Accounting and tax
Hong Kong is a law-tax jurisdiction with liberal laws. Many of our Clients appoint Healy Consultants Group PLC as their accounting and tax representative in Hong Kong to assist with i) communicating with the Inland Revenue Department (HKIRD) ii) completing financial statements and corporate tax returns and iii) supervising independent auditors. Find below, more specific information about Hong Kong’s accounting and tax obligations.
- Hong Kong Company should deliver its annual return in Form NAR1 to the Companies Registry for registration within 42 days after the anniversary date.
- Example: If the anniversary date is 05-12-2019, then the company should file annual return on or before 16.01.2020
If the Annual Return is delivered: HK$ More than 42 days after but within 3 months after the company's return date HK$870 More than 3 months after but within 6 months after the company's return date HK$1,740 More than 6 months after but within 9 months after the company's return date HK$2,610 More than 9 months after the company's return date HK$3,480
- For resident Hong Kong companies, the corporate income tax in the city is 16.5%. Resident companies are those which are incorporated or managed from Hong Kong, and they are only taxed on net profits arising from sales within the city;
- Hong Kong companies generally benefit from i) exemption on withholding taxes; ii) extendable tax filing deadlines and iii) straightforward accounting and tax procedures majorly due to the IFRS standardization in the country;
- In 2018, the Hong Kong tax office and authority announced that the first US$ 50,000 of income of a company will be subject to a reduced corporate tax rate of 2%. Pursuant to the Inland Revenue (Amendment) (No.7) Bill 2017, a two-tiered profits tax regime will apply as follows:
Income brackets* Tax rates Companies Up to HK$2 million (US$260,000) 8.25% Up to HK$2 million (US$260,000) 16.5% Unincorporated Businesses Up to HK$2 million (US$260,000) 7.5% Over HK$2 million (US$260,000) 15%
The income bracket conversion from HK$ to US$ is accurate as on the date of the last update in May 2019.
- If properly structured, non-resident Hong Kong companies are legally tax exempt if no business activity is conducted in Hong Kong. Hong Kong’s tax system is territorially based. Under this system, foreign-sourced income is outside the scope of Hong Kong profits tax;
- However, as a precautionary measure, the authorities might send out a notice to some companies if they are not satisfied with their tax-reporting. This usually happens when the IRD wants to verify a company’s claim of not having any business activities in Hong Kong;
- Generally, investment income and capital gains are not subject to tax in Hong Kong (SAR). However, income from property (land and buildings) located in Hong Kong (SAR) is subject to property tax;
- Stamp duty on the transfer of shares in Hong Kong is 0.2% of their value, which is shared equally between the two parties involved. Property tax is levied at a fixed rate of 15% on the value of the property;
- Assignments of residential immovable property are subject to a flat rate of stamp duty at 15% of the consideration or market value of the property (whichever is higher). The tax imposed on rental income of owners of land and buildings in Hong Kong is 15% on the assessable value of the rent and an allowance for repairs and outgoings equal to 20% of the rental income, after deducting rates paid by the owner;
- Hong Kong does not levy any import or export duties. Excise duty is levied on hydrocarbon oils, spirits, tobacco, cigarettes, and methyl alcohol;
- There is no Value Added Tax, GST or any other sales tax in Hong Kong;
- Hong Kong does not impose profits tax on the sale of capital assets;
- There are no inheritance and gift taxes in Hong Kong;
- Personal income tax is also only applicable for income arising in or derived from Hong Kong. There are 4 different brackets for tax rates, as shown in the table below:
Net chargeable income Rate Tax First HK$50,000 (US$6,500) 2% HK$1,000 (US$130) Next HK$50,000 (US$6,500) 6% HK$3,000 (US$385) HK$100,000 (US$12,800) HK$4,000 (US$510) Next HK$50,000 (US$6,500) 10% HK$5,000 (US$640) HK$150,000 (US$19,200) HK$9,000(US$1150) Next HK$50,000 (US$6,500) 14% HK$7,000 (US$900) HK$200,000 (USD25,500) HK$16,000 (US$2050) Remainder 17%
The income bracket conversion from HK$ to US$ is accurate as on the date of the last update in May 2019.
Profit tax returns filing
- Annual corporate income tax returns must be filed with Inland Revenue Department on the 1st April every year. Penalties might be imposed in case of delays;Profits Tax Return
Normal Issue Date For accounting year end between Normal filing date for unrepresented cases Due date for tax payment First working day in April of the following year of assessment
- 1 April to 30 November
- 1 December to 31 December
- 1 January to 31 March
- 2 May
- 2 May – 15 August
- 2 May – 15 November
As stipulated in the notice of assessment, generally between November of the year in which the returns are issued to April of the following year
- Annual filing requirement for Hong Kong companies is the submission of audited financial statements to the Inland Revenue Department. Our Accounting and Tax team can assist our Clients to complete their annual accounting, tax obligations and annual compliance requirements;
- Every Hong Kong resident and offshore company is required to provide annual audited financial statements to the government. Accounting records and books must be maintained reflecting the accurate solvency of the company;
- Choosing Financial Year End (FYE) for Hong Kong company – Business owners have freedom to choose a date as the company’s FYE. The most common date which business owner’s use as company’s FYE is 31 December. Other choices are 31 March, 30 June, and 30 September;
- Company’s Profit tax return due dates – Hong Kong company’s annual profit tax return due date will be determined by company’s FYE. A company will receive its first Profit Tax Return (PTR) from Hong Kong Inland Revenue Department (IRD) 18 months after incorporation. The company is required to file within three months from the issuance of the form;
- Consequences of late filing – The Commissioner of Inland Revenue (“CIR”) may prosecute the taxpayer who has failed to file the profits tax return by the due date without reasonable excuse. The court may impose a fine up to HK$10,000 and a fine of three times the amount of tax undercharged.
Salaries tax returns filingSalaries Tax Return
Normal Issue Date Normal Filing Date for unrepresented/ represented cases Due date for tax payment First working day in May of the following year assessment 2 June/ 2 July (1 July is Hong Kong public holiday) As stipulated on the notice of assessment, generally between January and April
of the year following the year in which the return is issued.
Property tax returns filingProperty Tax Return
Normal Issue Date Normal Filing Date Due date for tax payment First working day in April of the following year assessment 2 May As stipulated on the notice of assessment, generally on or after
November of the year in which the return is issued.
Employer’s return of remuneration and pensionsEmployer's return of remuneration and pensions
Normal Issue Date Normal Filing Date First working day in April of the following year assessment 2 May
- Annual corporate income tax returns must be filed with Inland Revenue Department on the 1st April every year. Penalties might be imposed in case of delays;
Miscellaneous Tax information
- Unlike many jurisdictions, business losses can be carried forward indefinitely in Hong Kong;
- A Hong Kong business benefits from the city’s 37 DTAs, which provide double taxation relief when dealing with countries like Germany, Singapore, UK, USA, etc.;
- In compliance with the OECD’s Inclusive Framework against BEPS, all Hong Kong registered entities and tax schemes will be subject to automatic exchange of financial information from January 1, 2020.
- Hong Kong has recently signed the 5th protocol for the avoidance of double taxation with China which provides all qualified HK and China teachers and researchers a relief from paying of their income taxes on the other side for a period of 3 years.
- Our in-house accounting and legal experts can assist our Clients to clarify their annual reporting obligations so that they can comply with all the personal and corporate tax obligations of their country of residence.
Legal and compliance considerations
Hong Kong has the reputation of being fully compliant with Financial Action Task Force’s cause to combat for anti-money laundering and counter-terrorist financing regime. Thereby, ranking as the 1st jurisdiction in the APAC region to achieve an overall compliant result.
- As of 2018, a Hong Kong business is required to have at least one director who is a natural person. A corporate director can no longer be the sole director of a company. If required, Healy Consultants Group PLC will be pleased to provide your firm with a professional nominee director;
- All Hong Kong companies are required to have a local registered office and a resident company secretary. Most of our Clients request Healy Consultants Group PLC to provide these services for their Hong Kong companies;
- After company incorporation, company information, such as capital structure and director/shareholder details are publicly available through the Companies Registry. This means less privacy for shareholders but increases the transparency of doing business in the city.
- Recruitment of foreign employees requires the employer to justify that the locals have not been denied the work opportunity. Furthermore, the foreign employee is expected to prove that he/she possesses the credentials relevant to the position;
- Residents of mainland China, Taiwan and Macau will require additional documents when applying for an employment visa, such as copies of identity cards and copies of the applicant’s household registration;
- When employing local or foreign workers, employers must comply with the Employment (Amendment) (No.2) Ordinance 2018. These laws resemble the English system of labor laws, in terms of employer responsibility;
- With effect from 1 May 2017, the Statutory Minimum Wage rate was raised from $32.5 per hour to $34.5 per hour;
- All employees must contribute to their employee’s social security fund. The contributions are divided equally among employees earning above US$916 (5%) and employers (5%).
Licensing in Hong Kong
- All Hong Kong companies must apply for the business license corresponding to their core activity, during the month following incorporation;
- Details of all the necessary licenses, and the application procedures are listed on the Trade and Industry Department’s website.
- Every year, our Client will face the following recurring costs for their active companies: i) business registration renewal ii) annual return filing and iii) audited financial statements;
- Our renewal team also provides our Clients with company de-registration service in Hong Kong. Please note that the process takes a minimum of 6 months.