Hong Kong, known for its vibrant business landscape and thriving economy, boasts one of the most competitive tax systems globally. With its low tax rates and business-friendly policies, the city has attracted numerous multinational corporations and entrepreneurs.
One of the key attractions of Hong Kong’s corporate tax system is its low tax rate. Currently, the standard profits tax rate is 16.5% for corporations. However, a two-tiered profits tax system was introduced in 2018 to support small and medium-sized enterprises (SMEs). Under this system, the first HKD 2 million of assessable profits are taxed at a reduced rate of 8.25%, while profits above that threshold are taxed at the standard rate.
In addition, Hong Kong does not impose withholding tax on dividends distributed by Hong Kong companies, whether to residents or non-residents. This dividend tax exemption facilitates the free flow of capital within multinational groups and encourages investment. It also makes Hong Kong an attractive location for holding companies.
To foster economic growth and attract investment, Hong Kong offers various tax incentives and deductions. These include:
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- Research and Development (R&D) Deductions: Eligible expenditures incurred on qualifying R&D activities can be deducted from assessable profits, providing an incentive for companies to invest in innovation.
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- Capital Allowances: Capital expenditure on qualifying assets, such as plant and machinery, can be claimed as a deduction over time, further reducing the taxable profits.
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- Loss Carry forward: Losses incurred by a company can be carried forward indefinitely to offset against future profits, subject to certain restrictions.
