Hong Kong: an attractive tax regime for newly individual residents

1. Introduction

Hong Kong has a particularly attractive tax regime for wealthy non-resident individuals wishing to settle there.  The relatively low tax rates and friendly tax framework make Hong Kong and attractive location for the generation of income, as well as a centre through which wealth and assets are held and managed.

Broadly speaking, tax is levied on a territorial basis rather than on the basis of a person’s nationality, domicile or residence in Hong Kong.  Therefore, only income arising in or derived from Hong Kong sources (or deemed as such) is subject to income taxes.

 

2. Tax highlights

Under Hong Kong’s domestic tax rules, residents can enjoy the following tax benefits in particular:

Business income

• Broadly speaking, a person or entity carrying on a trade, profession or business in Hong Kong is subject to profits tax (only) on income arising in or derived from Hong Kong from that profession, trade or business.  Taxable income is determined in accordance with generally accepted accounting principles, as modified by the tax code and principles derived from case law;

• The profits tax rate for the first HK$2 million (approximately US$ 257,000) of (net) profits in connection with an unincorporated and incorporated business is 7.5% and 8.25%, respectively.  The remainder of the (net) profits would be taxed at the tax rate of 15% and 16.5%, respectively;

Investment income

• Dividends  are generally exempt from the charge to profits tax, and there is no withholding tax levied on dividends (or interest) paid to residents (or non-residents).  As such, distributions from a company to Hong Kong resident shareholders, or from a trust estate to Hong Kong resident beneficiaries, out of income earned either in or outside Hong Kong are generally not taxable for both individuals and companies.
• Other investment income (such as capital gains on shares) are excluded from the charge to profits tax.

Income from employment and office

• Insofar employment income is sourced in Hong Kong, a salaries tax liability arises.  However, except for directors’ fees, a specific statutory exemption applies if an employee renders all his or her services outside Hong Kong or if an employee renders services in Hong Kong during visits to Hong Kong not exceeding a total of 60 days in a year of assessment;

• Conversely, if a non-resident engaged in a non-Hong Kong employment performed services in Hong Kong during visits totaling more than 60 days in a year of assessment, that person is (only) taxed on the remuneration on a pro rata basis (in accordance with the number of days spent in versus outside Hong Kong);

• Directors’ fees derived from a company that has its central management and control in Hong Kong are subject to salaries tax in Hong Kong.  Otherwise, directors’ fees are not taxable;

• Salaries tax is levied on net chargeable income (assessable income less personal deductions and allowances) at progressive rates ranging from 2% to 17%, or at a flat rate (maximum rate) of 15% on assessable income less personal deductions, whichever calculation produces the lower tax liability;

• No social security taxes are imposed.  Employers and employees are each required to contribute the lower of 5% of the employees’ salaries or HK$1,500 (approximately US$192) per month to approved Mandatory Provident Fund schemes unless the employees are covered by other recognized occupation retirement schemes.

Other income

• Gifts are not taxable, regardless of whether the assets or rights relating thereto are situated in or outside Hong Kong.  (Only) where a transfer involves shares in Hong Kong companies or Hong Kong real estate, stamp duty consequences may be triggered, unless in circumstances where it can be proven not to involve a transfer of beneficial interest;

• Estates of persons who passed away on or after 11 February 2006 are not subject to estate duty, as the estate duty was abolished on that date.

 

3. Visas

While the “Capital Investment Entrant Scheme” has been suspended by the Hong Kong Government from 15 January 2015 until further notice, high-net-worth individuals may still apply under the program for investment as entrepreneurs, obviously subject to the relevant requirements. 

Broadly speaking, the criteria to be considered by the Hong Kong Immigration Department include whether the applicant is able to make a substantial contribution to the economy of Hong Kong.  Amongst others, consideration is given to the business plan, (expected) business turnover, financial resources, investment sum being able to support the operation of the business, number of jobs (to be) created locally, introduction of new technology or skills, etc.

If a visa applicant wants to bring his or her family to Hong Kong, the family members (i.e. his or her spouse and unmarried children under age 18) may apply together with the applicant as his or her dependents for the dependent visa status.  In principle, a dependent visa holder is allowed to work in Hong Kong without prior approval from the Immigration Department.  Dependent visas may also be granted to other close relatives who are fully supported by the applicant or who are handicapped, subject to the approval of the Immigration Department.

 

For further information, please contact:

 

AFSCHRIFT TAX AND LEGAL	KENNETH YIM TAX
Ms Angélique Puglisi	Mr Kenneth Yim
Angelique.Puglisi@afschrift.com	kenneth@kyimtax.com
T: +32 2646 4636	T: +852 37560156