27 Aug 2009

Income sourced within Hong Kong

by Darren

In Hong Kong there is no general income tax that requires the aggregation of all income from all sources for which tax rates are applied. There are 3 general forms of Taxation property tax, profits tax and salaries tax. Section 14 of the Internal Revenue Ordinance (Tax Law) requires 2 conditions to be met in order for tax to be charged on profits or salary:
  • A person is carrying on a business, trade or profession in Hong Kong
  • Income is derived from Hong Kong
What is important here is understanding whether the profits or income arise in or derived from Hong Kong. If your business can prove that the profits didn't arise in Hong Kong then they will not be subject to taxation. If you have incorporated your company Hong Kong, your registered office or business premises are in Hong Kong then you will be treated as having carried on a trade, profession or business in Hong Kong. Income that the business earns from sales to Hong Kong companies, individuals in Hong Kong would be subject to tax in Hong Kong. However, if your business makes sales or trades with a company in another country like Australia then the income from such sales would not be subject to Hong Kong tax. This is because under common law the source of income from trading is generally where the sales contact is entered into. As a general guide the following types of income would be deemed to be Hong Kong sourced: Employment income from a contract entered into in Hong Kong. Sales to a Hong Kong business or individual Interest earned on a bank account held with in Hong Kong Royalty or license fee income received by a Hong Kong company who is the owner or has an interest in the intellectual property Over the next few weeks we will examine the taxation of Hong Kong profits in more detail

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