This country-specific Q&A provides an overview of Private Client laws and regulations applicable in Hong Kong.
Which factors bring an individual within the scope of tax on income and capital gains?
Hong Kong adopts a territorial source principle of taxation.
An individual would only be brought within the scope of tax on income if such income arises in or derived from Hong Kong. Factors such as residence, habitual residence, domicile, nationality and citizenship are irrelevant.
There is no capital gains tax in Hong Kong.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
There is no capital gains tax in Hong Kong.
Broadly speaking, an individual may be subject to profits tax, salaries tax and property tax.
The year of assessment commences on 1 April of each year and ends on 31 March of the following year.
Persons carrying on any trade, profession or business in Hong Kong are chargeable to profits tax on all profits (excluding profits arising from the sale of capital assets and dividend income) arising in or derived from Hong Kong from such trade, profession or business. Two-tiered profits tax rates apply to corporations and unincorporated businesses with effect from the year of assessment 2018/19. For corporations, the tax rates is 8.25% on the first HK$ 2,000,000 of assessable profits and 16.5% on any part of assessable profits exceeding HK$ 2,000,000. For unincorporated businesses, the tax rates is 7.5% on the first HK$ 2,000,000 of assessable profits and 15% on any part of assessable profits exceeding HK$2,000,000.
Salaries tax is charged on income arising in or derived from Hong Kong from any office or employment of profit at progressive rates from 2% to 17% on the net chargeable income or at the standard rate of 15% on the net income without allowances, whichever is lower. In determining where the source of income or where the employment is located, the Inland Revenue Department will take into account all relevant factors, with particular emphasis on (i) where the contract of employment was negotiated, entered into and enforced (ii) where the employer is resident and (iii) where the taxpayer (ie the employee)’s remuneration is paid to him.
Property tax is charged to the owner of any land and / or buildings situated in Hong Kong, except those (i) owned by the Government, approved charitable institutions or trust of public character or (ii) used for consular purposes. It is computed at the standard rate of 15% on the net assessable vale of such land or buildings. The net assessable value is the value (after deduction of rates paid by the owner and other payments) less 20% statutory allowance for repairs and outgoings. The assessable value is calculated by reference to the actual consideration payable to the owner in respect of the right of use of the property such as gross rent received or receivable and payment for the right of use of premises under license.
Taxpayers are required to complete and return the tax return to the Inland Revenue Department within one month from the date of issue of the return. An extension of 1 month will be given automatically if the return is filed electronically.
The due dates for tax payment is stipulated in the notice of assessment issued by the Inland Revenue Department. Broadly speaking,
i. for profits tax, between November of the year in which the tax return is issued and April of the following year;
ii. for salaries tax, between January and April of the year following the year in which the tax return is issued; and
iii. for property tax, in or after November of the year in which the tax return is issued.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
There is no withholding tax on salaries, interests, dividends or rents, except on:
i. royalties paid to a non-Hong Kong resident company or individual and deduction of such payment is claimed in Hong Kong; and
ii. fees paid to a non-Hong Kong resident entertainer or sportsman for his or her performances in Hong Kong (Entertainers and Sportsmen Fees).
Withholding tax rates for royalties depends on (i) whether the non-Hong Kong resident company or the individual is associated or affiliated to a person subject to profits tax in Hong Kong; and (ii) whether there is a double tax treaty between Hong Kong and the home jurisdiction of the non-resident company or individual. Generally, the effective withholding tax rates are as follows:
i. 16.5% for an associated non-Hong Kong resident company;
ii. 4.95% for a non-associated non-Hong Kong resident company;
iii. 15% for an affiliated non-Hong Kong resident individual; and
iv. 4.5% for a non-affiliated non-Hong Kong resident individual.
For Entertainers and Sportsmen Fees, the relevant withholding tax rates are as follows:
i. 10%, if agreements are made directly with a non-Hong Kong resident entertainer or sportsman or through a non-Hong Kong resident agent who is an individual person or a partnership; or
ii. 11%, if agreements are made with a non-Hong Kong resident agent who is a corporate agent or a corporation.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
There is no wealth tax in Hong Kong.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
There is no estate duty in Hong Kong in respect of deaths on or after 11 February 2006.
There is no gift tax in Hong Kong.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
There is no gift tax in Hong Kong.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Donations to charitable institutions or trusts of a public character may qualify for a tax deduction up to 35% of the assessable income or profits of the donor for salaries tax, profits tax or personal assessment purposes, provided that the aggregate donation must be HK$100 or above.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
In Hong Kong, tax relating to Hong Kong real property is not charged on the real property itself, but on (i) the occupier of; (ii) owner of; and (iii) specific instruments dealing with the real property.
Rates refer to taxes on the occupation of property, and are charged at a percentage of the rateable value of property. All real properties situated in Hong Kong are liable to the assessment of rates. In the absence of any agreement to the contrary, the liability of rates rests with the occupier. For the financial year 2020-2021, the rates percentage charge is 5%. The designated valuation reference date is 1 October 2019 and the rateable values take effect from 1 April 2020.
Government rent is levied on property owners under their land leases from the Government, and is chargeable regardless if the property is occupied. Government rent charged on a property may either be a fixed amount or may vary with changes in the rateable value of the property depending on the type of land lease under which the property is held. The rateable value of a property is generally the estimate of its annual open market rental value at a designated valuation reference date made on the assumption that the property was then vacant and to let. Under the Government Rent (Assessment and Collection) Ordinance, the government rent percentage charge is 3% of the rateable value of the property, and is adjusted according to any subsequent changes in the rateable value.
Stamp duty is chargeable on instruments specified in the First Schedule to the Stamp Duty Ordinance (SDO), which includes instruments relating to transaction in immovable property in Hong Kong, as well as its duplicates and counterparts. Stamp duties applicable to immovable property generally are as follows: –
i. Ad Valorem Stamp Duty (AVD)
AVD is chargeable based on the sale price or the market value of the property (whichever is higher), and payable at the rate under Part 1 of Scale 1 of the SDO (ie a flat rate of 15%, on an agreement for sale for the acquisition of any residential property or a conveyance on sale of such a property (unless the related agreement for sale was executed before 5 November 2016)).
A general exception to AVD is where the purchaser or transferee is a Hong Kong permanent resident (HKPR) acting on his own behalf and he does not own any other residential property in Hong Kong at the time of acquisition of the subject property. In which case the lower rates under Scale 2 (ie 1.5% up to 4.25%) will apply to such agreement/conveyance.
From 12 April 2017 onwards, instruments executed for the sale and purchase or transfer of more than a single residential property will be subject to AVD at the flat rate of 15%. Thus, a HKPR or non-HKPR who acquires more than a single residential property under an instrument will be liable to pay AVD at a flat rate of 15%, irrespective of whether or not he/she is a beneficial owner of any other residential property in Hong Kong on the date of acquisition of the subject properties.
ii. Special Stamp Duty (SSD)
SSD applies to residential property disposed of within 36 months (if the property was acquired on or after 27 October 2012).
SSD will be imposed on top of the AVD at regressive rates from 10% to 20% for different holding periods.
iii. Buyer’s Stamp Duty (BSD)
BSD is payable at a flat rate of 15% on an agreement for sale or a conveyance on sale for the acquisition of any residential property by non-HKPR executed on or after 27 October 2012 on top of the existing AVD and SSD (if applicable).
An exception to that is where the purchaser/transferee is a HKPR acquiring the property on his/her own behalf.
iv. Stamp duty relating to leases or tenancy agreements
Lease, agreement for lease and any other document of similar nature (Tenancy Agreement) are chargeable with stamp duty. The Landlord, tenant and any other persons signing the Tenancy Agreement are liable for payment of stamp duty.
Stamp duty rates depends on the length of the term of the Tenancy Agreement. It ranges between 0.25% and 0.5% of the yearly or average yearly rent for Tenancy Agreements that do not exceed 3 years, and 1% of the yearly or average yearly rent for those that exceed 3 years.
Please refer to the answer to Question 2 above for a discussion on the property tax.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
With a few exceptions, every person carrying on business in Hong Kong must register the business with the Inland Revenue Department and pay the required fee and levy. Business operators may select business registration certificates that are valid for one year or three years.
AVD is chargeable on contract notes for the sale and purchase of Hong Kong stock at the rate of 0.1% of the consideration (or the market value if it is higher) payable by each of the buyer and the seller. In the case of a gift where contract notes are not required, the instrument of transfer is chargeable to a fixed duty of HKD5 each plus the full AVD payable on the value of shares.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
This is not applicable.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
There is no particular pre-entry tax planning in Hong Kong.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
In Hong Kong, the disposal of movable property by Will or intestacy is governed by the law of the deceased’s domicile at death and, in the case of immovable property, by the law of the place where the immovable property is situated.
There are no forced heirship rules in Hong Kong. That said, a person may make a claim under the Inheritance (Provision for Family and Dependants) Ordinance against the estate of the deceased on the basis that the deceased failed to make reasonable financial provision for him or her in the Will.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
There is neither matrimonial property regime nor a regime for property of a civil partnership in Hong Kong.
In the event of a divorce, matrimonial property is divided by the equitable principle prescribed by common law. “Equitable” means the division of assets according to what the court deems to be fair and reasonable having regard to all the circumstances of the case and taking into account factors set out in section 7(1) of the Matrimonial Proceedings and Property Ordinance.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
Please refer to the answer to Question 12 above.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
Please refer to the answer to Question 12 above for details in relation to the treatment of movable and immovable assets with reference to Hong Kong and foreign succession laws.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
Whether an individual should make a Will in Hong Kong depends on (i) the individual’s domicile; and (ii) the nature and location of the assets belonging to such individual. An individual should make a Will in Hong Kong if such individual has:
i. immovable assets in Hong Kong.
ii. movable assets in Hong Kong and is domiciled in Hong Kong or outside Hong Kong.
If the deceased died intestate and domiciled in Hong Kong, the estate of the deceased will be dealt with in accordance with the Intestates’ Estates Ordinance. Please refer to the answer to Question 12 above for the treatment of the deceased’s estate if the deceased died intestate and domiciled outside Hong Kong.
In Hong Kong, the requirements for making a valid Will is that it must be in writing (in English or Chinese), signed by the testator in the presence of at least two witnesses who are above the age of 18 and are not beneficiaries under the Will. That said, a Will may still be valid even if it fails to satisfy the formalities of a valid Will, provided that on application the Hong Kong courts are satisfied that there can be no reasonable doubt that the document embodies the testamentary intentions of the deceased.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Generally, if the deceased domiciled in Hong Kong and died:
i. testate, the executor(s) appointed in the Will shall apply for a grant of probate in respect of the estate of the deceased. The appointed executor(s) are responsible for collecting assets, paying debts, and distributing assets in the deceased’s estate to the beneficiaries (Estate Administration Affairs).
ii. intestate, the administrator(s) shall apply for a grant of letters of administration in the estate of the deceased. The administrator(s) are responsible for the Estate Administration Affairs. The number of administrator(s) required to make such application depends on whether there is a minority or a life interest in the deceased’s estate, and the administrator(s) is determined by Rule 21 of the Non-Contentious Probate Rules.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The most commonly used structures for succession planning in Hong Kong are trusts and companies.
Partnerships are rarely used for succession planning in Hong Kong.
There is no private foundation under Hong Kong law.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
Hong Kong trust laws largely follows the UK trust laws. In Hong Kong, a trust structure can generally be established:
i. by executing a trust deed during the lifetime of an individual. No registration or disclosure is required with any particular authority or regulator.
ii. after proving a validly executed Will (with appropriate provisions creating a “will trust”) before the Hong Kong Probate Registrar upon the death of the testator or testatrix. Once probate is applied for and the Will is lodged with the Hong Kong Probate Registry, the Will becomes a public document.
If a company governed by the Companies Ordinance (CO) is part of the trust structure, the identities and information relating to:
i. the shareholder(s), director(s) and company secretary are accessible by the public; and
ii. the significant controllers (ie those who hold more than 25% of the issued shares in the company), which are documented in a register are accessible by certain authorities or regulators, but not by the public.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
Please refer to the answer to question 19.
There is no ultimate beneficial ownership register in Hong Kong.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Please refer to the answer to Question 2 above for information relating to salaries tax and profits tax. To reiterate, profits tax is only chargeable on profits derived from Hong Kong. Hence, the settlor, founder and the beneficiaries are not subject to tax in relation to gift, gains or income from the trust.
The trustee, on the other hand, is taxable on its trustee fees for acting as a trustee, so as the directors on its directors’ remuneration (if any) for providing directorship services to the underlying companies.
If the trust conducts any trade, profession or business in Hong Kong and engages in any property transactions through underlying companies, then the companies are, like any other standalone companies, subject to profits tax and property tax. For example, if a trust or any of its underlying company acquires a Hong Kong residential property, it will be subject to the same tax treatment set out in question 8 above regardless of the residence status of its director(s) and shareholder(s).
Are foreign trusts, private foundations, etc recognised?
Trusts governed by foreign law are recognised in Hong Kong under the Recognition of Trusts Ordinance which incorporates the Hague Convention on the Law Applicable to Trusts into Hong Kong law. There is however no equivalent legislation in Hong Kong with respect to the recognition of foreign private foundations.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
Assets settled in a properly constituted trust are generally sheltered from claims of creditors of a settlor, as the assets are regarded as the assets of the trust. That said, Hong Kong courts may set aside such settlement if it is satisfied that the settlement of the property into the trust was made with the intent to defraud the creditors. Extensive power reserved by the settlor in the trust deed may also cause the trust to be vulnerable to creditors’ attack.
In the case where a beneficiary has fixed interests in a trust, Hong Kong Courts have the power to make an order for payment of the income (if any) from the trust to a creditor of the beneficiary.
There is no private foundation under Hong Kong law.
What provision can be made to hold and manage assets for minor children and grandchildren?
Assets can be held in a trust (eg bare trust, an interest-in-possession trust and a discretionary trust) by a trustee for the benefit of minor children or grandchildren. Trusts could be created (i) during the lifetime of the settlor or (ii) upon the death of the testator or testatrix through a Will (with appropriate provisions creating a ‘will trust’).
There is no special tax treatment in Hong Kong for trusts set up for minor children and grandchildren.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Individuals are advised to consider creating an Enduring Power of Attorney (EPOA) to appoint attorney(s) to act in relation to their property and financial affairs in Hong Kong in the unfortunate event that they become mentally incapacitated. Unlike a power of attorney, EPOA survives the onset of the donor’s mental incapacity.
The donor may appoint one or more attorney(s) to act either jointly or jointly and severally in dealing with his or her property and financial affairs in Hong Kong. He or she may stipulate the effective date of the EPOA on the date it is signed before the solicitor; on a later specified date; or upon the occurrence of a later event, so long as the formality requirements are complied with:
i. executed in the form prescribed in the Schedule to the Enduring Powers of Attorney (Prescribed Form) Regulation; and
ii. signed in the presence of a Hong Kong qualified solicitor and a Hong Kong registered medical practitioner.
Broadly speaking, the appointed attorney has the power to apply the person’s assets to pay for the donor’s medical and living expenses, and if no restriction is specified in the EPOA in relation to the scope of the attorney’s authority, he or she can pay for the donor’s family’s living expenses and make gifts etc.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
In Hong Kong, a charity can be established through one of the following structures:
a company incorporated under the CO. It could be a company limited by shares or by guarantee or a company incorporated overseas and registered under CO. General compliance requirements include holding annual general meetings, filing annual returns to the Companies Registry, preparing audited financial statements.
an unincorporated association (also known as a society) which may or may not be required to be registered under the Societies Ordinance. A society has no legal status and members are personally liable if assets are not sufficient to meet the liabilities. It is not subject to the same general compliance requirements as a company incorporated under the CO ;
a trust. Trustees can be personally liable, although it is possible to limit their liabilities subject to the restrictions set out in the Trustee Ordinance; or
a statutory body established under a specific Hong Kong Ordinance.
For an institution or a trust to be considered “a charity”, it must be established for purposes which are exclusively charitable. The purpose of which must be one or more of the following:
the relief of poverty;
the advancement of education;
the advancement of religion; and
other purposes of a charitable nature beneficial to the community not falling under any of the preceding heads
Charities would need to separately make an application to the Commissioner of Inland Revenue pursuant to Section 88 of the Inland Revenue Ordinance to obtain tax exemption status. In practice, the Inland Revenue Department will look in favour to activities conducted in Hong Kong or activities that benefit the people of Hong Kong Other than answering to enquiries from the IRD from time to time, tax exempt charities are subject to the same general compliance requirements as companies incorporated under the CO.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
It is expected that Continuing Powers of Attorney Bill will at some point in the future be introduced to the Legislative Council. This is intended to replace the existing Enduring Powers of Attorney Ordinance, extending the scope of EPOA to include matters relating to the personal care of the donor.
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