Corporate (profit) taxation in Hong Kong: A Guide of 2019

Content

1. What is corporate (profit) tax?
2. Who is required to pay these taxes?
3. How should be paid corporate tax in Hong Kong
4. The rates for payment and their amount
5. Is there any way to optimize this?

If you decide to set up your business in Hong Kong, it is vitally important to know about the all surrounded deeds. First of all, the future businessman must start doing the paperwork and register the company in Hong Kong. This procedure would be like a going throw the nine circles of Hell, but the thing is you don’t even get about the specifics about the HK corporate taxation.

Well, the first thing you need to know is Hong Kong has a highly attractive tax regime with low personal and corporate tax rates. But the biggest problem of it is to realize in a proper way without time and money loses. So we propose to you to look at a priority guide for a business owner about how to understand the payment of corporate rate in Hong Kong, what are the requirements to it, the ways of payments and the options for optimizing the taxation for your future company.

What is corporate (profit) tax?

The corporate income tax is the type of payment, which is levied by state governments on business profits from the companies. That means every company, despite the income and profit, must calculate the payment for the state institutions, which is depending from the variety of factors. The type of company, the system of taxation (in state or in the country), the system of deductions, fees and commissions would be the main factors to change the tax rate.

The most wide-spread practice is to use the fixed tax rate, which is evaluated from 0 to 37%. A number of countries use the progressive scale for measuring the corporate tax, which settles by the principle “low income – low taxes, high income – high taxes”.

The HK practice shows us the list of differences from the other countries. First of all, the system of taxation in HK is controlling the payments from the business owners. It means there are strict frameworks for paying the bills, regarding to IRO.

Who is required to pay these taxes?

According to the Inland Revenue Ordinance (IRO), a business is liable to pay Hong Kong Profits Tax, if he/she fits the following conditions:

• Caring on a trade, profession or business in Hong Kong;
• The trade, profession or business derives profits;
• The profits arise in/are derived from Hong Kong.

With regard to the last requirement, what is essential to note is that taxation in Hong Kong is based on the territorial principle. That means that companies registered in Hong Kong will only be liable to pay taxes on profits that come only from Hong Kong. It does not have to fork out taxes on profits sourced from outside of Hong Kong.

Also the IRO mentioned the parameters about how the official structure does admit the income is paid. The list of requirement consists of this following:

• Where the contracts of purchase and sale are effected in Hong Kong, the profits are taxable here.
• Where the contracts of purchase and sale are effected outside Hong Kong, the profits are not taxable here.
• Where either the contract of purchase or the contract of sale is effected in Hong Kong, the initial presumption is that the profits are taxable here. However, other relevant facts will have to be examined to determine the source of profits.
• Where the sale is made to a Hong Kong customer (including the Hong Kong buying office of an overseas customer), the sale contract will usually be taken as having been effected in Hong Kong.
• Where the effecting of the purchase and sale contracts does not require travelling outside Hong Kong but is carried out in Hong Kong by use of telephone, or other electronic means including the Internet, the contracts will be considered as having been effected in Hong Kong.
• Trading profits are regarded as being either wholly taxable or wholly non-taxable here. Apportionment is not appropriate.

How should be paid corporate tax in Hong Kong

There are lots of different options on how to pay corporate taxes in Hong Kong. We recommend you choose the most appropriate payment method that will save both your time and money.

• Payment by Telephone

You must have a PPS account to pay tax, business registration fee, stamp duty or purchase TRCs by telephone. You can open a PPS account with a bank ATM card at any of the PPS terminals installed at the outlets of most merchants who have joined PPS.

As a different Shroff Account Number or Business Registration Certificate Number is given for each bill issued, you must register the relevant tax bill before payment. Please dial 18011 for bill registration and 18031 for payment. The merchant code for IRD is “10”.

• Payment via Internet

 For paying the bill via Internet banking, you need to find the service prodiver and fill the application.  Open your Internet banking account and pay the "Bill”.  Then select the bank account for payment, select the payment date and confirm the payment instruction

• Payment by e-Cheque / e-Cashier Order

It is quite important to act carefully when paying the taxes by E-Cheque, as it requires you to be quite attentive. It is necessary to visit the “Pay e-Cheque” portal and select Inland Revenue Department with the appropriate bill type, enter the bill information and upload e-Cheque to make payment.

An e-Cheque is regarded as expired if it is issued more than 6 months ago. E-Cheque / e-Cashier Order received on or before 5:00 p.m. on Monday to Friday (excluding public holidays) will be transferred to the bank for presentment on the same day.  Any e-Cheque / e-Cashier Order payment collected after 5:00 p.m. will be processed on the next business day. Your payment will only be considered valid when your e-Cheque / e-Cashier Order is honored on the first presentation to the drawer bank. 

• Payment by Bank ATM

Also the business owner is able pay by bank ATM at the HSBC, Hang Seng Bank or the JETCO. Also the owner must keep the receipt as proof of payment, if it is required.

• Payment by Post

You need to send a crossed cheque to pay tax by post to the address of IRD. Pay the commercial for post services and send the postal. Also, save a payment bill if it is required.

• Payment in Person

There is also the option of personalized tax payment at the IRD office. You also have the opportunity to delegate a person with the right to resolve this issue. This is necessary if you are outside Hong Kong.

• Notes on Payment at Convenience Stores

An IRD payment voucher with bar code printed must be presented when making payment. After paying the bill, please check and ensure the details on the receipt, including the bill reference number, date, time and amount of payment are correct. Please keep the receipt of your payment record, even though it’s possible the ink on the receipt may fade over time. Please make a copy for retention purposes, if necessary.

For payment of salary tax, profits tax, property tax and tax under personal assessment, receipt will not be issued by IRD. If necessary, you may request a letter of confirmation of payment by completing Form IR1273 which can be obtained from the Fax-a-Form Service by calling 2598 6001.

• Payment from Overseas Taxpayers

You can pay tax from overseas through the following ways:

1. With a Bank Account in Hong Kong
2. Without a bank Account in Hong Kong

If you have a bank account in Hong Kong, you may pay tax through this bank account by either of the following methods as Crossed Cheque or Internet. If you are not in Hong Kong and do not have bank accounts in Hong Kong, you may pay tax by Bank Draft, Crossed Cheque in Overseas Bank Account, Arrange Payment in Hong Kong through Related Party or Telegraphic Transfer. It is advisable to have a legal opinion before paying taxes, which confirms the fact of payment to a legal address in Hong Kong.

The rates for payment and their amount

For guidance purposes, the approximate exchange rate for Hong Kong dollar is 1 USD = 7.8 HKD. The progressive rates of tax imposed on an individual’s net income in Hong Kong are as follows:

Is there any way to optimize this?

To estimate your Hong Kong taxes and see how they stack up to your home country, it is acceptable to refer to Online Tax Calculator. You need to calculate the measures of payback for overpaying taxes, if it is was declared to you by the HK officials.

Also the SAR Hong Kong looks to the activity of your company. It is possible to get a back-up from the authorities, if your credit and payment story is clear. In other words, you have the possibility to get a tax holiday, and 10-12% charge back of your money. This option is open to only individual or private companies but for the public corporate companies, there is no chance to get the charge back, except those covering over-paid taxes within a period of three consecutive calendar months.

This guide points out a sophisticated payment system and tax data content in Hong Kong. Despite this, we recommend that you contact for a more detailed consideration of your case with the help of professional lawyers. They will help you to find the best option to open a business in Hong Kong, solve problems with registration and payment of taxes according to the option accepted for you.