Tax System

Many countries consider Hong Kong an 'offshore' jurisdiction although the attitude of the government is that the city is not an offshore centre in the traditional sense of the word but rather a low tax area which levies tax according to the territorial principle.  The tax laws of Hong Kong are extremely simple and predictable compared to other onshore jurisdictions and the fiscal advantages of operating there could be summarized as follows:

  1. Tax rates are extremely low by OECD standards.  Taxation case law is minimal since the low tax rate means that the costs associated with challenging a decision of the revenue authorities usually outweigh any monetary gain.
  2. Taxes are levied according to the "territorial principle" meaning that taxes are only levied on income "derived from or arising in" Hong Kong and not on income sourced outside the Territory.
  3. A number of taxes that exist in most jurisdictions do not exist in Hong Kong.  Thus there are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them.  In the long term, it is intended to completely phase out stamp duty on the sale and issue of shares and securities and to reduce direct taxes further.

Below are other salient points of Hong Kong tax system

  1. The income taxes are Profits Tax, Salaries Tax and Property Tax.
  2. Corporate profits tax rate is 16.5%.
  3. Individual tax rate on total income does not exceed 15%.  Low income earners are even taxed at lower rates under the graduated-rate system or exempt if their total incomes below their total personal allowances.

There are no customs tariffs on goods imported into Hong Kong apart from a few items that are subject to strict import and export licensing control.  The government collects an excise duty on four types of goods: tobacco, hydrocarbon oil, spirits and methyl alcohol.  In the 2008 budget, duty on both wine and beer was eliminated.

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