How to Take Advantage of Tax Exemptions in Hong Kong
Hong Kong is one of the friendliest cities for businesses. The citizens enjoy low tax rates, business incentives, and even tax exemptions in many cases. Every year thousands of people move to Hong Kong from all over the world to boost their businesses and cut down costs. With a high standard of life, well-educated workforce, and low rate of crime, the city is one of the best to run a business.
The highly developed infrastructure and key geographical location also attract investors from around the world who set up offshore companies in the city. Today we will be looking at the taxing system of Hong Kong and teach you how you can benefit from it.
Territorial Corporate Tax System
The Territorial Corporate Tax System was put into effect to attract foreign businesses. Despite having one of the lowest tax rates, Hong Kong also offers tax exemption under this system.
According to the law, any income brought in through trade or business that took place outside the city will not be taxed. Even non-residents can take advantage of this through the formation of a company in Hong Kong and then drawing profits from outside.
It is completely legal to register your company in Hong Kong and benefit from the tax exemption. The income earned outside can also be brought to the city with any taxes. However, if you are a non-resident and your income was earned in Hong Kong it will not fall under the exemption and you will be taxed.
Flat Corporate Tax Rate
Hong Kong has simple tax rates for the profits earned in the city. There are two types of profit tax rates: Single-Tier Corporate Tax System and Two-Tier Profits Tax Regime. The Single-Tier system demands a 16.5% tax on assessable profits while 15% on incorporated businesses.
The Two-Tier system reduced the tax rate by half for the first 2 million Hong Kong dollars. This greatly reduces the burden on small and medium-sized businesses whose profits stay below the threshold.
The new rates are 8.25% on assessable profits and 7.5% on incorporated businesses. After the threshold is crossed, the previous rates are applied.
Apply for Tax Incentives
Hong Kong offers dozens of tax incentives throughout the year. It is important to keep an eye out for these incentives to minimize your taxes legally. Below are some of the popular tax incentives available in Hong Kong. Please note that these incentives are subject to change.
- 100% tax exemption on environmental protection machinery, vehicles, and activities
- No taxes on renovation or upgrading of business offices for the first five years
- No taxes on manufacturing plants and machinery as well as computer hardware and software
While the tax regulations of Hong Kong may seem a bit tricky, they are some of the friendliest and lowest tax rates all over the world. The government has made every effort to ensure both foreigners and locals have full support when they are launching a new business. It’s no wonder that businesses love to set up grounds in Hong Kong.