Hong Kong Tax & Business Guide - Deloitte

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Basic facts
Population 7m Inflation 0.9% (2005)*
Main languages Chinese (Cantonese), English GDP per head US$25,760*
Currency Hong Kong dollar (HKD) GDP growth 7.3% (2005)*
Economic communities Asia Pacific Economic Co-operation, WTO
GDP sources 0.1% agriculture, 9.2% industry, 90.7% services
*Economist Intelligence Unit.
Political environment

Hong Kong is a Special Administrative Region (SAR) of the PeopleÌs Republic of China. A mini-constitution grants the territory its own legislature, legal and judicial system, and full economic autonomy. Beijing has responsibility for defence and foreign affairs.

The SAR has an executive-led government. Hong KongÌs current chief executive, Donald Tsang, was sworn in on May 24th 2005 for a two-year term; the next chief executive election will be in March 2007.
Foreign trade and investment
Exports US$351.7bn (2005)* Imports US$329.5bn (2005)*
*Economist Intelligence Unit.

Major exports: Textiles and clothing, machinery and equipment, and consumer electronics.

Main export markets: Mainland China, the US, Japan, Taiwan and Germany.

Attracting foreign investment is a priority. There are no restrictions on foreign ownership and no foreign-exchange controls.

Hong Kong is a premier capital-raising centre, especially for mainland Chinese firms. Free-port status, low tax rates, good infrastructure and substantial available capital are attractions for investors. Labour and living costs are high, however.
Business and financing
Business forms Private limited company, branch office

For overseas companies wishing to do business in association with a local firm, possibilities include a jointly owned company, a general or limited partnership, or some form of contractual joint venture.
Labour environment
Unemployment rate 5.5% (2005)* Minimum wage None
*Economist Intelligence Unit.

Wage rates are largely determined by supply and demand.

Union membership is rare.

Local workers must be given priority in filling job vacancies, which employers must register with the Labour Department for a specified period. Foreign workers are to be paid at least the median monthly wage of comparable local workers under standard contracts governed by local labour law.
Taxation
Corporate tax
Standard rate 17.5

Resident and non-resident companies pay tax only on Hong Kong-source profits. Profits from a trade or business are subject to the profit tax at 17.5% on income arising in or derived from Hong Kong. The determination of whether income is Hong Kong-source income is complex and the subject of numerous court rulings. Foreign-source income is not taxable even if remitted to Hong Kong.
Individual tax
Progressive rates to 20%

Resident and non-resident individuals are taxed only on Hong Kong-source income. If an expatriate does not have a permanent home in Hong Kong and stays for 60 days or less in a tax year, the income is exempt from tax. An expatriate employed by a non-resident company staying in Hong Kong for more than 60 days is taxed on a time-apportionment basis, depending on days spent in Hong Kong in the tax year. Where the expatriate is employed by a Hong Kong company and stays for more than 60 days, all Hong Kong income is taxable.
Capital gains
Gains are generally not taxed

Capital gains are usually exempt. However, gains from speculation may be taxed as trading profits.
Indirect tax
No VAT or sales tax

There is no value-added tax (VAT) or sales tax in Hong Kong. However, public consultation on the introduction of a goods and services tax (GST) is under way.
Tax administration and compliance
Tax year Corporations: year to March 31st; Individuals: year to March 31st

Current-year tax is payable in the form of provisional profits tax, at the rate of 17.5% of the previous yearÌs profits. Tax returns are issued on April 1st for companies to report their profits of the accounting year ending in the previous tax year, and assessments are issued based on the information in the return. The provisional profits tax paid is creditable against the final profits tax for the year upon final assessment. Employment income of individuals is not taxed by withholding, but provisional salaries tax may be payable. A tax return is issued on May 1st following the tax year and a final assessment to salaries tax is made based on the information in the return. Any provisional salaries tax paid is creditable against the final salaries tax for the year upon final assessment.
Additional tax information
Withholding taxes Dividends and Interest 0%, Royalties 5.25%.
Tax treaties Hong Kong has concluded tax arrangements with mainland China and tax agreements with Belgium and Thailand.
Dividends Dividends are exempt.
Revenue protection There is transfer-pricing legislation.
Groups There are no provisions for group taxation.
Incentives Financial services; non-resident funds; generous depreciation allowances on plant and machinery; and computer hardware and software.
Other taxes Bank licence fees, Capital duty, Consignment tax, Hotel accommodation tax, Property tax, Property rates, Shipping registration fees, Stamp duty.