Hong Kong is well known to tourists for its iconic skyline and diverse ‘East meets West’ culture, but as one of the world’s leading financial centres, the former British colony has also long been an attractive city for the relocation of businesses and expatriates.
The following article was contributed by Vickie Fan, Managing Partner, Fan Chan & Co. It was first published in our October 2018 issue of International Client.
Its simple tax system boasts the lowest corporate and personal tax rates of any major Asian economy, and Hong Kong’s attractive immigration regime makes it accessible to many foreign nationals. Hong Kong is also recognised as the leading gateway to mainland China.
This article looks at the tax and visa regimes in the Hong Kong Special Administrative Region (HKSAR).
Hong Kong adopts a simple territorial tax system, whereby taxes are imposed only on profits or income which arise in or are derived from Hong Kong. This means that in most cases the foreign income of individuals resident in Hong Kong is not taxable there.
For individuals who work in Hong Kong for more than 60 days of the year, income arising locally is taxed at progressive rates on net chargeable income (ie assessable income after deductions and allowances). This applies regardless of the individual’s nationality and of whether the employer is a company incorporated in Hong Kong.
For the year of assessment 2018-19 (1 April 2018 to 31 March 2019) income is charged to tax as shown in the table.
If the tax payable by an individual exceeds that charged at a standard rate of 15% on net chargeable income, they will pay the lower amount of tax at the standard rate of 15%.
Mandatory Provident Fund
Every employee earning over HKD7,100 per month is liable to contribute to the Mandatory Provident Fund (MPF), which is similar to a state pension. Contributions are payable monthly at 5% of earnings, capped at HKD 18,000 per annum.
Double taxation treaties
Despite the territorial tax system, a number of double taxation agreements are in place with countries across the world. Of particular interest to individuals employed by companies seeking to expand into mainland China is an agreement that offers more favourable rates of withholding tax to Hong Kong companies and residents compared to most other countries with tax treaties with mainland China (and those without). It covers profits tax, salaries tax and property tax in Hong Kong, and their counterparts in mainland China (individual and enterprise income tax).
Dividends paid to foreign shareholders of a Hong Kong company are not subject to tax in Hong Kong, and dividends received from a foreign company are generally not subject to tax in Hong Kong.
Hong Kong imposes no withholding taxes (except for royalties or fees paid to non-resident entertainers and sportsmen) and it has no capital gains or inheritance tax. There is also no sales tax, or VAT on goods and services.
Hong Kong has an attractive immigration policy for professionals and entrepreneurs and there are three main visa options available. Under the three schemes listed below, a successful applicant may also bring their spouse and unmarried dependent children under the age of 18 on dependant visas.
Under the three visa schemes, eligibility for permanent residency generally arises after seven consecutive years’ residency.
General Employment Policy – Professionals
Open to applicants:
With a good educational background (normally meaning, but not restricted to, those holding a university degree), technical qualifications or proven professional experience;
Who have secured a job relevant to their academic qualifications or work experience that cannot be readily taken up by a local resident; and
Where the job secured has a remuneration package commensurate with the prevailing market rate.
General Employment Policy – Entrepreneurs
Open to applicants:
With a good educational background, technical qualifications or proven professional experience; and
Who are in a position to make a substantial contribution to the economy of the HKSAR.
The latter will normally require a two year business plan demonstrating the introduction of new technology or skills, plus evidence of the turnover of a relevant business the applicant is running overseas, sufficient financial resources, an investment sum, and the number of jobs to be created locally.
An applicant who wishes to establish or join in a start-up business may also submit an application, particularly if the start-up business concerned is supported by a government-backed programme.
Quality Migrant Admission Scheme
Highly skilled or talented individuals who have not yet secured a job offer in Hong Kong may apply under the Quality Migrant Admission Scheme (QMAS), which has no sector restriction. There are two points-based tests under the scheme:
- General Points Test for highly skilled or talented people
Assessment factors include age, academic/professional qualifications, work experience, language proficiency and family background.
- Achievement-based Points Test for talent with outstanding achievements
Examples include recipients of Olympic medals, Nobel prizes or national/international awards.
With its simple tax system and attractive immigration policies, it is easy to see why Hong Kong has remained for many decades a popular location from which businesses and expatriates can conduct business in Asia. This looks set to continue as the markets in Hong Kong facilitate trade with mainland China and attract investment from across the world.