Experts consider Hong Kong to be a tax haven. This means that Hong Kong has low tax rates and that especially goes for foreign investors. So a lot of wealthy foreigners like to bank their money in the region.
The tax rates have also persuaded several corporations to do business in Hong Kong. But is the Hong Kong tax rate as good as it seems? Read on to find out.
Territorial Business Taxes
One of the great things about the Hong Kong corporate tax rates is the territorial limit. The city does not practice international taxation. The Hong Kong government only levies taxes against local trade, business, or professional profits.
So if your business is in Hong Kong but you get your profits elsewhere, you don’t have to pay profit taxes. Even if you’re a resident of Hong Kong, you don’t have to pay taxes on any profits that you make elsewhere.
Tiered Hong Kong Tax Rate
If a business makes profits within Hong Kong, they’re taxed using one of the tiered programs. With the single-tier corporate tax system, the government will tax corporations’ assessable profits at a rate of 16.5%. Unincorporated businesses get taxed at 15%.
With the two-tier profit tax regime, things get a bit more complex. The tax rate for corporations and unincorporated businesses will be lower for the first $2 million of assessable profits. Businesses that only make this much must pay taxes at half the tax rate for corporations or unincorporated businesses.
Keep in mind, though, that only one “entity” within a group of “connected entities” can enjoy two-tier rates. Also, certain enterprises can’t enjoy these forms of business taxes.
Hong Kong Corporate Tax Incentives
There are several profit tax exemptions that qualifying businesses can take advantage of. Some of these are the following:
- Write-offs for hardware, software, and manufacturing machinery
- Mutual fund and trust tax concessions
- Write-offs for environmentally friendly vehicles and machinery
- Half-rate taxes for qualifying aircraft lessors/managers
How to File Hong Kong Taxes
The Hong Kong government usually issues corporate tax returns on the first working day in April. But companies might be able to apply for an extension after they receive the profit tax return (PTR). How long their extension can be depends on the business’s unique fiscal year.
Also, newly registered businesses receive their first PTR within 18 months after it began. The business in question will have to file several different documents to get its first profit tax return. These tax services can help them with their efforts.
Improve Your Financial Skills
Hong Kong offers plenty of decent incentives and is easier on smaller businesses. But 15% and 16.5% are still fairly high tax rates. Businesses need to keep this tax rate in mind when they’re planning their budget.
Also, if you’re interested in growing your financial skills, check out the other financial articles available to you on our site. We also have articles on home, health, pets, and more.
Check them out once you’re done here. You’re sure to find something that you’ll like.