On 27 February 2008, the Hong Kong Financial Secretary
presented his budget for the fiscal year 2008–09
against a background of soaring government revenues for the
year ending 31 March 2008. The budget surplus is forecast to
run to a record HK$115.6 billion (US$14.82 billion). It is not
a bad figure for a city of seven million souls.
Investors and taxpayers will benefit from a raft of measures
proposed in the budget. A summary of the major proposals are
set out below.
Measures for Corporate— Company Profits Tax
Reduced from 17.5% to 16.5%
The profits tax rate for corporations will be reduced from
the current 17.5% to 16.5%, with effect from the year of
assessment 2008–09. The rate cut has been widely
anticipated and will serve to enhance Hong Kong's position
as one of the most competitive corporate tax regimes in the
region, especially in light of the general trend among Hong
Kong's neighbours to reduce corporate tax rates.
Additionally, in order to support small and medium
enterprises, the Financial Secretary has proposed a one-off tax
reduction of 75 percent of profits tax for 2007–08,
subject to a ceiling of HK$25,000 (US$3,205). The reduction
will be reflected in the taxpayer's final tax payable for
2007–08. The proposal will benefit all 100,000
companies liable to profits tax.
The Financial Secretary further proposed to waive the
business registration fee of HK$2,600 (US$334) for
2008–09, to benefit all companies.
Tax losses incurred by a company can be carried forward
without time limit.
In order to attract talent from around the world to enhance
Hong Kong's competitiveness as a business destination, as
well as respond to the public's concerns about Hong
Kong's pollution levels, the budget provided measures to
encourage corporate responsibility towards environmental
protection. The budget granted a 100% profits tax deduction for
capital expenditure on environment-friendly machinery and
equipment in the first year of purchase and shortened the
depreciation period for environment- friendly installations,
mainly ancillary to buildings, from 25 years to five years.
Salaries Tax—Salaries Tax Reduced from 16% to
The budget will reduce the standard rate from 16% to 15% and
also widen the tax bands for 2008–09.
Property tax is charged at the standard rate of tax on rent
received less 20% on an owner of land or property in Hong Kong.
The Financial Secretary has proposed reducing the standard rate
from 16% to 15% for 2008–09. Property tax is payable
in addition to rates. Corporations carrying on business in Hong
Kong can also elect to be exempted from property tax and
instead be liable to profits tax.
Rates on Properties
Rateable values are derived from the amount of rent that a
property can be expected to command in the open market. Rates
will remain unchanged at 5% of rateable value. The Financial
Secretary will waive rates for 2008–09, subject to a
ceiling of HK$5,000 (US$641) per quarter for each rateable
The ceiling for tax-deductible donations under profits tax,
salaries tax, and tax under personal assessment will be
increased from 25% to 35% of assessable profits or income for
Hotel Accommodation Tax
The Financial Secretary has proposed to waive the hotel
accommodation tax to further promote tourism and enhance the
competitiveness of the hotel industry.
Duties on Alcoholic Beverages—Waived
Last but not least, duties on wine, beer, and all other
alcoholic beverages except hard spirits are waived. This is
calculated to cut retail prices by possibly 20–30%
and may also help Hong Kong enhance its reputation as a
winetrading centre for Asia.
The above measures proposed by the Financial Secretary will
enhance Hong Kong's competitiveness as a business
destination. Hong Kong has a sound legal system, a free flow of
information, a well established strong and effective global
network, and entrenched intellectual property rights
protection. Hong Kong also boasts an open and highly
cost-effective business environment, and has a huge PRC
(People's Republic of China) market as its hinterland.
These are the key elements for Hong Kong to attract local and
overseas investors. Hong Kong is renowned for being an easy
place to set up a business. In less than one to two weeks, a
Hong Kong company can be up and running. Importantly, each
investor has a wide range of business vehicles to choose from
when wishing to set up business in Hong Kong. All enterprises
are subject to the same rules and low-tax regime.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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Two decisions highlight the need to consider the intricacies of tax law for payments made to employees or ex-employees.
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