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BEPS in Hong Kong

BEPS in Hong Kong 

I. Tax Heaven?


  • "TAX HEAVEN" generally refers to countries or regions with very low tax rates, or even completely exempted from taxes. This has become a treasure of many individuals or business organizations.
  • It can be tracked back to1960s. Due to their confidentiality, tax exemption, universally applicable loose and complete British and American laws and regulations, they spread rapidly after the 1990s and become today’s paradise.

II. Hong Kong as a Tax Heaven?

Lesser Tax Types

  • The only taxes payable in Hong Kong are:
    • Profits tax: all profits earned by operating an industry, profession or business in Hong Kong are taxable.
    • Salaries tax: actual taxable income in the tax year is calculated at progressive tax rates
    • Property tax: for rent-collecting owners, if the property has rental income during the tax year, the owner must file a tax return.
    • Stamp duty: taxes levied on written documents, written documents related to the sale of real property located in Hong Kong are also taxed.
    • Import and Export duties: customs duties levied on goods entering and leaving the country, passenger luggage, postal items and gifts.
  • But there is NO WEALTH TAX, such as capital gains tax, interest/dividend tax, inheritance tax, etc!

Low Tax Rate

  • The profits tax rate for the first HK$2 million of the corporation is 8.25%, and the subsequent assessable profits are 16.5%. As for persons outside the corporation of sole proprietorship or partnership business, the two-tier profits tax rates are 7.5% and 15% respectively.
  • The maximum personal salaries tax rate is 15%
  • The property tax rate is set at 15%

All of them are lower than 20% !!! 

Corporate Tax Haven Index - 2019


  • Therefore, according to the Tax Justice Network 2019 report, Hong Kong’s Tax Haven Index ranks 10th, with a share of tax avoidance risk to the global economy of 3.61%, and a full score for the two indicators of the lowest corporate profits tax rate and the lack of anti-avoidance mechanisms.

III. Potential Issues:

  • At present, almost all countries are plagued by the increasingly large-scale tax avoidance behaviour of multinational corporations and wealthy people: these companies and individuals take advantage of the low tax rates, tax relief measures, and loopholes in tax laws and regulations in their own countries and even foreign countries to help themselves. 
  • All kinds of improper means cannibalize important resources used by influenced governments of various countries to pay for basic services, and among them, governments in developing countries have suffered the most.
  •  (EG: A report published by Oxfam in 2016 pointed out that the South African government lost approximately HK$225 billion in taxes due to tax avoidance by multinational companies.)
  • (EG: Peruvian government lost approximately HK$26 billion in 2013 due to tax evasion by multinational companies through the abusive transfer pricing mechanism, which is equivalent to 84% of the country’s annual education expenditure.)

IV. Existing Remedial Measures - BEPS

Abstracts

  • To promote the fair distribution of social resources, it is necessary to evenly distribute taxes and invest in public services.
  • Increased taxation has given countries more resources to support various development plans, especially poverty alleviation programs.
  • Being able to use local resources more flexibly will help the government improve its governance and accountability mechanisms, thereby enabling all citizens to receive fairer treatment and equal opportunities to enjoy public services.

BEPS in Hong Kong

  • The Inland Revenue (Amendment) (No. 6) Ordinance 2018 (the "Ordinance") was passed by the Hong Kong Legislative Council on July 4, 2018,.

BEFS in Hong Kong -Transfer pricing system

  • According to the transfer pricing system, if an affiliated company has a related party transaction that does not comply with the arm's length principle and obtains corresponding Hong Kong tax benefits, the Hong Kong Inland Revenue Department has the right to adjust its profits or loss. ==> All Hong Kong companies( including permanent establishments established in Hong Kong by non-Hong Kong resident companies) are subject to transfer pricing regulations.
  • Hong Kong has adopted severe measures to deter violations of multinational companies, and it establishes a fairer political and economic system to alleviate extreme poverty!!!
    

Reference:

https://www.gov.hk/en/residents/taxes/taxfiling/filing/types/index.htm
https://www.pkf-hk.com/media/10042075/transfer-pricing-%E7%B9%81%E4%B8%AD.pdf
https://www.corporatetaxhavenindex.org/en/introduction/cthi-2019-results
https://fsi.taxjustice.net/en/introduction/fsi-results
https://www.oxfam.org.hk/tc/f/news_and_publication/1368/content_32758tc.pdf
https://www.corporatetaxhavenindex.org/en/introduction/cthi-2019-results

留言

  1. 匿名2020年10月21日 下午6:59

    Hi, I really agree that Hong Kong is not a tax heaven despite its low tax rate because IRD has combated these kinds of practices effortlessly and joined many related International Organization. The MNCs like to use Hong Kong as a base to operate because HK is a place that can connect to mainland China. Although HK tax rate seems low, but our rent are very high, so the operation cost are also expensive compared to other region.

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  2. Unknown2020年10月21日 下午9:42

    Group 2 Lai Wai Ching
    You have raised up to about Hong Kong have an attractive business environment, it is true fact that Hong Kong's open-market policies and free flow of information give it a local business edge with global appeal, allowing the investor to make the most of its low tax rate, zero customs tariff on imported and exported goods, minimal licensing, sound legal and judicial system, and protecting intellectual property. Also Hong Kong a strategic gateway to growing Mainland China markets; a regional financial and logistics hub for expansion across Asia; a stable, highly-efficient, business-friendly cosmopolitan. As a result, companies and workers in Hong Kong enjoy some of the lowest taxes in the world. This is partly because the government has huge fiscal reserves equivalent to more than 12 months of expenditure. The interest received on these reserves is a crucial source of revenue and helps keep the tax burden light.

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