Hong Kong

Market overview

Hong Kong's administration has taken steps to fall in line with international efforts to adopt BEPS measures to counter global tax avoidance and is seeking to implement a relevant legislative framework.

Khoon Ming Ho of KPMG Hong Kong said: "There is increased emphasis on transfer pricing because of BEPS. Hong Kong has to follow the trend because other jurisdictions are looking at transfer pricing and are trying to get a fair share of tax revenue."

Hong Kong's new Chief Executive Carrie Lam, who was sworn in by China's President Xi Jinping on July 1, will have a new tax team to support her in handling taxation issues. The team will also support her legislative agenda, which includes creating tax policies to stimulate the territory's economy.

Philip Wong, a tax partner at Deloitte said: "The government issued a BEPS consultation paper in 2016 announcing its intention to introduce transfer pricing into the Inland Revenue Ordinance. The government, based on the public comments collected on the consultation paper, also issued a report on July 31, setting out the fine-tune position of the proposed law to be introduced later this year."

Wong pointed out that one of the important features of the new tax law will be the TP documentation requirements, including master file, the local file and country-by country reporting (CbCR).

A recent report by the Hong Kong government has proposed that a taxpayer would not have to prepare the master file and local file if one of the two exemption thresholds is met. The first exemption concerns business size and exemption from the master file: the total annual revenue or the total assets of the business must not exceed HK$ 200 million ($25.6 million) per financial year and/or it must not have more than 100 employees. The taxpayer has to meet just two of the three criteria under the first exemption.

The second exemption is based on the related party transactions in a financial year: the transfer of properties should not exceed HK $220 million; transactions in financial assets should not exceed HK$110 million; the transfers of intangibles should not exceed HK$110 million; and any other intangibles should not exceed HK$44 million.

Taxpayers would still have to prepare the CbC report if the consolidated group revenue of the business exceeds HK$6.8 billion. This reflects the OECD's recommendation.

Lu Chen and John Kondos, both partners at KPMG, have said in an International Tax Review article that they expect an increase in cross-border, treaty-related disputes, and the Hong Kong government is proposing to introduce a statutory mechanism to enable the handling of MAPs and arbitration cases in the country.

They also anticipate that taxpayers will increasingly take into account APAs to ensure certainty in inter-company pricing.


Tax authorities

Inland Revenue Department
Revenue Tower, 5 Gloucester Road, Wan Chai, Hong Kong
Tel: +852 2187 8088
Fax: +852 2519 9316
Email: taxinfo@ird.gov.hk
Website: www.ird.gov.hk


Tax rates at a glance

(As of August 2017)

Corporate income tax rate 16.5%
Capital gains tax rate 0%
Branch tax rate 16.5%
 
Withholding tax
Dividends 0%
Interest 0%
Royalties from patents, know-how, etc.
Paid to corporations 4.95/16.5% (a)
Paid to individuals 4.5/15% (a)
Branch remittance tax 0%
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. This is a final tax applicable to persons not carrying on business in Hong Kong. The general withholding tax rate is 4.95% for payments to corporations. For payments to individuals (including unincorporated businesses), the general withholding tax rate is 4.5%. However, if a recipient of payments is an associate of the payer and if the intellectual property rights were previously owned by a Hong Kong taxpayer, a withholding tax rate of 16.5% applies to payments to corporations and, for payments to individuals (including unincorporated businesses), a 15% rate applies.

Source: EY 2017 Worldwide Corporate Tax Guide