2. HONG KONG TAX PLANNING
The territorial concept has been adopted subject to the tax in Hong Kong. Only those profits which are derived from Hong Kong are liable to Hong Kong profits tax. There are some examples in where the profits derived by a Hong Kong company may be treated as offshore sourced and non-taxable in Hong Kong. There are different types of taxes imposed on different types of incomes.
2.1 TAX PLANNING FOR TRADING PROFITS
A Hong Kong company sends employees / executives to meet with overseas suppliers and customers to negotiate and conclude the terms of the purchase and sale contracts. It may be possible to claim that the trading profits so derived are non-taxable in Hong Kong.
2.2 TAX PLANNING FOR MANUFACTURING PROFITS
A Hong Kong manufacturing business enters into a processing or assembly arrangement with a Mainland entity. The Hong Kong manufacturing business will provide the raw materials, technical know-how, management, training and supervision provided by the HK entity. It may be possible to follow the decision of court cases to be entitled apportionment of profit to be exempt from being taxable in Hong Kong. A 50:50 apportionment can be made.
2.3 TAX PLANNING FOR SERVICE INCOME
A Hong Kong company provides services partly in Hong Kong and partly outside Hong Kong. It may be possible to claim that part of the service income as those attributable to the services rendered outside Hong Kong are exempt from being taxable from Hong Kong profits tax. IRD looks at the locality of services rendered to generate or derive such an income.
2.4 TAX PLANNING FOR E-COMMERCE INCOME
Recently, e-commerce is a form of business to be increasingly popular in our world. Taxpayers set up their own websites to carry on businesses to engage in the trading of goods, antiques, and different variety of commodities or the provision of services. Some tax issues are triggered even if their websites are set up overseas. Moreover, certain receipts derived from such e-commerce businesses by non-residents are still taxable under IRO. Some important considerations have to look at as to determine whether these incomes are taxable.
2.5 TAX PLANNING FOR MISCELLANEOUS INCOME
Different tax treatments and planning ideas for different varieties of income including royalty, interest income, cross-border land transportation income and service income derived from e-commerce.
2.6 STAMP DUTY TAX PLANNING IN HONG KONG
Stamp duty is a kind of tax which is charged on the documents as evidence for certain kinds of transaction instead of the transactions themselves. In Hong Kong, stamp duty is encountered in respect of the sale or lease of interests in Hong Kong land, buildings and the transfer of shares of HK companies. Moreover, the range of instruments subject to stamp duty is wide and thus professional advice should be sought on every transaction which involves Hong Kong property or shares.
Stamp duty on a conveyance on sale of land and buildings are charged at progressive rates ranging from 0.75% to 3.75% based on the consideration
The rate of stamp duty on an agreement for lease depends on the period of lease- 0.25% of the rent for 1 year or less, 0.5% of the annual average rent lease terms for 1 - 3 years, and 1% for periods in excess of 3 years.
The tax rate for transfers of shares is 0.2% of the consideration (0.1 % each for buyer and seller).
Stamp duty is charged on the market value of a transaction if this is greater than the actual consideration. Consideration includes debts waived and assigned. The principal exemption is for transfers of shares between associated corporations and fulfills the 2 year-period criteria.
Accordingly, stamp duty planning could be implemented to mitigate the stamp duty liabilities on different cases and circumstances.