Tax

China Tax

One of the major issues faced by many enterprises in China is the emphasis placed on negotiation with authorities on the tax compliance process. Successful negotiation requires a comprehensive understanding of the tax system and the ability to reach a mutual understanding with the tax authorities.

We provide the following range of tax services:

• PRC corporate (Business tax, VAT, income tax) and individual tax services

• Corporate reorganization and tax planning

• Resolving disputes with tax authorities

• Cross border and international tax planning

• Assisting in setting up joint ventures, Wholly Foreign Owned Enterprises and representative offices

• Investment in mainland China

• Tax registration and compliance

• Transfer pricing review and advance pricing agreements

Hong Kong Tax

The structure of taxation in Hong Kong is relatively simple. Hong Kong imposes income tax on a territorial basis. This means that generally income is only taxed in Hong Kong if it arises in or derives from Hong Kong. There are three main direct taxes:

• Profits tax

• Salaries tax

• Property tax

Any income that is not within any one of these categories is not subject to tax. Hong Kong does not impose any payroll, turnover, sales, value-added or capital gains taxes.

Profits tax

A person who carries on a trade, profession or business in Hong Kong is chargeable to profits tax on the profits from that trade, profession or business which arise or are derived from Hong Kong. Profits Tax is currently levied at the rate of 16%. Expenses incurred in earning assessable profits may be deducted and there is a scheme of depreciation allowances for fixed assets

The question of source is one of fact and there is a sizeable base of case law as to the basis giving rise to taxable income. For a Hong Kong company, care is required to be taken when structuring transactions. Advice must be sought on the circumstances of each case. To obtain certainty concerning this and other tax issues, taxpayers may apply to the Inland Revenue Department (IRD) for advance rulings on the tax implications of a transaction, subject to payment of certain amounts and compliance with other regulations.

A substantial number of funds flowing through Hong Kong may be treated as offshore-sourced. A Hong Kong business is not subject to profits tax on profits sourced outside Hong Kong.

Salaries tax

Salaries tax is imposed on all income arising in or derived from Hong Kong from an office or employment. For individuals who visit Hong Kong for periods of less than 60 days, no salary tax will fall due. For individuals who are based in Hong Kong but have earnings derived outside the territory, an apportionment may be used. It is recommended to obtain professional advice on complex situations.

Property tax

Property tax is charged on the owner of any land or buildings in Hong Kong at the standard rate of 15% on the net assessable value of such land or buildings.

Administration

Tax returns are issued to taxpayers by the IRD generally on 1 April, the day after the tax year ends on 31 March. Generally, a tax return should be completed and returned within one month of issue unless the taxpayer qualifies for an extension under the block extension scheme. Hong Kong does not operate a self-assessment system.

Individual tax returns are issued to taxpayers by the IRD generally on the first business day of May. Generally, a tax return should be completed and returned within one month of issue. Hong Kong does not require employers to withhold salary tax from payments to employees except in the case where an employee leaves Hong Kong for good or for a substantial period of time.

A profits tax return for a corporation will not be complete unless submitted with accompanying audited financial statements. Generally, a taxpayer within the charge to Hong Kong tax should ask for a return to be issued within four months after the tax year to avoid the imposition of penalties.

Companies generally make two payments of profits tax during the tax year. The first payment consists of 75% of the provisional tax for the current year plus 100% of the final payment for the preceding year. The second payment equals 25% of the provisional tax for the current year. The timing of payments is determined by assessment notices rather than by set dates, generally from November to April of the tax year.

Work Visas

We offer a complete service designed to reduce to a minimum the work that must be performed by your company when applying for a work visa. We will:

• correspond directly with and prepare visa applications on behalf of new employees coming to Hong Kong

• prepare and lodge visa applications when extensions are required in respect of existing employees

• inform the Immigration Department upon the departure of an existing employee

• handle enquiries from the Immigration Department in regard to the processing of applications

• deliver all necessary documentation to the Immigration Department

The service ensures that your company can significantly reduce the resources it must devote to handling Hong Kong Immigration compliance issues.