Hong Kong is providing an attractive business environment with a welcoming taxation system and free trade policies. In the past 180 years, Victoria City became one of the largest trading ports in the world. Profit tax is one of the major income of in this city. As an SME owner, what do I need to pay attention to the profit tax system? We will explain the guides of profit taxes for private limited companies in Hong Kong in the following article.
How does profit tax work in HK?
Profit tax means a percentage of profit from your business that you have to pay to the government. Especially, Hong Kong is adopting a territorial basis for profit tax. No matter local or foreign companies, carried on your business and sourced income in Hong Kong is subjected to the profit tax. Branches are treated in the same way.
What is The Territorial Source Principle of Taxation
You need to pay the tax where your company profits made. You could refer to 2 examples below.
Case 1. Mr. CHAN is a Hong Kong citizen, and he has a Hong Kong registered company and his office is located in Netherland. Also, his products and market are only in Netherland. Then he only needs to pay Netherland taxes.
Case 2. Tommy is a Dutch and he owned a Hong Kong registered trading company and office in HK. However, his clients are majorly coming from European. He also needs to pay the taxes in HK cause his operation teams are working in HK.
Reviewing these 2 examples, both owners are benefited from Comprehensive Double Taxation Agreements. According to this agreement, it prevented double taxation and fiscal evasion between HK and other international tax administrations. That is the reason why you need to pay profit tax to the HK government if your company has profits in the financial year.
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