One of the reasons keeps Hong Kong in the top 3 position in terms of World Competitiveness; a simple and low tax system makes a vital factor.
Hong Kong tax is basically under a territorial tax system; profits arising in or deriving from outside Hong Kong are off-shore profits and are tax free.
Below are definitions of profits in Hong Kong
1. TRADING PROFITS
A Hong Kong company sends employees / executives to meet with overseas suppliers and customers to negotiate and conclude the terms of the purchase and sale contracts. It may be possible to claim that the trading profits so derived are non-taxable in Hong Kong.
2. MANUFACTURING PROFITS
A Hong Kong manufacturing business enters into a processing or assembly arrangement with a Mainland entity. The Hong Kong manufacturing business will provide the raw materials, technical know-how, management, training and supervision provided by the HK entity. It may be possible to follow the decision of court case to be entitled apportionment of profit to be exempt from being taxable in Hong Kong. A 50:50 apportionment can be made.
3. SERVICE INCOME
A Hong Kong company provides services partly in Hong Kong and partly outside Hong Kong. It may be possible to claim that part of the service income as those attributable to the services rendered outside Hong Kong are exempt from being taxable from Hong Kong profits tax. IRD looks at the locality of services rendered to generate or derive such an income.
4. TAX PLANNING FOR MISCELLANEOUS INCOME
Different tax treatments and planning ideas for different varieties of income including royalty, interest income, cross-border land transportation income and service derived from e-commerce.
5. STAMP DUTY IN HONG KONG
Stamp duty is a kind of tax which is charged on the documents as evidence for certain kinds of transaction instead of the transactions themselves. In Hong Kong, stamp duty is encountered in respect of the sale or lease of interests in Hong Kong land, buildings and the transfer of shares of HK companies. Moreover, the range of instruments subject to stamp duty is wide and thus professional advice should be sought on every transaction which involves Hong Kong property or shares.
Stamp duty on a conveyance on sale of land and buildings are charged at progressive rates ranging from 0.75% to 3.75% based on the consideration.
The rate of stamp duty on an agreement for lease depends on the period of lease- 0.25% of the rent for 1 year or less, 0.5% of the annual average rent lease terms for 1 - 3 years, and 1% for periods in excess of 3 years.
The tax rate for transfers of shares is 0.2% of the consideration (0.1 % each for buyer and seller).
Stamp duty is charged on the market value of a transaction if this is greater than the actual consideration. Consideration includes debts waived and assigned. The principal exemption is for transfers of shares between associated corporations and fulfills the 2 year-period criteria.
Accordingly, stamp duty planning could be implemented to mitigate the stamp duty liabilities on different case and circumstances.
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