The Scope of the Charge

Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong, are chargeable for tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is therefore no distinction made between residents and non-residents. A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong. The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely one of fact, however some guidance on the principles applied can be found in cases which have been considered by the Hong Kong Courts and the Privy Council. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

If a person sells his flat or any property as part of a scheme of profit-making, it would be regarded as a business and he would be required to pay tax on any profit he may make.

Basis Period

The Basis period is either:

(1) the year ending 31 March during the relevant year;

(2) when the annual accounts are made up to any day other than 31 March, the year ending on that day in the relevant year;

(3) when the accounts are made up for each lunar year, the lunar year ending in the relevant year;

(4) when you have commenced or ceased to carry on a business or changed its accounting date, the special period prescribed by Sections 18C, 18D or 18E of the I.R.O.;

(5) in the case of commencement, if accounts for this period have not been prepared, the profits to be returned may be calculated by apportioning the profits shown by the accounts which cover the period; or

(6) in the case of cessation/transfer of business, special rules apply:

- when the business does not cease but, in whole or in part, is transferred to or carried on by another person;

- in the case of cessation occurring on or after 1 April 1979 of a business which commenced before 1 April 1974.

Profits Tax Rate

(1) Normal rate (for the year of assessment 2003/04) Corporations: 17.5%
Unincorporated Businesses: 15.5%
For tax rates for the last 7 years.

(2) Concessionary rate
A tax rate of 50% of the normal profits tax rate will be applied to trading profits and interest income received or derived from qualifying debt instruments issued in Hong Kong, and to the offshore business of professional reinsurance companies.

All taxpayers are subject to the same corporation or unincorporated business tax rate irrespective of their residential status.

However, any permanent or temporary resident of Hong Kong, except a person under the age of 18 (unless both his/her parents have passed away) may obtain relief from the standard rate of tax on his/her profits and income by electing to be assessed under Personal Assessment. An election may offer relief where the tax computed under Personal Assessment is less than the aggregate amount of the tax charged separately under Profits Tax, Salaries Tax and Property Tax.