Hong Kong has a reputation for being a great place to run a company or conduct business.
The country has one of the highest levels of economic freedom, features a very effective banking system, and if your business operates outside of Hong Kong, is a tax-free zone. it is possible that you, as a business, will pay yourself a director fee or a salary.
In this case, you should file your personal taxes as well.
It’s important to learn everything you’ll need to know about filing taxes in the country first.
Keep reading to learn 7 essential tips for filing personal taxes for your business in Hong Kong.
1. Know the Calendar
One of the trickiest parts of filing taxes as a business in Hong Kong is understanding the tax schedule.
In the United States, they record taxes on a January to December calendar. In the United Kingdom, the start of a new tax year occurs on April 6, ending on April 5 of the following year.
In Hong Kong, the tax year for personal taxes runs from April to March. Keeping track of the different tax years, and understanding which months of income are a part of each tax year for each of the countries that you’re filing in is a must.
To help reduce confusion, it’s a good idea to invest in tax recording software that will help prepare you for the different tax years, or else hire a professional to file your taxes for you. Filing for the wrong months can have costly legal consequences.
2. Find Your Rate
This tax tip is for individuals who are working in Hong Kong while running their business. You’ll need to figure out the tax rate that applies to you before you file.
In Hong Kong, the tax rate you pay depends on several different factors.
Understanding which of these factors apply to you allows you to figure out which tax rate you need to pay. This can help you plan ahead to make sure you have enough money to cover your taxes at the end of the tax year.
There are four different progressive tax rates in Hong Kong. This includes a 2 percent rate, a 7 percent rate, a 12 percent rate, and a 17 percent rate. There is also a standard tax rate of 15 percent.
The progressive tax rate depends on an individual’s taxable income. The four progressive rates and the level of income are as follows:
- For individuals that earn between 0 and 40,000 HKD per year, the tax rate is 2 percent.
- For individuals that earn between 40,001 and 80,000 HKD per year, the tax rate is 7 percent.
- For individuals that earn between 80,001 and 120,000 HKD per year, the tax rate is 12 percent.
- For individuals that earn more than 120,001 HKD per year, the tax rate is 17 percent.
Your total taxable income is calculated by subtracting any allowances and deductions from the income earned in Hong Kong during the tax year.
The standard tax rate of 15 percent is another option. This rate applies if your net total income is lower than your net chargeable income.
When filing for your business, you’ll be subject to a standard tax rate of 16.5 percent on net profit.
3. Understand Why Where You’re Employed Makes a Difference
In Hong Kong, you pay taxes only for the income that you earn working in Hong Kong.
If you live full-time in Hong Kong but work for a foreign company, you still have to pay taxes on this income. If you work in Hong Kong for 60 or fewer days in a tax year, you won’t have to pay Hong Kong taxes.
If you’re paying taxes on your income in another nation besides Hong Kong, you may be able to claim those taxes as a deduction in Hong Kong. You will have to provide proof of tax payment in that foreign country to the tax authorities in Hong Kong to be eligible for a deduction.
As a business, you’ll only be eligible to pay taxes for income you earn in Hong Kong. You won’t need to pay taxes on income sourced outside of the country.
4. Check for Exemptions and Deductions
There are a number of exemptions and deductions that apply that will reduce your tax rate or the amount of income that you pay taxes on.
The deduction of taxes paid in another country is one example. Other examples include charitable donations.
If you work and live in Hong Kong – you can also deduct a fixed amount for a living (currently 120 000 HKD per person).
In Hong Kong, you don’t have to pay taxes on inheritance, capital gains, or dividends.
Figuring out which of these exemptions and deductions apply to your business can be confusing. Before you assume that something is deductible, be sure to double check with the IRD. Otherwise, you may end up paying less than you really owe, which could lead to additional fees or legal trouble.
5. Choose Your Method for Paying
In Hong Kong, taxes are filed with and paid to the Inland Revenue Department or IRD.
Tax returns are usually issued on the first business day in May. You’ll then have one month to return it to the IRD.
You can file taxes electronically, making it easy to pay your Hong Kong business taxes no matter where you are in May of each year. You can also mail your return to the IRD.
Even if you don’t have any taxable income for that tax year, you’ll need to file your taxes at a zero income rate.
6. Opt-in for Installments
If your business didn’t put away enough to cover your taxes for that year, you may be able to pay in installments instead. This helps to offset costs, while still filing taxes to avoid legal trouble.
To be eligible to pay your business taxes in installments, you’ll need to apply to the IRD. If you aren’t granted installments, you may be able to get a tax loan from a bank or non-bank lender.
7. Get Professional Help
If you do business in more than one nation, filing taxes in each country and keeping track of your taxable income can be a challenge.
To make the process of filing taxes less stressful, and to avoid costly fees and legal trouble, it’s a good idea to get professional help dealing with your business’ taxes.
Filing Taxes in Hong Kong
Filing taxes in Hong Kong doesn’t have to be a challenge.
In fact, the nation has gained a reputation for being a great home base for companies looking to do business in Hong Kong or anywhere else in the world.
If you’re starting a business in Hong Kong, considering moving operations there, or are already doing business there and are in need of some help, we can help. Contact us today for a free consultation to see how we can help improve your business operations.
Photo by Jason Wong on Unsplash