Hong Kong has adopted the following principles in formulating tax policy -
Low and simple tax regime
We only levy taxes on business profits under profits tax, property rental income under property tax and employment income under salaries tax. Salaries tax rate is capped at 15% whereas profits tax rate for corporations is 16.5%. There is no value-added or sales tax; no capital gains tax; no withholding tax on dividends and interest; and no estate duty in Hong Kong.
Territorial source principle
Only profits/income arising in or derived from Hong Kong is chargeable to tax.
Schedular tax
Unlike a comprehensive income tax regime in which income from whatever sources will be brought into charge of income tax, Hong Kong’s schedular income tax system only levies taxes on business profits under profits tax, property rental income under property tax and employment income under salaries tax. Any income that is not within any one of these schedules or categories is not subject to tax.
Neutrality
When the question of chargeability to tax arises, the same principles will be applied across the board.
Transparent and predictable
Hong Kong maintains a high level of transparency in terms of its taxation policy. The Inland Revenue Department (IRD) regularly issues Departmental Interpretation and Practice Notes for the information of tax practitioners and the general public. The full text of tax laws administered by IRD, decisions of the Board of Review and related judgments of the Courts are also published.
Hong Kong has been very supportive of efforts by the international community to promote transparency in tax administration. Hong Kong has been actively conducting negotiations with its trading and investment partners on Comprehensive Avoidance of Double Taxation Agreements, which is conducive to reducing tax burdens on individuals and enterprises and eliminate uncertainties over tax liabilities.