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Government Initiative And Incentive

The Hong Kong Government is committed to support SMEs and startups to help realize their vision and take their business to the next level, providing an appealing tax environment for foreign investors.

Because of its outstanding financial infrastructure and promising investment climate, there are many incentives to encourage business investments.

Hong Kong has lower tax rates than most other Asian countries, there is no tax on: –

  • Gains arising from the sale of capital assets;
  • Profits arising or derived from outside Hong Kong;
  • Dividends under statute or revenue authority practice; and
  • Estate duty or inheritance tax or death duties.

TAX POLICIES

What is so unique?

  • The tax system in Hong Kong is generally considered to be one of the most transparent, modest and forthright systems in the world.
  • Hong Kong does not handover tax revenue to the Central Government in China, i.e., enjoys independent public finance.
  • Taxation system in Hong Kong is self-governing and different from the taxation system in mainland China.
  • In Hong Kong taxes are collected by Inland Revenue Department (IRD).
  • Only profits obtained in Hong Kong is taxable whereas a person’s overseas income will not be taxable.

Important Exemptions:

The following sums are excluded from the assessable profits: –

  • dividends received from a corporation which is subject to Hong Kong Profits Tax;
  • amounts already included in the assessable profits of other persons chargeable to Profits Tax;
  • interest on Tax Reserve Certificates;
  • interest on, and any profit made in respect of a bond issued under specified ordinances and on some instruments;
  • interest income and trading profits derived from long term debt instruments;
  • interest, profits or gains from qualifying debt instruments (issued on or after 1 April 2018) exempted from payment of Profits Tax; and
  • sums received or accrued in respect of a specified investment scheme.

A person is exempt from payment of profits tax in respect of the following sums: –

  • interest that is derived from any deposit placed in Hong Kong with an authorized institution, excluding interest received by or accrued to a financial institution; and
  • interest on and any profit made in respect of Renminbi sovereign bonds.

DOUBLE TAXATION AGREEMENTS (DTA)

A Double Tax Agreement (DTA) is a bilateral agreement between two countries that seek out to avoid the double taxation of an income.

Hong Kong has DTA with following countries:

  • Comprehensive DTA with Mainland China, United Kingdom, India, Canada, the Czech Republic, France, Guernsey, Jersey, Republic of Korea, Kuwait, Liechtenstein, Luxembourg, Hungary, Indonesia, Ireland, Italy, Japan, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Portugal, Qatar, Austria, Belgium, Brunei, Spain, Switzerland, Thailand and Vietnam some of which are not in force yet.
  • DTA concerning airline income with Croatia, Denmark, Estonia, Ethiopia, Bangladesh, Canada, Fiji, Finland, Germany, Korea, Kuwait, Laos, Macao SAR, Maldives, Iceland, Israel, Jordan, Kenya, Sweden, Mexico, Norway, the Russian Federation, and Mauritius.
  • DTA concerning airline and shipping income with Sri Lanka & Singapore.
  • DTA concerning shipping income with USA, Norway, Denmark and the Germany.

ALLOWANCES

There are several substantial primary allowances offered, for capital expenditure on prescribed assets, by the Government, including certain plants or machinery. Some significant allowances provided by Hong Kong’s Government include:

  • An annual depreciation allowance of 4 percent:
    • is available for commercial structures or constructions utilized other than for industrial purposes; and
    • of the primary capital expenditure.
  • A primary allowance of 20% of the industrial building’s cost (not including land cost).
  • For the year in which the expenditure is incurred, a primary allowance of 60% of the capital expenditure on plant or machinery is granted.
  • Capital expenditure on the restoration of a building (excluding domestic construction) is deductible uninterruptedly at a rate of 20% a year for five years.

Capital expenditure on environmental protection vehicles, machinery & installations benefits from a primary allowance of 20% in the year of assessment in which the capital expenditure was incurred. The remaining expenditure is deductible on a straight-line basis of 20% a year for the succeeding 4 years.

BUDGET 2020-21Key initiatives announced:

  • Introduction of a low-interest loan with a 100% guarantee for enterprises.
  • Maximum loan of HKD 2 million with a repayment period of up to three years.
  • HKD 10,000 cash payout to Hong Kong permanent residents aged 18 or above.
  • Business registration fees waived for 2020-21.
  • Registration fees waived for company annual returns for two years.
  • Inject HKD 345 million for a pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.
  • Increase the grant ceiling under the Technology Voucher Programme to HKD 600,000 and raise the Government’s funding ratio to 75%.

 

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