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Hong Kong - Taxation (Other)

Compared to many countries, Hong Kong has a very low tax rate. Although the reputation of Hong Kong not having any taxes at all is untrue, the taxes it does have are comparatively low.

As of now, Hong Kong does not have a sales tax or a VAT and there are no plans to have these in the near future. In fact, there are also plans to eventually phase out the stamp duty which is the only real estate tax that currently exists.

Income tax is set at 2% for those earning less than HK$35,000 a year, 8% for HK$35,000-HK$70,000, 14% for HK$70,000-HK$105,000 and 20% for anything exceeding that. This is less than what many Americans, Australians, and British citizens pay in their native countries. Corporate tax is set at a rate of 16% of assessable profits.

Hong Kong does not have an Estate Duty, wealth tax, or Inheritance or Gift Taxes. Interest income, dividends and other investment income arising to individuals are not taxable, either. The only real estate taxes imposed is the Stamp Duty which is collected upon the transfer of property. Stamp Duty is currently set at rates up to 4.25%. The rates depend on the sale or transfer price of the property. In order to control property speculation, the government introduced a Special Stamp Duty (SSD) on residential property in November, 2010.

A Property Tax is imposed on rental income from Hong Kong property. The annual assessment of property tax is based on 100% of the annual rental income of the property less any bad debts, rates paid, and repairs and outgoings allowance constituting a maximum of 20% of the annual rental income. The Inland Revenue includes any management fees, premiums, service charges, rates, repairs and outgoings paid by the tenant either to the owner or on behalf of the owner. The tax rate is 15% (2008/9 onwards) of the assessed annual rental income and is levied on a provisional assessment basis which takes the previous year's rental income into account. Properties of foreign governments; charitable bodies exempted from taxation; and business entities who receive their profits from and pay profits tax on rental income derived from ownership of real estate are exempt from this tax.

While there isn’t a social security tax, there is a Mandatory Provident Fund (MPF) scheme. In this scheme, the employers and employees contribute to a mandatory pension plan. Those expats who are members of an overseas retirement scheme are normally exempt from joining an MPF scheme until they receive a Hong Kong Permanent Identity Card. The mandatory contributions to an MPF scheme are limited to a maximum of HK$1,250 per month for both the employer and employee.

As of 2012, there is a new stamp duty tax of 15% that is placed on foreigners who purchase property in Hong Kong. This was expected to help stop the inflation that was being caused by many people, especially those from Mainland China, who were purchasing property in Hong Kong for tax shelter purposes. It is anticipated that the high tax rate will deter some foreigners from buying property in the future.

For individuals, taxes are levied according to the "territorial principle.” This means that taxes are only levied on income that is derived from Hong Kong and not on income sourced outside the Territory. Hong Kong does not have any domestic withholding taxes on dividends, interest or royalties.

The tax year begins on April 1st. Individuals must file their tax returns by June 2, while sole proprietors of unincorporated businesses have until August 2. E-filers receive an automatic one-month extension. Cash payment of salaries tax, profits tax, property tax, tax under personal assessment, business registration fees and e-stamping payments are accepted at more than 1,000 convenience stores.

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