Investment Immigration to Hong Kong to understand the Hong Kong Taxation system: The types of taxes in Hong Kong are particularly simple and low. The corporate tax rate is 16.5% for some companies and 15% for others. In mainland China, the unified corporate tax rate is 25%. In Hong Kong, tax obligations are based on the source of profits, determining whether one needs to pay taxes in Hong Kong. In mainland China, income tax is based on corporate debt and income from domestic or overseas sources.
Below, Worldway Immigration will share the simplest methods to discuss Hong Kong's taxation and the tax issues related to listing in Hong Kong.
The taxation in Hong Kong is governed by the General Department of Taxation, with the national headquarters and local tax authorities. The regulations used in Hong Kong are based on ordinances and some previously executed cases. In China, taxation is governed by regulations, including financial and tax regulations, national tax, local tax, and related local tax laws. From October 1 of this year to January 3 of next year, the languages used in Hong Kong are English and Chinese, while in mainland China, Chinese is the primary language.
Next, let’s discuss the types of taxes. First, corporate income tax. The tax system in Hong Kong is particularly simple and low; the corporate tax rate is 16.5% for some companies and 15% for others. In mainland China, the unified corporate tax rate is 25%. Tax obligations in Hong Kong are based on the source of profits, determining whether one needs to pay taxes in Hong Kong. In mainland China, income tax is based on corporate debt and income from domestic or overseas sources. When it comes to deductions, what can be deducted? In Hong Kong, all expenses incurred during the process of generating profits can be deducted. In mainland China, deductions are allowed under the regulations during the process of generating profits.
Next is personal income tax, which is filed annually in Hong Kong. The first rate is 2%, the second is 7%, and the third is 12%. The remaining balance is taxed at 17%. The maximum tax rate in Hong Kong is capped at 15%. In Hong Kong, taxes are paid monthly, and the tax rate depends on how much one earns each month, ranging from 3% to 45%.
Your employer does not withhold taxes for you in Hong Kong; you must pay them yourself. Companies are required to assist employees in filing taxes under the company’s name, while personal tax filing is the individual’s responsibility, requiring them to file taxes once a year.
Regarding personal income tax, let’s look at tax obligations. If you are a Hong Kong employee, you must pay taxes on all income earned in Hong Kong. However, if you are a non-Hong Kong employee and stay in Hong Kong for more than 60 days, you will be taxed based on the proportion of time you earned income in Hong Kong. If you are not a Hong Kong employee and do not stay in Hong Kong for more than 60 days, you are exempt from taxes; even 59 days is tax-exempt.
If your income originates from China, you are subject to full taxation, and Chinese nationals are taxed globally. All income is taxed. If you are a non-domestic employee with income from abroad, the tax is calculated based on the proportion of days spent in China and the wages paid domestically or abroad. In Hong Kong, there are many deductible expenses, including personal, married, children, and dependent parents' allowances. For domestic individuals, the allowance is 3,500 per month, while for foreign employees, it is 4,800 per month. Additionally, you can deduct contributions to social insurance and housing funds.
Next, there are various minor taxes, such as property tax, value-added tax, business tax, and withholding tax, which I will not elaborate on. It is noted that Hong Kong does not have value-added tax or business tax, and regardless of the tax rate, it remains relatively low, especially for withholding tax, as dividends and interest are not taxed in Hong Kong. However, in mainland China, dividends and interest paid are subject to different tax rates based on various factors. Withholding income tax must be paid before distributions can be made. Land appreciation tax and deed tax are virtually nonexistent in Hong Kong. In mainland China, different percentages apply to various tax categories. Hong Kong's tax system is particularly simple and inexpensive.
Next, let’s discuss tax issues. Companies need to consider whether their industry has acceptance certificates, whether the industry will attract interest, whether there are financing goals, and what the financing will be used for. Additionally, business plans and execution capabilities are crucial; it is not enough to simply go public. If the employees and management are not well-equipped and do not share a common vision, it can lead to chaos. Companies must consider whether they will grow or stagnate, and they need a capable board of directors and management to execute plans.
In my experience with clients, they often start off eager and united, but as time goes on, they encounter significant difficulties, leading to conflicts and disputes. Therefore, it is essential to clarify whether the company has the capability to execute the entire plan.
In fact, companies need to self-examine whether they need to supplement value-added tax and business tax. Everyone knows that there are some profits that can be adjusted, but the methods of adjustment need to be considered. It is important to reflect actual business turnover and post-tax profits, and to explore effective compliance and reasonable tax planning that does not affect profitability. Additionally, companies need to manage problematic receivables without impacting operations. Furthermore, points 6 and 7 pertain to whether employees and management are paying personal income tax according to actual wages and national laws. This is strictly monitored; if not done properly, companies will be required to make a withholding provision within the company. Large provisions can accumulate, especially in large companies with many employees. When calculated, these figures can be substantial and affect profitability and cash flow.
