The meeting takes place in an undisclosed hotel room in Hong Kong…
Head Tax Native:
Secret Private Client Adviser in
Hong Kong, your mission, should you choose to accept it, is to educate us on the practical tax considerations in Hong Kong.
This task requires a delicate balance of expertise and discretion. Be warned, should your real identity be revealed during this covert operation, you will be disavowed by the Tax Natives and shunned by your fellow private client advisers. Do you accept?
Secret Private Client Adviser in HK:
I accept.
Head Tax Native:
[Leaning forward with curiosity] Could you enlighten us on how an individual becomes subject to tax in Hong Kong?
Secret Private Client Adviser in HK:
[Nods, picking up a glass and sipping thoughtfully] Of course. In Hong Kong, taxation is based on the territorial source principle. Individuals are taxed on income and profits that are derived in Hong Kong, irrespective of their domicile and nationality.
The individual’s residence is only considered when seeking relief under a double taxation arrangement.
[Pauses as room service arrives with refreshments] Whether income and profits are derived in Hong Kong is determined by the facts of each case.
TN:
[Accepting a cup of coffee] What taxes apply to an individual's income here?
Secret Adviser:
[Setting down the glass] In Hong Kong, salaries tax is applied to income arising or derived from any office, employment, profit, or pension. It encompasses all forms of benefits, including salaries, commissions, bonuses, and more.
[There is a distant crash from next door, causing a brief moment of distraction]
The tax is calculated at progressive rates up to 17% or at a standard rate of 15%, depending on which is lower. Individuals are also entitled to various allowances and can claim deductions for specific expenses.
TN:
[Glancing towards the noise, then refocusing] Are there other types of taxes that individuals should be aware of?
Secret Adviser:
[Unperturbed by the noise] Yes, besides salaries tax, individuals engaged in business or owning property in Hong Kong face profits tax and property tax, respectively.
[Smiles slightly] There’s also a personal assessment option for those subject to multiple taxes. Notably, Hong Kong does not impose tax on dividends, interest, or lottery winnings.
TN:
[Leans back, intrigued] How is capital gains tax handled?
Secret Adviser:
[Gestures with hands for emphasis] Hong Kong does not levy a capital gains tax. However, profits from asset disposals in Hong Kong might be subject to profits tax.
TN:
[Pensively tapping a finger on the table] What about the taxation of lifetime gifts?
Secret Adviser:
[Nodding in affirmation] Lifetime gifts are not taxed, but stamp duty applies to voluntary transfers of property or stock.
TN:
[Looking up as a waiter passes by] Can you tell us about inheritance tax?
Secret Adviser:
[Leans forward] There is no inheritance tax or estate duty in Hong Kong for deaths after February 11, 2006.
TN:
[Sipping coffee] What taxes are applicable to real property?
Secret Adviser:
[Counts off on fingers] Property tax is charged on rental income from real property. Stamp duty is also applicable on property transfers and leases, with varying rates based on several factors.
TN:
Are there taxes on importing or exporting non-cash assets?
Secret Adviser:
[With a confident tone]
Generally, Hong Kong maintains a free trade policy. Most imports are tax-free, with certain exceptions like liquors and motor vehicles.
TN:
[Raises an eyebrow] Any other taxes that are particularly relevant?
Secret Adviser:
Profits tax is significant for individuals running a business in Hong Kong, with rates depending on the amount of assessable profits.
Additionally, there's a 2023 tax concession scheme for family-owned investment vehicles managed by single-family offices.
TN:
[Glancing briefly at a watch] What about trusts and asset-holding vehicles?
Secret Adviser:
[Nods affirmatively] Trusts in Hong Kong are taxed as separate entities. They are liable for profits tax and property tax based on their activities and holdings. Stamp duty also applies to their transactions involving properties or stock.
TN:
How does taxation work for charities?
Secret Adviser:
[With a sense of pride] Charities recognised by the Inland Revenue Department are exempt from taxation. Donations to these charities are tax-deductible.
TN:
[Checks phone for a moment, then looks up] Finally, could you elaborate on anti-avoidance tax provisions?
Secret Adviser:
The Inland Revenue Ordinance contains provisions to address artificial or fictitious transactions and transactions designed primarily for tax benefits. These can be disregarded or recharacterized by the IRD to prevent tax avoidance.
[The interview concludes as the sounds of the bustling city filter in from outside]
Mission extraction
If you have any queries about this top secret interview on private client tax in Hong Kong, or HK tax matters in general, then
please get in touch