HONG KONG SAR, CHINA Law and Practice Contributed by: Jeffrey Lee, Jessica Leung and Hilary Leung, Charles Russell Speechlys
1. Tax 1.1 Tax Regimes Territorial Source Principle of Taxation
Allowances A taxpayer assessed to salaries tax is entitled to a basic allowance. For the 2025/2026 year of assess - ment, the amount of basic allowance is HKD132,000. There are other allowances that may be claimed, as follows, provided the prescribed conditions as speci - fied in the Inland Revenue Ordinance are satisfied: • married person’s allowance; • child allowance; • dependent brother or dependent sister allowance; • dependent parent and dependent grandparent allowance; • single parent allowance; • disabled dependant allowance; and • personal disability allowance. Deductions Certain deductions are allowed, such as: • donations paid to recognised charities; • self-education expenses paid on fees in con - nection with certain courses of education and/or examinations; • qualifying home loan interest payments paid towards a Hong Kong property occupied by the taxpayer; • rent paid towards a qualifying tenancy in Hong Kong; • mandatory contributions paid to a mandatory provident fund scheme; and • qualifying premiums paid under the Voluntary Health Insurance Scheme. In order to help promote fertility and create a children- friendly environment in Hong Kong, starting from the 2024/2025 year of assessment, the deductions for home loan interest or domestic rents were raised from HKD100,000 to HKD120,000 for taxpayers who reside with their child. Profits Tax Persons, including corporations, partnerships, trus - tees and bodies of persons, carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. To
Hong Kong adopts a territorial source principle of taxation. Generally, only profits or income arising in or derived from Hong Kong are chargeable to tax in Hong Kong unless the foreign source income taxation regime (further discussed in 1.6 Transparency and Increased Global Reporting ) applies to such profits or income. As taxes are not levied based on a person’s domicile, residence or nationality except for double tax treaty purposes, a Hong Kong resident may derive profits from abroad without being subject to tax in Hong Kong, and a non-resident of Hong Kong may be chargeable to tax on profits arising in Hong Kong. The question of where the profits or income arise or are derived from is a practical matter of fact. Whether profits or income arise in or are derived from Hong Kong depends on the nature of the profits or income and of the transactions or activities that give rise to such profits or income. To determine the locality of profits or income, the broad guiding principle is to see what the taxpayer has done to earn the profits in question and where they have done it. The place where the day-to-day decisions are made in relation to the taxpayer’s business or activities is only one of the factors to be considered, and is usually not the deciding factor. Salaries Tax Salaries tax is imposed on all income arising in or derived from Hong Kong from an office, employ - ment or pension. It is necessary to identify where the employment is located in order to decide whether income arises in or is derived from Hong Kong. Such income includes all forms of income and benefits from employment, such as awards of shares or options and the rental value of a place of residence provided rent- free to the employee. Salaries tax is calculated at progressive rates from 2% to 17% on the net chargeable income or at the two- tiered standard rates of 15% on the first HKD5 million of the net income and 16% on the remainder of the net income (ie, without allowances), whichever is lower.
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