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Overview of Tax Issues for Expats in Hong Kong

Submitted: April 2014

The Hong Kong tax year runs from the 1 April to the 31 March of the following year.

Tax Residence

Generally, it is advantageous to obtain tax residence in Hong Kong as soon as possible. The reasoning behind this is usually to lose tax residence status elsewhere, as tax in Hong Kong on both businesses and individuals (resident and non-resident) is payable on income and gains arising in Hong Kong only. If you intend to stay and work for longer than 180 days in Hong Kong, you must apply for a Hong Kong Identity Card within 30 days of arrival. For more details, see: Taxation - Employment Taxation for Expats in Hong Kong.

Employment/Business Taxes

Hong Kong is unusual with regard to employment tax. The tax is not deducted by your employer as it is in a country with a Pay As You Earn system. Instead you are taxed on a provisional basis twice a year, and then complete the process by fill in a tax return at the end of the year, to calculate the final amount of tax payable. For more details, see: Taxation - Employment Taxation for Expats in Hong Kong.

If you come to Hong Kong to set up in business, you have the choice of being self-employed, or starting your own company. Once this choice is made, you will be liable to profits tax on your trade or business profits arising in Hong Kong only. You must incorporate and register your company with the Companies Register within one month of starting activity. The process automatically registers the company for tax with the Inland Revenue Department (IRD). Companies pay tax on a provisional basis, based on 75% of the previous year’s earnings, in the final quarter of the tax year, the remaining 25% payable approximately three months later. The tax return is then used to calculate the actual tax due, which then forms part of the following year’s first instalment. A newly registered company can expect to receive its first tax return after approximately 18 months. For more details, see: Taxation - Business Taxation for Expats in Hong Kong.

Other Taxes

Hong Kong does impose taxes on interest or dividend income arising in Hong Kong or abroad. There is no such thing as capital gains tax in Hong Kong. Pension income received from abroad is not taxable. Rental income received from overseas property is not taxable in Hong Kong. Rental income from Hong Kong properties is charged at 80% of the actual rent received (the other 20% represents allowable costs). For more details, see: Taxation - Investment Taxation for Expats in Hong Kong.

Tax Treaties

While income from abroad is not taxable in Hong Kong, it may be liable to withholding tax in the country of origin. Hong Kong has a number of tax treaties in place with other countries. The treaties mean that the amount of withholding tax charged in the country of origin is lessened. Generally the amount that can be charged under a treaty is reduced to 10%. For more details, see: Taxation – Tax Treaty Considerations for Expats in Hong Kong.

 

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