If you want to initiate the business and set up company in Hong Kong you should know very well the all surrounded deeds. Firstly, you have to begin dealing with paperwork and perform registration of the future company in Hong Kong. This procedure is hard and can remind you of walking in the nine Hell’s circles and you know nothing about the specifics of Hong Kong corporate taxation.
So, the first thing which should be interesting to you is that HK has a very pleasurable tax law. It has quite low corporate and personal rates. But the hardest problem of this is to understand in the right way and not lose time or money. We suggest to you to familiarize with the business owner’s priority guide. It will explain the payment of a corporate in the city, you will get to know the requirements to it, and you will become familiar with the variants for taxation optimization and the all possible ways of payments.
About the corporate tax
The corporate profit tax is a payment, that is charged by the government from business incomes from the companies. This means that any organization must define the payment destined for the institutions of the state, which depends on different factors. The main factors that influence the tax rate are: company’s type, the system of taxation, the system of deductions, commissions with fees.
Using the fixed tax rate is the most widespread tactics and it varies from 0 to 37%. Some countries apply the progressive scale for defining corporate taxation and it is based on the principle “low tax for low profit, high tax for high profit”.
We can see from the Hong Kong practice a number of differences compared to the other countries. The brightest difference is that the tax systems in Hong Kong control the business owners payments. This means that the strict framework for bills payments were defined regarding Inland Revenue Ordinance (IRO).
Should you pay this tax?
IRO tells us that a company has to pay HK Profits Tax if it satisfies the following conditions:
- It’s caring on a business, trade or profession in HK;
- Business, trade or profession brings the profit;
- A source of the profit is in Hong Kong
According to the 3rd condition, the taxes in HK are defined with the territorial principle. So, if a business has been registered in Hong Kong then it will pay only taxes on profits which have Hong Kong origin. Taxes on profits which comes from any other place mustn’t be paid.
Additionally, the IRO shows the conditions of how the official organization does confirm the profit was paid. The requirements list contains 6 points:
- If the contract of buying and selling affects Hong Kong, then the income is taxable.
- If the contract of buying and selling do not affect Hong Kong, then the income is not taxable.
- If the contract of buying or the contract of selling affects HK, the initial statement is that the income is taxable, but some corespondent facts will be investigated to define the origin of the profits.
- If the contract of sale was made to HK customer (this includes the HK buying office of a foreign customer), the contract considers as Hong Kong related.
- If the contract of the purchase or the sale were created without moving outside the HK and were performed inside the city with help of the phone, internet or another way of distance communication, this means that the contracts will be considered as affecting Hong Kong.
The profit is always considered as 100% taxable or 100% non-taxable in Hong Kong. There is no apportionment here.
How should you pay the corporate taxes in HK
In Hong Kong exists many different ways of corporate taxes paying. Read the following list and choose the best way for you which will have optimal time and money values.
Payment by a phone
If you want to perform the tax payments by phone you have to register a PPS account and make registration of business fee. Also, you will need the TRCs or stamp duty. The most merchants with joined PPS have the PPS terminals which allow you to open a PPS account with an ATM bank card.
You have to register a relevant tax bill before doing a payment because of the different Business Registration Certificate Number (Shroff Account Number) gives for each issued bill. You can dial 18031 for payment and 18011 for registration. Use “10” as a merchant code for Inland Revenue Department (IRD).
Payment through the internet
If you want to make a tax payment through internet banking you should choose the service provider and apply. After a successful application and opening of your internet banking account select bank for payment process and the payment date. The last step is confirming the payment instruction.
Payment through e-Cashier / e-Cheque Order
It is important to perform actions very accurately while paying through E-Cheque, you must be very attentive. You have to visit the “Pay e-Cheque” site and choose IRD with the correspondent bill type, write the billing info and upload e-Cheque for making the tax payment.
The e-Cheque becomes expired if it was issued more than a half year ago. E-Cashier / e-Cheque order which was issued on Monday to Friday before 5:00 p.m. (except for public holidays) will be directed to the bank and will be present on the same day. E-Cashier / e-Cheque order payment received after 17:00 will be postponed to the next day. The tax payment will be valid only if your E-Cashier / e-Cheque order is issued on the first sending to a drawer bank.
Payment through Bank ATM
You can pay through bank ATM at the Hang Seng Bank, HSBC or the JETCO. You have to store the receipt to be able to prove the payment if it’s needed.
Make a payment by post service
Also, the company owner can send a crossed cheque to the address of IRD to make payment by post. Pay small money for post service and send the cheque. It would be better if you would store a payment bill.
Make a payment in person
Also, you can consider the option of personalized taxes payments at the Inland Revenue Department office. Also, there is an opportunity to delegate another person to resolve this issue. It is inevitable if you aren’t in Hong Kong.
Make a payment at Convenience Stores
To make a payment you have to present printed IRD payment voucher. When the payment is completed check for correctness the receipt, especially bill reference number, date and time, amount of payment. Store the receipt of this payment as long as possible and make a copy just in case.
IRD does not issue the receipt for profits tax, salary tax, property tax, tax under personal assessment. But it is possible to request a letter with confirmation of the payment. In that case, you have to obtain a special form from Fax-a-Form Service and submit it. That form is Form IR1273.
Information for overseas taxpayers
There is an opportunity to pay from overseas with two following options:
- By a bank account in HK
- Without the bank account in HK
You can easily pay through Crossed Cheque or the internet if you have a bank account in HK. If you are outside the Hong Kong and have no HK’s bank account you can make a tax payment through Crossed Cheque in an outside bank account, Bank Draft, Arrange Payment in HK either through Telegraphic Transfer or Related Party. We advise you to acquire a legal opinion which confirms the making payment to the existing address in HK, and only after that pay taxes.
The payment rate and its amount
For study purposes, the exchange rate is 1 USD = 7.8 HKD (Hong Kong Dollar). The growing rates of taxes imposed on an abstract company owner’s income in HK.
You should know that SAR Hong Kong monitors your company’s activity. The authorities can give you a back-up if you have a clean credit and payment history. You can acquire a taxes holiday and up to 12 percents chargeback. It is available only for private companies or individual. As for public corporations, they have no chances to receive the chargeback. The only exception is over-paid taxes for a period of three months in a row.
It was a detailed guide which explains the taxation system in Hong Kong and the payment systems related to it. Although it’s very detailed, we advise you to contact professional lawyers to be more confident. They will always help you with opening business in HK and help you to pay taxes according to the HK laws.