculated in two ways and the taxpayer pays the lesser amount. The two methods are:

tax calculated at a stepped rate on the net income figure ie after tax allowances. The stepped rates are: 2% on the first HK$30,000; 7% on the next HK$30,000; 13% on the next HK$30,000 and the balance at 19%.
tax calculated at the standard rate (16%) applied to the gross income figure.

Only around 40% of the workforce has to pay salaries tax

Profits tax is charged only on net profits arising in or deriving from Hong Kong, from a trade, profession or businesscarried on in Hong Kong.

Incorporated and unincorporated businesses are taxed at different rates - incorporated businesses at 17.5% and unincorporated at 16%.

Profits tax is charged on the basis of profits actually made in the accounting year ending in the assessment year which runs from 1 April to 31 March.

Some general details in calculating profits tax:

deductible items include:
all expenses incurred in the production of assessable profits
losses of the company(can also be carried forward indefinitely)
capital allowances on eligible capital expenditure and plant and machinery, varying from 4-30% and up to an immediate write off of 100%
certain trademarkand patent purchase costs
contributions to an employee retirement scheme, up to specified limits
some costs attributable to scientific research
 

items exempt from profits tax
interest income, other than that received by financial institutions, and dividends received from corporations
capital gains
 

there is no withholding tax on dividends paid by corporations
groups cannot file a consolidated tax return in Hong Kong

Profits tax produces about 20% of the Government's revenue.

's simple and low tax system is a great attraction to foreign investors. This low fiscal burden for all, domestic or international players, corporate and individuals alike makes Hong Kong attractive.

In fact low tax is the most cited reason for regional offices to set up in Hong Kong! This tax regime makes Hong Kongone of the lowest tax environments among developed economies.

Hong Kong operates a territorial basis of taxation under which taxes are only imposed on profits or income with a Hong Kong source. Foreign-sourced income is not taxable whether if remitted to Hong Kong or not.

The Inland Revenue Department is responsible for tax matters in Hong Kong. Hong Kong has a different tax regime and is treated as completely separate to the Mainland of China. Hong Kong does not remit any tax to the Mainland of China.

Hong Kong's fiscal year runs from 1 April to 31 March.

The principal direct taxes are profits tax on businessprofits, salaries tax on salaries and property tax on income from property.

Hong Kong does not have any capital gains tax, withholding tax in dividends and interest, inheritance tax, value added tax and collection of social security contributions. Few items attract duty.