Income tax in Hong Kong

In this article information about specifics of the income tax in Hong Kong.

1. The Hong Kong tax system is based on the territorial principle. If the company’s profits were received outside of Hong Kong, there are legal ways not to pay corporate tax in Hong Kong. Income from foreign sources is not taxed, even if it was transferred to Hong Kong.

2. Legal entities that make business and profits on the territory of the state must pay income tax in Hong Kong on a regular basis. It also applies to other jurisdictions that are registered as tax residents in Hong Kong.

3. The company’s loss is accumulated for over a period of 5 years, and income tax will be accrued only after company’s full repayment loss.

4. In Hong Kong the corporate tax is progressive. Currently, the standard rate of corporate tax in Hong Kong is 16.5%. The tax rate for small corporations with income is less than 4 million GK dollars, the tax rate is only 8%. This is almost the lowest income tax rate in the world.

Our company helps to understand all the features of taxation in Hong Kong and can be your tax agent.

Inland Revenue department

Dear Partners!

We found an interesting case recently happened and published by Inland Revenue department, that we would like to share with you.

Background

(a) Company A, Company B and Company C (collectively referred to as “the HK Companies”) are companies incorporated in Hong Kong. Their respective parent companies and common ultimate holding company are incorporated outside Hong Kong.

(b) The HK Companies are principally engaged in property investment. They collectively own a commercial building for long-term investment and letting purposes.

(c) The Group, of which the HK Companies are members, adopts a sole ownership holding structure where one property holding company holds the entire interest in one property. In order to standardize property holding structure, and enhance management and operational efficiency, the Group has planned to amalgamate Company B and Company C horizontally into Company A (“the Amalgamation”).

The arrangement

(a) Company B and Company C will be amalgamated into Company A by 30 June 2017.

(b) The Amalgamation is governed by the amalgamation provisions in Division 3 under Part 13 of the Companies Ordinance (Cap. 622). The legal effect of the Amalgamation on and after the effective date of the Amalgamation includes:

(i) Company B and Company C cease to exist as entities separate from Company A;

(ii) Company A succeeds to all property, rights and privileges, and all liabilities and obligations of Company B and Company C; and

(iii) Any agreement entered into by Company B and Company C may be enforced by or against Company A.

(c) After the Amalgamation, Company A, as a sole owner, will principally and solely engaged in the rental business of the entire building.

Source : The Government of the Hong Kong Special Administrative Region Inland Revenue Department Advance Ruling Case No. 62 dated 22 August 2017