source: https://www.ird.gov.hk/chi/pdf/tax_guide.pdf

According to the tax guide by the Inland Revenue Department: Anyone who carries on any trade, profession or business in Hong  Kong must pay taxes, this includes:

• Corporations
• Partnership
• Trustee or body

 

There is no distinction between Hong Kong residents and non-Hong Kong residents. Therefore, Hong Kong residents can earn profits overseas without paying taxes in Hong Kong. Conversely, non-residents who earn profits in Hong Kong must pay tax in Hong Kong. As to whether the business is carried on in Hong Kong and whether the profits are derived from Hong Kong, it mainly depends on the facts, but the principles adopted can refer to the tax cases decided by Hong Kong and other common law courts.

Inclusions and deductions

All expenses incurred by the taxpayer in earning assessable profits are deductible, including:

 

• Interest paid on borrowings to earn such profit (subject to certain conditions) and rents for leased buildings or land;
• Bad debts and doubtful debts (received later as income);
• the cost of repairing or repairing the premises, plant, machinery or articles, etc. used for the purpose of earning the profit;
• Registration fees for trademarks, designs, patents or plant variety rights (applicable from the year of assessment 2018/19) used to earn assessable profits;
• Capital expenditure on the purchase of specified intellectual property for the purpose of earning assessable profits. 100% deduction for the first year of purchase if the intellectual property is a patent right or any industrial intellectual property right. In the case of copyright, *economic rights of performers, *protected layout-design (topography) rights, *protected plant variety rights, registered designs or registered trademarks, 4 consecutive years in the year of purchase and thereafter 20% deduction for the year of assessment. However, if the intellectual property rights are purchased in whole or in part from an associate, the relevant expenses will not be deducted (items marked with an asterisk [*] will apply from the year of assessment 2018/19);
• Research and development expenses (including research on market, business or management matters), design-related expenses and expenses for industrial education, subject to certain provisions. Starting from the year of assessment 2018/19, for certain eligible domestic R&D expenditures, the first $2 million of R&D expenditures are eligible for a 300% tax deduction, and the remaining amount is also eligible for a 200% tax deduction;
• The employer pays annual contributions to or premiums for a recognised occupational pension scheme, or fixed contributions to a Mandatory Provident Fund scheme, or any amount set aside for such scheme. Provided that the amount paid by each employee shall not exceed 15% of the employee’s gross remuneration for the relevant period;
• Mandatory contributions paid by a sole proprietor or a partner in a partnership as a self-employed person under the liability of the Mandatory Provident Fund Schemes Ordinance (Cap. 485). For a year of assessment, this deduction must not exceed the maximum deduction for that year of assessment, which has already included deductions already made under other provisions of the Inland Revenue Ordinance. Contributions made by a self-employed person for a spouse are not deductible. The maximum deduction for each year of assessment is:

 

Year of assessment	Maximum deductible $
2014/15	17500
2015/16 and beyond	18000

 

Approved charitable donations to charities, provided that the sum of the donations is not less than $100 and does not exceed 35% of the adjusted assessable profits

Tax discounts

 

• • Expenditure on the purchase of specified manufacturing-related plant and machinery, as well as computer hardware and software, can be written off immediately.
  • Capital expenditure on renovation of commercial buildings can be written off over five years of assessment.
  • Gains on qualifying debt instruments are tax deductible. Certain debt instruments issued on or after 1 April 2018 are tax exempt.
  • Assessable profits from reinsurance business derived from offshore risks as a professional reinsurer and insurance business derived from offshore risks as an authorised captive insurer are taxed at a preferential rate. From the year of assessment 2018/19, preferential tax rates apply to their businesses with onshore risk.
  • Interest earned on deposits with authorised institutions in Hong Kong is exempt from profits tax (not applicable to interest received by financial institutions or interest accrued to financial institutions).
  • Profits from transactions of securities, futures contracts, foreign exchange contracts, etc. conducted in Hong Kong by corporations and authorised financial institutions licensed or registered under the Securities and Futures Ordinance (Cap. 571), if they are offshore funds (Non-resident individuals, partnerships, trustees of trust estates or corporations) are exempt from tax. The non-resident person cannot carry on any other business in Hong Kong. The profits tax exemption for offshore funds extends to offshore private funds (subject to certain conditions) and applies to profits derived from specified transactions conducted on or after 1 April 2015. From 1 April 2019, the tax exemption extends to all funds (subject to certain conditions) regardless of their structure and l1ocation of central management and control.
  • Accelerated deduction is available for capital expenditure on the acquisition of specified environmental protection facilities. 100% deduction of capital expenditure for specified environmental facilities that are machinery or industrial equipment. For environmental protection installations that are part of a building or structure, 20% per annum is deducted for five consecutive years. From the year of assessment 2018/19 onwards, 100% deduction is available for capital expenditure on environmental protection installations.
  • 100% deduction for the capital expenditure of specified environmentally friendly vehicles in the first year of purchase.
  • Qualifying corporate treasury centres are taxed at a reduced rate on qualifying profits derived from certain loan transactions, or from certain corporate treasury services or transactions on or after 1 April 2016.
  • Subject to specified conditions, a corporation carrying on an intra-group financing business in Hong Kong that, in the ordinary course of the business, borrows from a non-Hong Kong associated corporation and is required to pay interest on or after 1 April 2016 , the interest is deductible.
  • Eligible aircraft lessors qualifying profits from qualifying aircraft leasing activities on or after 1 April 2017, or qualifying aircraft leasing managers qualifying profits from qualifying aircraft leasing management activities on or after that date are eligible tax rate.
  • Qualifying Qualifying profits derived from qualifying ship leasing activities on or after 1 April 2020 are tax exempt.
  • Qualifying Qualifying profits derived from qualifying ship leasing management activities on or after 1 April 2020 are tax exempt or taxable at reduced rates.

  • Salaries tax is payable on jobs, employment and pension income arising in or derived from Hong Kong. Whether the income is “originated in or derived from Hong Kong” depends on the location of the employment (ie the source of income). The term “income arising in or derived from Hong Kong” includes all taxpayers’ income arising from the rendering of services in Hong Kong, but this definition does not affect the general broad meaning of the term. The Inland Revenue Ordinance has special provisions for those seafarers and aircraft attendants who are temporarily in Hong Kong, and those who have paid taxes similar to Hong Kong salaries tax outside Hong Kong.

     

    The following items are deductible:

    • All expenses wholly, purely and necessarily incurred in the production of assessable income, but not deductible for expenses of a private or household nature and capital expenditures.
    • Approved charitable donations to charities, provided that the sum of the donations is not less than $100 and does not exceed 35% of the income after deductions for expenses and depreciation allowances.
    • Payment of fees (including tuition and examination fees) associated with taking a prescribed educational course or taking an examination sponsored by a specified education provider, trade association, professional association or business association. Prescribed educational courses or examinations that must be taken or taken in order to obtain or maintain a qualification for application in any employment.

     

    “Prescribed Education Course” means a course offered by a specified education provider. Specified education providers (see www.gov.hk/en/residents/taxes/salaries/allowances/deductions/selfeducation.htm  for a list) include universities, colleges, schools, industrial colleges, training centres and institutions approved by the Commissioner of Inland Revenue. “Prescribed educational courses” also include training or development courses offered by trade associations, professional associations or business associations, or training or development courses approved or accredited by specified professional bodies or bodies.

     

    The deductible amount shall not include expenses paid or to be paid back by the employer or any other person. The maximum amounts for each year of assessment are:

     

    Year of assessment	Amount $
    2014/15 to 2016/17	80000
    2017/18 and beyond	10000

     

    • Residential care expenses paid by the taxpayer or his/her spouse to the residential care facility for the taxpayer or his/her spouse’s parents/grandparents/grandparents. To be eligible for the deduction, the parent/grandparent/grandparent must be at least 60 years of age at any time during the year of assessment; or under the age of 60 but eligible to apply for allowances under the Government Disability Allowance Scheme; The home must be located in Hong Kong and hold a licence or certificate of exemption issued by the Social Welfare Department under the Residential Care Homes for the Elderly Ordinance (Cap. 459) or the Residential Care Homes for Persons with Disabilities Ordinance (Cap. 613); or Premises of a Scheduled Nursing Home within the meaning of the Private Healthcare Facilities Ordinance (Cap. 633) which is in force exempted by section 128 of the Ordinance.

     

    If a person has already obtained this deduction in respect of his parent/grandparent/grandparent, he or any other person cannot claim a dependent parent and a dependent grandparent or a dependent grandparent in respect of that parent/grandparent/grandparent in the same year of assessment Grandparent Allowance and Additional Allowances. The maximum amounts for each year of assessment are:

     

    Year of assessment	Amount $
    2014/15 and 2015/16	80000
    2016/17 and 2017/18	92000
    2018/19 and beyond	100000

     

     

    In addition, taxpayers may also claim a deduction for interest incurred on the purchase of a car park space with a dwelling, whether or not the car park is valued together with the dwelling as a single property under the Rating Ordinance (Cap. 116). However, the purchased parking space must be for the taxpayer’s own use and located in the same development property as the relevant residence for which the home loan interest is claimed. Home loan interest for the year of assessment.

    If the taxpayer is the sole owner of the dwelling/car park, the maximum deduction for each year of assessment is $100,000.

    If the taxpayer is a joint or co-owner of a dwelling/car park, the deduction cap for each year of assessment shall be apportioned according to the number of joint-tenants or the proportion of the ownership of the joint-tenants.

     

    • Mandatory contributions made to the Mandatory Provident Fund Scheme as an employee are not eligible for a deduction that exceeds the specified amount set out in the Inland Revenue Ordinance.
    • Contributions to a recognized ORSO scheme can be deducted subject to the following two limitations:
    1. ust not exceed the mandatory contribution amount calculated under the MPF Ordinance with the same amount of remuneration; and
    2. A specified amount set out in the Inland Revenue Ordinance.

     

    (Regarding the deductions mentioned in items (6) and (7), irrespective of how many employees the taxpayer has for work or business, the maximum deduction for the year of assessment is the same for each person. )

     

    • Eligible premiums paid under the VHIS policy. To be eligible for the deduction, the insured must be the taxpayer or a named relative (ie, spouse, child, sibling, parent, grandparent, or maternal grandparent of the taxpayer or his/her spouse). The insured must be the holder of a Hong Kong identity card; or at any time during the relevant year of assessment is under the age of 11 and does not hold a Hong Kong identity card, but at the time of birth or adoption, his or her parents or adoptive parents were Hong Kong identity card holders.

     

    If the specified relative is a child/sibling, he or she must be under the age of 18 during the year; or over the age of 18 but under the age of 25 and receiving full-time education at a university, college, school or other similar educational institution; or 18 years of age or older but unable to work due to physical or mental problems. If the specified relative is a parent/grandparent/grandparent, he or she must have reached the age of 55 in the current year or be eligible to claim allowance under the Government Disability Allowance Scheme.

    The allowable deduction per taxpayer for each insured person shall not exceed the amount actually paid or the specified maximum deduction, whichever is lower. The specified maximum deduction for 2019/20 and subsequent years of assessment is $8,000.

     

    • Eligible annuity premiums and tax-deductible MPF voluntary contributions can be deducted if the following conditions are met:

    (i) Qualifying Annuity Premiums: The policyholder of a Qualifying Deferred Annuity Policy must be the taxpayer and/or his/her spouse. Premiums must be paid by the taxpayer and/or his/her domestic spouse. The annuity recipient must be the taxpayer and/or his/her spouse at any time during the relevant year of assessment; and must hold a Hong Kong identity card during the relevant year of assessment.

    (ii) Tax-deductible MPF voluntary contributions: The relevant voluntary contributions must be deposited into a “tax-deductible voluntary contribution account” provided by a Mandatory Provident Fund scheme registered under the Mandatory Provident Fund Schemes Ordinance . The account holder must be a taxpayer.

    If a claim is made for both qualifying annuity premiums and tax-deductible MPF voluntary contributions, the Department will first deduct the tax-deductible MPF voluntary contributions and then deduct the qualifying annuity premiums paid.

    The allowable deduction shall not exceed the total amount of the qualifying annuity premiums actually paid and the tax-deductible MPF voluntary contributions; or the specified maximum deduction, whichever is lower. The specified maximum deduction for 2019/20 and subsequent years of assessment is $60,000.

    Taxpayers can claim a deduction for “home loan interest” paid for the purchase of a property. The period for which the deduction is available has been extended from 10 years of assessment to 15 years of assessment from the year of assessment 2012/13; further to 20 years of assessment from the year of assessment 2017/18 (whether consecutive or not) . The property must be located in Hong Kong and the taxpayer must use it as his residence in the year of assessment.

Property tax

 

Property tax is a tax levied on the owners of land and/or buildings in Hong Kong (“owners”) and is calculated by applying the standard rate of tax on the net assessable value of the property. The standard rate from the year of assessment 2014/15 is 15%.

 

If a taxpayer is subject to salaries tax or personal assessment, he/she may claim the following tax allowances as applicable:

 Married Person Allowance

 

A taxpayer may claim the Married Person Allowance if at any time during the relevant year:

• • • Married and not living apart from his/her spouse; or living apart from his/her spouse but not yet divorced, and having dependents or financial support for him/her during the relevant year; and
    • The spouse did not receive any salaries taxable income and did not elect to be assessed under personal assessment for the year; or
    • The taxpayer and the spouse have opted for joint salaries tax assessment and/or the taxpayer and the spouse have opted for personal assessment jointly.

 

Child allowance

 

A child allowance is granted to taxpayers who maintain unmarried children during the relevant year of assessment. The child must be under the age of 18, or if over 18 but under 25, he/she must be in full-time education at any university, college, school or similar institution during the year of assessment. In addition, taxpayers who are dependent on a child who is physically or mentally incapable and who are unable to work but who have reached the age of 18 can also claim the allowance for that child. In the case of separate assessments, the taxpayer and spouse must nominate one of them to claim all child allowances. The child allowance may be additionally increased for each child in the year of assessment in which they are born.

Dependent sibling allowance

 

A taxpayer or his/her spouse may be granted a dependent brother/sister tax exemption for each dependent brother or sister if he or his spouse is supporting an unmarried brother or sister of himself or his/her spouse who, at any time during the year of assessment, meets the following conditions:

• under the age of 18; or
• of or over 18 but under 25 years old, and receiving full time education at a university, college, school or other similar educational establishment; or
• of or over 18 years old and was, because of physical or mental disability, unable to work.

 

The applicant or his/her spouse must have provided sole or major support for the sibling at any time during the relevant year of assessment, and the sibling is deemed to be supported by the person or his/her spouse. Dependent sibling allowance and child allowance cannot be granted to the same dependant in the same year of assessment.

Dependent parent/grandparent allowance

 

For a taxpayer to receive the dependent parent and dependent grandparent or maternal grandparent allowance, the dependent parent, grandparent or maternal grandparent (“dependent”) must meet the following conditions during the year:

 

(i) ordinarily resident in Hong Kong. The term “ordinarily resident in Hong Kong” means that the dependants must be ordinarily resident in Hong Kong. In determining whether a dependant is ordinarily resident in Hong Kong, the IRD may refer to objective factors including: (a) the number of days of stay in Hong Kong, the frequency of visits to Hong Kong and the length of each stay in Hong Kong; (b) whether there is a fixed residence; (c) whether he owns a property overseas for residential purposes; (d) whether he works or operates a business in Hong Kong; (e) whether his relatives or friends mainly live in Hong Kong;

 

(ii) over the age of 55; or eligible to claim benefits under the Government Disability Allowance Scheme; and

 

(iii) has lived with the taxpayer for a continuous period of at least 6 months without paying full valuable consideration; or has received money given by the taxpayer or his spouse as living expenses totalling not more than $12,000.

 

If, during the year of assessment, the taxpayer lives with the dependants continuously for a whole year without the dependants paying full valuable consideration, the deduction of the additional dependent parent and grandparent or maternal grandparent allowance can be claimed.

 

Only one taxpayer can claim the allowance for any dependent in any year of assessment. If more than one taxpayer applies for the maintenance allowance for the same dependant in the same year of assessment, the assessor will not grant more than one allowance for the same dependant at the same time. The IRD will require applicants to agree on who will claim the allowance for the year.

Under the Dependent Parent Allowance, the term “parent” means:

 

(i) duly married parents of the taxpayer or spouse;

(ii) adopting the taxpayer’s or spouse’s adoptive parents according to law;

(iii) step-parents of the taxpayer or spouse;

(iv) the biological father or mother of the taxpayer or spouse; or

(v) the parents of the deceased spouse.

 

Under the Dependent Grandparent or Grandparent Allowance, the term “grandparent” means:

 

(i) the taxpayer’s or spouse’s biological or biological grandparents;

(ii) the taxpayer’s or spouse’s adoptive grandparent or adoptive maternal grandparent;

(iii) step-grandparents or step-grandparents of the taxpayer or spouse; or

(iv) grandparents or maternal grandparents of the deceased spouse.

 

Single Parent Allowance

 

A single parent allowance can be claimed by any person who, at any time during the relevant year of assessment, has been solely or principally supporting a child who is entitled to the child allowance. If the person is married and not living apart from the spouse at any time during the year, or only pays the child’s living and educational expenses during the year, he is not entitled to the allowance. The person is also not entitled to claim the single parent allowance for any 2nd or subsequent children.

Disabled person allowance

 

Disability allowances are available to any person who is eligible to receive an allowance under the Government’s Disability Allowance Scheme during the year of assessment.

 

Disabled Dependent Allowance

 

A disabled dependant allowance is granted to any person who is supporting a dependent who is eligible for an allowance under the Government’s Disability Allowance Scheme. This is the taxpayer’s claim for any other tax-exemption in respect of the dependant, which may be claimed separately