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Territorial Taxation under the Source Principle
Hong Kong companies pay 16.5% corporate tax unless the profit-making activities are non-Hong Kong source. In these circumstances there is an effective 0% rate taxation.
The territorial tax system adopted by Hong Kong means that all profits derived from Hong Kong source activities are taxed at the corporate tax rate of 16.5%.
Conversely this means that all profits derived from activities which are deemed to be of non-Hong Kong source are effectively excluded from Hong Kong corporation tax liability.
- This allows for the effective use of Hong Kong in many corporate structures including, but not limited to, the following business activities:
- Income from services performed outside of Hong Kong
- Royalties from IP registered and licensed outside of Hong Kong
- Investment income derived from non-Hong Kong situated assets
- Rental income from property situated outside of Hong Kong
- Profits from sale of real estate situated outside of Hong Kong
Profits realised from the above activities will not only be exempt from corporation taxation but as there are no withholding taxes on dividends the profits can be retained or paid onwards freely.