A person carrying on a trade, profession or business is taxable on profits arising in or derived from Hong Kong. For 2014-2015, the standard rate applicable to persons other than companies will remain at 15%; the profits tax rate for corporations will remain at 16.5%. This is one of the lowest rates around the world.
Losses can be carried forward to set off future assessable profits without a time limit.
Depreciation allowance for machines or capital investments: initial allowance of 60% and annual allowance of 10%, 20% or 30% of residual value, depending on the category to which the asset belongs. Expenditure on plant & machinery specially related to manufacturing, computer hardware and software, and eligible specified Environmental Protection Facilities (machinery & vehicle) is fully deductible. For new industrial buildings, the initial depreciation allowance is 20%, followed by an annual depreciation allowance of 4%. For environment-friendly installations forming part of a building or structure, 20% deduction will be allowed for each year in five consecutive years.
A person is subject to salaries tax on his or her Hong Kong-sourced employment income, any income from an office held in Hong Kong and any Hong Kong pension. The standard rate will remain at 15% for 2014-2015. The basic and married personâ€™s allowances are HKD120,000 and HKD240,000 respectively for 2014-2015. Married persons who both earn taxable income are typically taxed separately, but they may elect to be taxed jointly. The entitlement period of home loan interest deduction of up to HKD100,000 per year per property is 15 years of assessment whether continuous or not.
The standard rate (for non-corporate owners) will remain at 15% of the net assessable value for 2014-2015 and the net assessable value is calculated as the amount of rental income less allowable deduction less a statutory 20% allowance for repairs and outgoings.
Liability to tax
Under territorial source system, only income or profits arising in or derived from Hong Kong are taxable. The rules for determining whether or not the source of any particular type of income is within or outside Hong Kong, are based on case law. The Government has reached an understanding with the Government of the Peopleâ€™s Republic of China regarding tax relief for Hong Kong companies, in order to avoid double taxation. Also, individual income derived by a Hong Kong resident from the Mainland, will not be subject to mainland individual income tax if that resident stays there for a period not exceeding 183 days in any 12-month period commencing or ending in the taxable period concerned.
Other fiscal levies in Hong Kong include Stamp Duty, Royalty Tax and Air Passenger Departure Tax.