Articles

Tax Advisory Department

Tax Advisory Department

By Anna Chan, Partner

To suppress the overheated property market, the Hong Kong government announced on 4 November 2016 that a flat rate of 15% would be levied on residential property transactions with effect from 5 November 2016 to replace the old rates for ad valorem stamp duty (“AVD”) (originally ranging from 1.5% to 8.5% depending on the value of the property).  The new rate however will not cover non-residential properties such as car parks and industrial properties.The new AVD will be applicable to residential property transactions by individuals and companies, unless an exemption applies.  All previous exceptions continue to apply. In particular, where a residential property is (i) acquired by a Hong Kong Permanent Resident (“HKPR”); (ii) acting on his/her own behalf; and (iii) does not own any other residential property in Hong Kong at the time of acquisition, a lower rate under Scale 2 annexed hereto (at a range from HK$100 to 4.25% of property value) would apply. Scale 2 is also applicable in the following circumstances:-

  • acquisition of a residential property by a HKPR jointly as a co-owner with close relatives (i.e. spouse, parents, children, brothers and sisters) who are not HKPR and each of the purchasers is acting on his/her own behalf and does not own any other residential property in Hong Kong at the time of acquisition;
  • acquisition or transfer of residential properties between close relatives, irrespective of whether they are HKPRs and whether they are beneficial owners of any other residential property in Hong Kong at the time of the acquisition or transfer;
  • nomination of a close relative (irrespective of whether they are HKPRs or not) who are owners of other residential property in Hong Kong at the time of nomination, to take up the assignment of a residential property;
  • acquisition or transfer of a property by a court order or pursuant to a court order, which includes a foreclosure order obtained by a mortgagee whether or not it falls under the definition of a financial institution within the meaning of section 2 of the Inland Revenue Ordinance (“IRO”); and
  • transfer of a mortgaged property under a conveyance to/in its mortgagee that is a financial institution within the meaning of section 2 of the IRO or a receiver appointed by the mortgagee.

Further, no AVD would be charged in the following circumstances:-

  • transfer of a property to a beneficiary of the estate of a deceased person in accordance with that provided under a will or the law of intestacy; or acquired the property by the right of survivorship; nomination of close relatives (regardless of whether they are HKPRs or not) who do not own any other residential property in Hong Kong at the time of nomination; and
  • gift of properties received by charitable institutions exempted from tax under section 88 of the IRO.

Those who own a residential property at the time of acquiring the new one and pay for the higher stamp duty but subsequently sell the original property within 6 months, may apply for refund of overpaid AVD from the Inland Revenue Department.

Rates under Scale 2

Consideration / Market Value Rates Maximum amount
Up to HK$2,000,000 HK$100 HK$100
HK$2,000,001 – HK$2,351,760 HK$100 + 10% of excess over HK$2,000,000 HK$35,276
HK$2,351,761– HK$3,000,000 1.5% HK$45,000
HK$3,000,001 – HK$3,290,320 HK$45,000 + 10% of excess over HK$3,000,000 HK$74,032
HK$3,290,321 – HK$4,000,000 2.25% HK$90,000
HK$4,000,001 – HK$4,428,570 HK$90,000 + 10% of excess over HK$4,000,000 HK$132,857
HK$4,428,571 – HK$6,000,000 3% HK$180,000
HK$6,000,001 – HK$6,720,000 HK$180,000 + 10% of excess over HK$6,000,000 HK$252,000
HK$6,720,001 – HK$20,000,000 3.75% HK$750,000
HK$20,000,001 – HK$21,739,120 HK$750,000 + 10% of excess over HK$20,000,000 HK$923,912
> HK$21,739,120 4.25% N/A

Source: Inland Revenue Department

For a deeper discussion or any enquiry, please contact one of our members of the tax advisory team.

Gordon Oldham
Senior Partner

(852) 2522 6763

gdoldham@oln-law.com

Anna Chan
Partner
LL.B.(Hons)
Master of Professional Accounting

(852) 2868 0696 anna.chan@oln-law.com

Jonathan Lam
Associate
LL.B.(Hons)

(852) 2868 0696 jonathan.lam@oln-law.com

Victor Ng
Associate
LL.B.(Hons)
CPA

(852) 2868 0696 victor.ng@oln-law.com

Joey Chan
Master of Professional Accounting
CPA

(852) 2868 0696 joey.chan@oln-law.com

Terence Siu
CPA

(852) 2868 0696

terence@oln-law.com

K.F. Yan
CPA

(852) 2868 0696

kfyan@sg-cs.com

Disclaimer: This brochure is for reference only. Nothing herein shall be construed as legal advice to any person. Oldham, Li & Nie shall not be held liable for any loss and / or damage incurred by any person acting as a result of the materials contained in this brochure. Rates might vary from time to time.

 

PRC Individual Income Tax

Friday, 18 September 2015 19:44

The individual income tax (“IIT”), under the PRC’s Individual Income Tax Law (“IITL”), is imposed on the taxable income earned by individuals who reside in the PRC or have derived PRC sourced income. In the PRC, a tax year runs from 1 January to 31 December.

 

1. General Scope of Charge

PRC residents who are domiciled in the PRC are subject to IIT on their worldwide income.

Non-PRC residents are subject to the IIT if their stay in the PRC is:-

  • Less than or equal to 90 days

Such non-PRC residents would be exempted from IIT on their employment income, provided that the employment income is paid or borne by an employer outside the PRC, and not by any establishments or sites in the PRC owned by the employer.

For non-PRC residents whose resident country (region) has signed a double taxation agreement (“DTA”) with the PRC, e.g. Hong Kong residents, the 90-day’s limit would be extended to 183 days.

  • More than 90 days (183 days for DTA country resident) but less than one full year

IIT would be chargeable on PRC sourced employment income derived by non-PRC residents.

  • More than or equal to one full year but less than five consecutive years

Such non-PRC residents would be subject to IIT on their PRC sourced income and the portion of foreign sourced income that is paid or borne by a Chinese domestic enterprise.

  • More than or equal to five consecutive years

IIT would be charged on worldwide income of such non-PRC residents from the sixth year onward if they live in the PRC for any five consecutive full years.

 

2. Income Chargeable to IIT

IIT is chargeable on the following eleven categories of income:

  • Income from wages and salaries;
  • Income from production and business operation;
  • Income from the operations of contracting, subcontracting, leasing or subleasing;
  • Income derived by an individual who acts as an independent contractor;
  • Income from author’s remuneration;
  • Income from royalties;
  • Income from interest, dividends and bonuses;
  • Income from lease of property;
  • Income from transfer of property;
  • Contingency income such as winnings and awards; and
  • Other taxable income specified by the Ministry of Finance.

It should be noted that wages and salaries include bonuses, allowances, subsidies and/or other income received in connection with the employment of the individual. 

 

3. Exemption and Monthly Statutory Deduction

Certain fringe benefits (supported by valid invoices) for non-PRC residents are exempted from the IIT,  including housing allowance, home leave allowance, relocation and moving costs, travel allowance, reimbursement of certain meals, laundry, language training costs, and children’s education expenses in the PRC.  

The prevailing monthly statutory deduction is as follows:-

PRC resident

RMB3,500

Non-PRC resident

RMB4,800

 

4. IIT Tax Rates

The prevailing progressive rates on income from wages and salaries after monthly statutory deduction are as follows:-

Monthly income after deduction

Tax Rate

Up to RMB1,500

3%

RMB1,501 – RMB4,500

10%

RMB4,501 – RMB9,000

20%

RMB9,001 – RMB35,000

25%

RMB35,001 – RMB55,000

30%

RMB55,001 – RMB80,000

35%

More than RMB80,000

45%

 

5. Tax Administration

The employer or the person who pays taxable income to the employee is required to (1) withhold the IIT from income as a withholding agent; and (2) file tax returns and remit the withholding tax to the tax authorities on behalf of the employee on a monthly basis. The above must be completed within the first 15 days of the following month.

 

Our tax advisory team would be pleased to advise you on your PRC tax exposure and liability thereof.  For further information, please contact any of our tax lawyers listed in this factsheet.

Disclaimer: This factsheet is for reference only.  Nothing herein shall be construed as legal advice to any person.  Oldham, Li & Nie shall not be held liable for any loss and / or damage incurred by any person acting as a result of the materials contained in this factsheet.   

PRC Corporate Income Tax

Friday, 18 September 2015 19:40

1. General scope of charge

Article 1 of the PRC’s Corporate Income Tax Law provides that the following two types of enterprises shall pay Corporate Income Tax (“CIT”) :-

  • a PRC resident enterprise, i.e. an enterprise established in the PRC under the PRC laws, or an enterprise that is established under the laws of foreign countries (regions) but whose place of effective management is in the PRC. 
  • a non-PRC resident enterprise, i.e. an enterprise established under the laws of foreign countries (regions) with the place of effective management located outside the PRC, but which has an establishment or place of business in the PRC, or derives income from sources within the PRC.

Note that enterprises established in Hong Kong and Macao are deemed as non-PRC resident entities provided that their effective management is not located in the PRC.

The residency of an enterprise determines the extent of its income chargeable to CIT. A PRC resident enterprise is subject to CIT on its worldwide income. A non-PRC resident enterprise with an establishment is chargeable to CIT on its PRC sourced income and foreign sourced income which is effectively connected with such establishment in the PRC whilst a non-PRC resident enterprise without an establishment is subject to CIT on the PRC sourced income only.

 

2. Income chargeable to CIT

Revenue, both monetary and non-monetary, derived from the following sources is taxable:

  • the sale of goods;
  • the provision of services;
  • the transfer of property;
  • dividends, profit distributions and other returns on equity investments;
  • interest;
  • rent;
  • royalties;
  • donations received; and
  • other revenue.

 

3. Deduction

Reasonable and related expenses actually incurred by an enterprise, including costs, expenses, taxes, losses and other expenses, are deductible in calculating taxable income for CIT purpose (supported by valid invoices), with the following specifically stated to be  non-deductible items (non-exhaustive):

  • Dividends;
  • CIT;
  • Late payment interest charged on tax underpayment;
  • Fines, penalties, and losses resulting from confiscation of property;
  • Other expenditures incurred that are unrelated to the earning of revenue; and
  • Management fees paid between enterprises.

Expenses

Limit (Rate varies among industries)

Donations

12% of total accounting profits

Staff welfare expenses

14% of the deductible salaries and wages

Staff education expenses

2.5% of the deductible salaries and wages

Entertainment expenses

60% of the actual amount, but not exceeding 0.5% of the sales revenue

Advertising expenses and promotional expenses

15% of the sales revenue (any excess amount may be carried forward and deducted in succeeding tax years)

 

4. Tax payable

Taxable income = Gross Income - Non Taxable Income - Tax Exempted Income - Deductable Expenses - Tax Losses Carried Forward

 

5. CIT tax rates

CIT is levied on enterprises’ net taxable income at the below prevailing tax rates:-

Types of corporate

Tax rates

Ordinary enterprises

25%

Stated-encouraged High-and-New technology enterprises

15%

Small-scale enterprises

20%

Non-resident enterprises

10%

 

6. Tax administration

PRC residents and non-PRC residents with establishment in the PRC should within 15 days after the end of each quarter, file quarterly provisional CIT returns and make the corresponding tax payments, to the local tax bureau where it is registered or its effective management is located.

Within 5 months after the end of each tax year, they are required to file annual CIT returns. Provisional tax payments made can be used to set off the annual CIT liability. Amount overpaid will be refunded.

For non-PRC residents without any establishment in the PRC, 10% CIT payable shall be withheld at source, and the payer shall be the withholding agent. The withholding agent shall withhold the tax upon the time of actual payment or when the payable amount is due or payable. 

 

Our tax advisory team would be pleased to advise you on your PRC tax exposure and liability thereof.  For further information, please contact any of our tax lawyers listed in this factsheet.

 

Disclaimer: This factsheet is for reference only.  Nothing herein shall be construed as legal advice to any person.  Oldham, Li & Nie shall not be held liable for any loss and / or damages incurred by any person acting as a result of the materials contained in this factsheet.   

Hong Kong Stamp Duty

Friday, 18 September 2015 19:36

1. General Scope of Charge

Stamp duty is a tax levied on documents or instruments (as opposed to transactions) under the Stamp Duty Ordinance (“SDO”). Any instruments falling within the prescribed heads of charge is required to be stamped, irrespective of the place of execution of that document.

This factsheet focuses on the discussion on stamp duty in connection with sale of immovable property (under Heads 1) and the sale and purchase of Hong Kong stock (under Head 2).

 

2. Immovable Property in Hong Kong

Sale or transfer of immovable property in Hong Kong may trigger Ad valorem stamp duty (“AVD”), Special stamp duty (“SSD”) and Buyer’s stamp duty (“BSD”), depending on the circumstances. 

  • AVD

AVD is charged on every conveyance on sale (Head 1(1)) and agreement for sale (Head 1(1A)) of immovable property, whether residential or non-residential in Hong Kong. 

With effect from 23 February 2013, stamp duty is chargeable at higher rates (Please refer to Table 1 - Scale 1 annexed hereto) which vary according to the consideration or market value of the property. However, if the property is acquired by a Hong Kong Permanent Resident acting on his/her own behalf and does not own any other residential property in Hong Kong at the time of acquisition, the rates as shown in Table 2 - Scale 2 annexed hereto would apply for the computation of AVD. The seller and the buyer are jointly and severally liable for payment of AVD. 

Upon payment of AVD and stamping of the agreement, the related conveyance (made in conformity of the chargeable agreement) will be chargeable with a fixed stamp duty of $100 only. 

Conveyances on sale or agreements for sale should be submitted for stamping within 30 days after execution. 

  • SSD 

To discourage speculation and curb the overheated residential property market, SSD was introduced on top of AVD by the government.

With effect from 20 November 2010, any residential property acquired on or after 20 November 2010, either by an individual or a company (regardless its place of incorporation), and resold within certain months, will be subject to SSD. It is calculated by reference to the stated consideration or the market value of the property (whichever higher), at the rates (as shown in Table 3 herein) based on different holding periods of the property before disposal. The seller and the buyer are jointly and severally liable for payment of SSD.

  • BSD

Effective from 27 October 2012, unless the property is acquired by a Hong Kong Permanent Resident on his/her own behalf, BSD would be charged at 15% on the stated consideration or the market value of the property (whichever is the higher) in addition to AVD and SSD (if applicable). The buyer is liable to pay the BSD. 

Neither SSD nor BSD applies to the sale of a non-residential property.

 

3. Hong Kong Stock

Stamp duty on documents associated with the sale and purchase of any Hong Kong stock is chargeable on:-

  • stated consideration or the value of the shares bought and sold, whichever is higher); and 
  • Instrument of transfer (HK$5).

The time limit for stamping is shown below:

Executed in

Hong Kong

Executed outside Hong Kong

Contract notes

Within 2 days after execution

Within 30 days after execution

Instrument of transfer

Before execution

Within 30 days after execution

 

4. Exemption and relief

Under Section 45 of SDO, stamp duty relief for conveyance of immovable property, or transfer of Hong Kong stock between associated companies is available when:

  • one of the bodies corporate is the beneficial owner of not less than 90% of the issued share capital of the other; or
  • a third body corporate is the beneficial owner of not less than 90% of the issued share capital of each of the bodies corporate.

The transferor and transferee have to remain associated for at least two years. Failure to satisfy this condition may revoke the stamp duty exemption and stamp duty is payable within 30 days of the change. 

 

5. Penalty for late stamping

A penalty (up to 10 times the duty) may be imposed upon payment of stamp duty where any dutiable instrument is not stamped before or within the specified time limit for stamping.

 

May 2015

Source: Inland Revenue Department

 

Table 1 - Scale 1

Consideration or Market Value

Rates

Maximum amount

Up to HK$2,000,000

1.5%

HK$30,000

HK$2,000,001 – HK$2,176,470

HK$30,000 + 20% of excess over HK$2,000,000

HK$65,294

HK$2,176,471 – HK$3,000,000

3%

HK$90,000

HK$3,000,001 – HK$3,290,330

HK$90,000 + 20% of excess over HK$3,000,000

HK$148,066

HK$3,290,331 – HK$4,000,000

4.5%

HK$180,000

HK$4,000,001 – HK$4,428,580

HK$180,000 + 20% of excess over HK$4,000,000

HK$265,716

HK$4,428,581 – HK$6,000,000

6%

HK$360,000

HK$6,000,001 – HK$6,720,000

HK$360,000 + 20% of excess over HK$6,000,000

HK$504,000

HK$6,720,001 – HK$20,000,000

7.5%

HK$1,500,000

HK$20,000,001 – HK$21,739,130

HK$1,500,000 + 20% of excess over HK$20,000,000

HK$1,847,826

> HK$21,739,130

8.5%

N/A

Table 2 - Scale 2

Consideration or Market Value

Rates

Maximum amount

Up to HK$2,000,000

HK$100

HK$100

HK$2,000,001 – HK$2,351,760

HK$100 + 10% of excess over HK$2,000,000

HK$35,276

HK$2,351,761– HK$3,000,000

1.5%

HK$45,000

HK$3,000,001 – HK$3,290,320

HK$45,000 + 10% of excess over HK$3,000,000

HK$74,032

HK$3,290,321 – HK$4,000,000

2.25%

HK$90,000

HK$4,000,001 – HK$4,428,570

HK$90,000 + 10% of excess over HK$4,000,000

HK$132,857

HK$4,428,571 – HK$6,000,000

3%

HK$180,000

HK$6,000,001 – HK$6,720,000

HK$180,000 + 10% of excess over HK$6,000,000

HK$252,000

HK$6,720,001 – HK$20,000,000

3.75%

HK$750,000

HK$20,000,001 – HK$21,739,120

HK$750,000 + 10% of excess over HK$20,000,000

HK$923,912

> HK$21,739,120

4.25%

N/A

Table 3 - Scale 3

Holding period

Properties acquired on or after 20 November 2010 and before 27 October 2012

Properties acquired  on or after 27 October 2012

6 months or less

15%

20%

More than 6 months but for 12 months or less

10%

15%

More than 12 months but for 24 months or less

5%

10%

More than 24 months but for 36 months or less

N/A

10%

 

Hong Kong Salaries Tax – Employment

Friday, 18 September 2015 19:30

1. General Scope of Charge

Pursuant to Section 8 of the Hong Kong Inland Revenue Ordinance (“IRO”), salaries tax shall be charged on every person in respect of his income arising in or derived from Hong Kong from any office, employment of profit and pension.  Income derived from services rendered outside HK is excluded.  

A year of assessment runs from 1 April to 31 March of the following year.

 

2. Source of Income

In determining the source of an employment, the following three factors (as set out in the Departmental Interpretation and Practice Notes – No. 10) are relevant:-

  • the place where the contract of employment was negotiated and entered into, and is enforceable;
  • the employer’s place of residence; and
  • the place of payment of the employee’s remuneration.

It should be noted that the above factors only serve to provide some practical guidance and the Inland Revenue Department (“IRD”) may from time to time look beyond these three factors by adopting a totality of fact approach to ascertain the source of an employment. 

 

3. Hong Kong Employment vs Non-Hong Kong Employment

Generally, if an employment is found to be Hong Kong sourced, income from such employment is either fully taxable or fully exempted as there is no time apportionment of the income from a Hong Kong sourced employment.  

Income from a Hong Kong sourced employment will be fully exempted if:-

  • an employee renders all his services outside Hong Kong; or
  • an employee is a visitor to Hong Kong and stays in Hong Kong for less than 60 days in a year of assessment.

It should be noted that income from services rendered outside Hong Kong may be exempted for salaries tax whereby tax of the substantially same nature was paid in the territory where those services were rendered. 

If an employment is found to be non-Hong Kong sourced, only income derived from services rendered in Hong Kong will be subject to salaries tax and the taxable amount is typically determined with reference to a time apportionment basis.

 

4. Assessable Income

Under Section 9(1)(a) of the IRO, income from any office or employment includes any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance, whether derived from the employer or others.

The following income (non-exhaustive) is specifically set out in Section 9(1) to be taxable:-

  • payment in excess of the proportionate benefit under a recognised occupational retirement scheme as a result of termination of service; 
  • the rental value of residence provided by an employer; and
  • the gain realized on the grant of share options.

In particular, if accommodation benefits are provided by an employer to an employee, the employee is chargeable on the amount of the rental value which is deemed to be 4%, 8% or 10% of all the employee’s income (depending on the type of accommodation provided) after deducting outgoings and expenses (excluding expenses of self-education).

Income not chargeable to salaries tax includes severance payments and long service payments that are required to be paid under the Employment Ordinance and jury fees etc.

 

5. Allowable Deduction

Section 12(1)(a) provides that all outgoings and expenses, other than expenses of a domestic or private nature and capital expenditure, wholly, exclusively and necessarily incurred in the production of the assessable income shall be deducted from the assessable income of a person for any year of assessment.

The following table summarises the major allowable deduction items under salaries tax for the year of assessment 2014/15:-

Year of assessment 2014/15

Max. limit

HK$

Expenses of self-education

80,000

Elderly residential care expenses

80,000

Home loan interest (15 years)

100,000

Mandatory contributions to recognized retirement schemes

17,500

Approved charitable donations

(Income – Outgoing and expenses – Depreciation allowances) x %

35%

 

Hong Kong Salaries Tax – Employment 

6. Personal Allowances

The following personal allowances are also available under salaries tax for the year of assessment 2014/15:- 

Year of assessment 2014/15

HK$

Basic allowance

120,000

Married person’s allowance

240,000

Child allowance

70,000

Dependent brother or sister allowance

33,000

Dependent parent and dependent grandparent allowance

Aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme

Aged 55 or above but below 60

40,000

20,000

Additional dependent parent and dependent grandparent allowance

Aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme

Aged 55 or above but below 60

40,000

20,000

Single parent allowance

120,000

Disabled dependant allowance

66,000

 

7. Salaries Tax Payable

Salaries tax payable is calculated as the lower of:

  • Net chargeable income (i.e. assessable income after deductions and allowances), charged at progressive rates; or
  • Net income (i.e. assessable income after deductions but before allowances), charged at standard rate (currently 15%).

Net chargeable Income

Tax rate

First HK$40,000

2%

Next HK$40,000

7%

Next HK$40,000

12%

Remainder

17%

8. Personal Assessment

Personal assessment may be elected by a person who is:

  • aged 18 or above, or under that age if both parents are deceased; and
  • a permanent or temporary resident of Hong Kong.

Personal assessment computes tax liabilities of an individual by aggregating that individual’s taxable income under salaries tax, property tax and profits tax. It may reduce the total tax payable of the individual. 

 

9. Joint Assessment

A married couple with employment income can choose to be assessed as separate individuals or under joint assessment. 

Joint assessment can be advantageous for a married couple if one spouse has an entitlement to allowances that exceeds his or her net assessable income.

 

10. Filing Obligation

When Tax Return – Individuals (Form BIR60) is issued by the IRD to an individual, it should be completed and filed to the IRD within 1 month or 3 months (if the taxpayer solely owned any unincorporated business).  The IRD may issue an estimated assessment, impose penalty or even take legal proceedings against the taxpayer if the tax return is not filed to the IRD on time. 

If a taxpayer considers herself or himself to be liable to salaries tax for any year of assessment but has not received a tax return, she or he is obliged to notify the IRD in writing her or his chargeability to tax within 4 months after the end of the basis period for the year of assessment concerned.

 

11. Tax Payment

The IRD will issue a notice of assessment to a taxpayer informing her or him of the amount assessed, the tax charged and the due dates of payment. 

If the first instalment is not paid by the due date specified on the notice, the second instalment will become immediately due.  The IRD will normally in his discretion impose a surcharge of 5% on the balance of tax outstanding and a further 10% surcharge on the unpaid amount (including the 5% surcharge) 6 months after the due date. 

Our tax advisory team would be pleased to advise you on your Hong Kong salaries tax exposure thereof.  For further information, please contact any of our tax lawyers listed in this factsheet.

Disclaimer: This factsheet is for reference only.  Nothing herein shall be construed as legal advice to any person.  Oldham, Li & Nie shall not be held liable for any loss and / or damages incurred by any person acting as a result of the materials contained in this factsheet.   

 

May 2015

Source: Inland Revenue Department