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香港税法HK Tax Guide

INFORMATION PAMPHLET

A BRIEF GUIDE TO TAXES

ADMINISTERED BY THE INLAND REVENUE DEPARTMENT

2009 - 2010

INLAND REVENUE DEPARTMENT

THE GOVERNMENT OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

A BRIEF GUIDE TO TAXES

ADMINISTERED BY THE

INLAND REVENUE DEPARTMENT

This pamphlet is issued for the general information of persons unfamiliar with the tax legislation in Hong Kong. Being a brief guide, it can only cover the subject very broadly. For further details, reference may be made to our website https://www.wendangku.net/doc/716589201.html,.hk or the relevant legislation.

Table of Contents

Pages TAXATION IN HONG KONG 1 - 29 Profits Tax 1 - 7 The Scope of the Charge 1 - 2

The Basis of Assessment 2

2 - 3

Non-Residents and Agents dealing

Non-Residents

with

Exemptions and Deductions 3 - 4 Incentives 5 Tax

Losses 5 Allowances 6 Depreciation

Books and Records 7 Salaries Tax 7 - 14 The Scope of the Charge 7

The Basis of Assessment 7 - 8

Income of Husband and Wife 8

Deductions Allowed 8 - 10

Tax

Rates 11 Examples 12 - 14

Pages

Property Tax 15

The Scope of the Charge 15

The Basis of Assessment 15

Properties for Owner’s Business Use 15

Allowances 16 - 19

Personal Assessment 20 - 21

Obligations of Taxpayers (Salaries, Profits & Property Tax)

under the IRO

Obligations of Employers under the IRO 23

Completion of Tax Return 24

Charitable Donations 24

Double Taxation 24

Collection of Taxes 25 - 26

MISCELLANEOUS LEVIES 26 - 28

Stamp Duty 26 - 27

Estate Duty 27

Betting Duty 28

Registration of Businesses 28

Hotel Accommodation Tax 28

EV ASION OF TAX - A CRIMINAL OFFENCE 29

Consequence of Filing Incorrect Return 29

ADV ANCE RULINGS 29 FURTHER INFORMATION 29

INFORMATION PAMPHLET

TAXATION IN HONG KONG

Ordinance

(Chapter 112) provides for the levying of three Inland

Revenue

The

separate direct taxes for a year of assessment which ends on 31 March.

The taxes levied under the Ordinance are :-

Profits

Tax

Salaries Tax

Tax

Property

PROFITS TAX

The Scope of the Charge

Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is no distinction made between residents and non-residents. A resident may therefore derive profits from abroad without being charged to tax; conversely, a non-resident may be chargeable to tax on profits arising in Hong Kong. The questions of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong are largely questions of fact. However some guidance on the principles applied can be found in cases which have been considered by the courts in Hong Kong and in other common law jurisdictions.

The following sums are deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong :-

(1) Sums received from the exhibition or use in Hong Kong of

cinematograph or television film or tape, any sound recording or any

advertising material connected with such film, tape or recording.

(2) Sums received for the use of or right to use in Hong Kong a patent,

design, trademark, copyright material, secret process or formula or

other property of a similar nature. Effective from 25 June 2004, sums

received for the use of, or right to use, such property outside Hong

Kong is also taxable, if the sum is allowable for deduction in the hands

of the payers.

(3) Sums received by way of hire, rental or similar charges for the use of

movable property in Hong Kong or the right to use movable property

in Hong Kong.

The profits tax rate for corporations is increased from 16% to 17.5% with effect from year of assessment 2003/04 and reduced to 16.5% from 2008/09. For unincorporated businesses, the profits tax rate is increased from 15% to 15.5% in the year of assessment 2003/04, to 16% with effect from 2004/05 and reverted back to 15% from 2008/09.

Businesses subject to Profits Tax will enjoy a reduction of 75% of the final tax for the year of assessment 2007/08, subject to a ceiling of $25,000 per case.

The Basis of Assessment

Tax is charged on the assessable profits for a year of assessment. The assessable profits for a business which makes up annual accounts are calculated on the profits of the year of account ending in the year of assessment. In the year of assessment itself, a provisional tax is to be paid based on the profits assessed for the preceding year. The provisional payment is applied in the first instance against Profits Tax payable on assessable profits for that year of assessment when agreed in the following year. Any excess is then applied against the provisional Profits Tax payable for that succeeding year.

On cessation of a business (subject to certain circumstances where special treatment would apply), the assessable profits are generally based on the profits for the period from the end of the basis period for the previous year of assessment to the date of cessation. Non-Residents and Agents dealing with Non-Residents

A non-resident is chargeable to tax either directly or in the name of his agent in respect of all his profits arising in or derived from Hong Kong from any trade, profession or business carried on here, whether or not the agent has the receipt of the profits, and the tax may be recovered out of the assets of the non-resident or from the agent. The agent is required to retain from the assets sufficient money to pay the tax.

A non-resident who receives sums described in sub-paragraphs (1) and (2) on page 1 is chargeable to tax in the name of any person in Hong Kong who paid or credited the sums to him; so is a non-resident who receives sums or derives profits directly or indirectly (including the payment of taxes to the Government) from the performance in Hong Kong of an activity by a non-resident entertainer or sportsman in his character as entertainer or sportsman. The person who pays or credits such sums is required at the time he makes the payment or credit to deduct from those sums an amount sufficient to meet the tax due.

required

to furnish quarterly returns to the

are

Resident

consignees

Commissioner of Inland Revenue showing the gross proceeds from sales on behalf of their non-resident consignors and to pay to the Commissioner a sum equal to 1% of such proceeds, or such lesser sum as may have been agreed.

Where a non-resident carries on business with a resident and the business is so arranged that it produces to the resident either no profits or profits less than the ordinary profits that might be expected to arise to an independent concern, the business may be treated as carried on in Hong Kong by the non-resident through the resident as agent.

Where the true profits of a non-resident from a trade, profession or business carried on in Hong Kong cannot be readily ascertained, they may be computed on a fair percentage of the turnover in Hong Kong.

Where the accounts of a non-resident whose head office is outside Hong Kong do not disclose the true profits of a Hong Kong permanent establishment, the profits of the branch for tax purposes is taken to be the amount which bears to the taxpayer’s total profits the same proportion as his turnover in Hong Kong bears to his total turnover.

Special provisions are made in the Ordinance for non-resident ship owners and non-resident aircraft owners whose vessels call at locations within Hong Kong waters or whose aircrafts land at a Hong Kong airport. Further details may be obtained from the Department.

Exemptions and Deductions

Dividends received from a corporation which is subject to Hong Kong Profits Tax, as well as amounts already included in the assessable profits of other persons chargeable to Profits Tax (e.g. shares of profits from joint ventures) are excluded from the assessable profits of the recipient.

to the extent to which they have been incurred by the

expenses,

all

Generally,

taxpayer in the production of chargeable profits, are allowed as deductions including :-

(1) Interest on funds borrowed (provided certain conditions are satisfied)

and rent of buildings or land occupied for the purpose of producing the

profits.

(2) Bad and doubtful debts (any recoveries to be treated as income when

received).

(3) Repairs of premises, plant, machinery or articles etc used in producing

the profits.

(4) Expenditure for registration of a trade mark, design or patent and

expenditure on the purchase of patent rights or rights to any know-how

for use in Hong Kong in the production of chargeable profits. No

deduction is, however, allowable in respect of patent rights or rights to

any know-how purchased by a person wholly or partly from an

associated or related person.

(5) Expenditure on research and development including market,

management and business research, design-related expenses and

(6) An employer’s annual contribution to a fund under a recognized

occupational retirement scheme, or annual premium payment in

respect of a contract of insurance under such a scheme, or regular

contributions paid to a mandatory provident fund scheme, or any

provision for these purposes, but limited in respect of any one

employee to 15% of his total emoluments for the relevant period.

(7) Any mandatory contributions paid by a sole proprietor or a partner in a

partnership in respect of his liability to pay such contributions as a

self-employed person under the Mandatory Provident Fund Schemes

Ordinance (Cap. 485) not exceeding $12,000 in a year of assessment,

taking into account deductions already allowed under any other

sections in the Ordinance. However, contributions made for spouses

are not deductible.

(8) Donations of an aggregate not less than $100 made to approved

charities with the restriction that such donation shall not exceed 35%

(25% for years of assessment 2003/04 to 2007/08) of the adjusted

assessable profits.

In computing the assessable profits, deduction is specifically prohibited in respect of the following :-

(1) Domestic or private expenses and any sums not expended for the

purpose of producing the profits.

(2) Any loss or withdrawal of capital, the cost of improvements and any

expenditure of a capital nature.

(3) Any sum recoverable under insurance or contract of indemnity.

(4) Rent of or expenses relating to premises not occupied or used for the

purpose of producing the profits.

(5) Taxes payable under the Inland Revenue Ordinance, except Salaries

Tax paid in respect of employees’ remuneration.

(6) Any remuneration or interest on capital or loans payable to or, subject

to section 16AA, contribution made to a mandatory provident fund

scheme in respect of the proprietor or the proprietor’s spouse or, in

case of a partnership, to its partners or their spouses.

A transfer of certain allowable head office administrative expenses by means of a charge to a local branch or subsidiary in Hong Kong would be allowed as a deduction for Hong Kong tax purposes, to the extent to which they were incurred during the basis period for the year of assessment in the production of profits chargeable to tax.

Tax Incentives

There are tax incentives in specific areas where this may be necessary to enable us to compete in the region on a level playing field. They include : -

(1) Immediate writing off to be allowed for capital expenditure on plant

and machinery specially related to manufacturing, and on computer

hardware and software.

(2) Capital expenditure on refurbishment of business premises to be

allowed to be written off over five years of assessment.

(3) Tax concessions for gains derived from qualified debt instruments.

(4) Concessionary tax rate for offshore business of reinsurance companies.

(5) Exemption from payment of tax on interest derived from any deposit

placed in Hong Kong with an authorized institution (not applicable to

interest received by or accrued to a financial institution).

(6) Exemption from tax for offshore funds (non-resident individuals,

partnerships, trustees of trust estates or corporations) in respect of

profits derived from transactions in securities, futures contracts,

foreign exchange contracts, etc. in Hong Kong, which are carried out

by corporations and authorized financial institutions licensed or

registered under the Securities and Futures Ordinance. The

non-resident entity must not carry on any other business in Hong

Kong.

(7) With effect from year of assessment 2008/09, accelerated deduction for

capital expenditure on specified environmental protection facilities.

For machinery or plant, 100% deduction will be allowed for the capital

expenditure incurred. For installations forming part of a building or

structure, 20% deduction will be allowed for each year in five

consecutive years.

Losses

Losses made in an accounting year are to be carried forward and set off against future profits of that trade but a corporation carrying on more than one trade may have losses in one trade offset against profits of the other. An individual who incurs a trading loss and who claims Personal Assessment will have the loss allowed as a deduction from his total income.

For gains or losses which are subject to concessionary tax rate, there are special provisions on the adjustment of losses between concessionary trading activities and normal trading activities.

Depreciation Allowances

? Industrial Buildings and Structures

Special allowances are given in respect of capital expenditure incurred on the construction of industrial buildings and structures used in certain trades such as transport, dock, water and electricity undertakings, the manufacture, processing or storage of goods and trades carried on in mills and factories and in farming. An initial allowance of 20% of such capital expenditure is given in the year of expenditure and an annual allowance of 4% of the expenditure is given until the total expenditure is written off. When the asset is disposed of, a balancing allowance or balancing charge is made based on the difference between the disposal price and the written down value on disposal.

? Commercial Buildings and Structures

A building or structure which is not an industrial building or structure but is

nevertheless used for the purposes of a trade, profession or business (other than as stock in trade) can qualify for an annual “commercial building allowance” of 4% of the capital expenditure incurred on the construction of such building or structure.

When the asset is disposed of, a balancing allowance or balancing charge is made based on the difference between the disposal price and the written down value on disposal.

? Plant and Machinery

Allowances on capital expenditure incurred on the provision of plant and machinery for the purpose of producing chargeable profits, except those assets referred to under ‘Tax Incentive’ above, are deducted in arriving at assessable profits :-

(1) An initial allowance at 60% on the cost of plant and machinery.

(2) Annual allowances at rates prescribed by the Board of Inland Revenue on the

reducing value of the asset. The rates are 10%, 20% and 30% according to

the estimated working life of the particular category of plant or machinery.

Items qualifying for the same rate of annual allowance are grouped under one

“pool”.

(3) A balancing allowance based on the unallowed expenditure compared with

moneys received on disposal of the plant and machinery is available on

cessation of a business to which there is no successor. A balancing charge

can, however, arise whenever the disposal proceeds of one or more assets

exceed the reducing value of the whole “pool” of assets to which the disposed

items belong.

Books and Records

All persons carrying on business in Hong Kong are required to keep sufficient records, in English or Chinese, of their income and expenditure to enable their assessable profits to be readily ascertained. There are statutory requirements to record certain specified details of every business transaction. Business records must be retained for at least 7 years after the date of the transaction to which they relate. Any person who fails to keep sufficient records can be subject to a fine of $100,000.

SALARIES TAX

The Scope of the Charge

This tax is imposed on all income arising in or derived from Hong Kong from an office or employment or any pension. In deciding whether income “arises in or is derived from Hong Kong”, it is necessary to establish where the employment, the source of income, is located. “Income arising in or derived from Hong Kong” includes all income derived from services rendered in Hong Kong. Special provisions apply to crews of ships and aircrafts who visit Hong Kong for short spans of time and persons who have paid tax of substantially the same nature as Hong Kong Salaries Tax in any territory outside Hong Kong.

“Income from any office or employment” includes all forms of income and perquisites from the employer and others. Award of shares and share option gain are chargeable income. For share option gains, the gain will be taxable when the option is exercised, assigned or released. Even if the share option is exercised after the employee has left the employment, the gain is still taxable.

Income also includes “rental value” in respect of a place of residence provided rent-free by the employer or an associated corporation of the employer (including cases of reimbursements of rent paid by employees directly to their landlords). If the place of residence provided is a flat or a service apartment, the “rental value” to be included in the assessment is 10% of the total income (after deducting outgoings, depreciation, etc.) from the employer and the associated corporation of the employer. If the place of residence is in a hotel, hostel or boarding house, the rental value is 8% (for 2 rooms) or 4% (for one room) of the total income after appropriate deductions. If the employer provided a flat and specified that it was to be shared by more than one employee, the computation of the rental value is the same as that for a hotel, hostel or boarding house.

From 1 April 2003, provisions relating to tax exemptions in respect of holiday passage and warrant provided by the employer have been repealed. From this date onwards, all holiday journey benefits provided by the employer are chargeable to tax.

The Basis of Assessment

Liability to Salaries Tax is based on the chargeable income of the year of assessment, but the total amount of income for the year cannot be ascertained until the year is past. Hence, the Inland Revenue Department will first demand for payment of Provisional

Any provisional tax paid for a year of assessment is applied firstly against the Salaries Tax payable on the income for that year and if there is excess, apply the excess against the following year’s provisional tax liability.

For example, a taxpayer who commenced employment on 1 July 2008 and earned income for 9 months during year of assessment 2008/09, will be charged provisional tax for 2009/10 and the estimated income will be grossed up to 12 months. If after receipt of the tax bill this taxpayer’s net chargeable income (income - deductions - allowances) is reduced by more than 10% (for instance, he ceased to be employed on 31 October 2009), he may apply for the holdover of provisional tax - at least 28 days before tax falls due.

Under Salaries Tax, taxpayers may claim deductions and allowances. Entitlement to a new allowance is also a ground for applying holdover of tax.

Income of Husband and Wife

A married person is responsible for all aspects of his or her own salaries tax affairs including lodgement of returns and payment of tax assessed. However, if the total tax liability of a married couple is greater than it would have otherwise been when their incomes are aggregated, they may elect to be jointly assessed.

Deductions Allowed

The following deductions are allowable :-

wholly,

exclusively and necessarily incurred in the Expenses

(a)

production of assessable income, not being expenses of a private or

domestic nature and capital nature.

(b) Donations paid to approved charities if the amount is not less than

$100 and with the limitation that such allowance shall not exceed 35%

(25% for years of assessment 2003/04 to 2007/08) of the income after

allowable expenses and depreciation allowances.

examination fees) in connection with a ‘prescribed course of

education’, or on fees in respect of an examination set by the specified

education providers or trade, professional or business associations.

The course and examination must be for gaining or maintaining

qualification for use in any employment.

A ‘prescribed course of education’ is one undertaken at specified

education providers, such as university, college, school, technical

institution, training centre, or a training or development course

provided by a trade, professional or business association or one

accredited or recognised by specified professional bodies or

institutions.

The amount deducted should exclude any amount that has been and will be reimbursed by the employer or any other persons. The maximum amount that can be deducted is as follows:

Year of Assessment Amount

2003/04 to 2006/07 2007/08 and onwards $40,000 $60,000

(d)

Elderly

residential

care

expenses paid by the person or his/her spouse

to a residential care home in respect of the person’s or his/her spouse’s

parent or grandparent. The maximum amount that can be deducted is

$60,000 for a year of assessment for each parent or grandparent. To

be eligible for the deduction, the parent/grandparent must be aged 60

or above at any time in the year of assessment, or under 60 but is

entitled to claim an allowance under the Government’s Disability

Allowance Scheme; and the residential care home must be situated in

Hong Kong and is licensed or exempted from licensing under the

Residential Care Homes (Elderly Persons) Ordinance, or is a nursing

home registered under the Hospital Nursing Homes and Maternity

Homes Registration Ordinances. Should the deduction be allowed to

a person, he or any other person is not entitled to claim dependent

parent/grandparent allowance and additional dependent

parent/grandparent allowance for the same parent/grandparent for the

same year of assessment.

(e) A taxpayer can, for any 10 years of assessment of choice (continuous

or otherwise), claim deductions for “home loan interest” paid on a

home loan for the acquisition of property unit which must be situated

in Hong Kong and must be used as his place of residence during the

year of assessment.

In addition, a taxpayer can claim deductions for “home loan interest”

paid for the acquisition of car parking space, regardless of whether the

car parking space is valued together with the dwelling acquired as a

single tenement under the Rating Ordinance. However, the car

parking space must be located in the same development of the dwelling

in respect of which home loan interest is also claimed for the same

year of assessment and the car parking space must be for use by the

owner.

If a taxpayer is the sole owner of the dwelling/car parking space, the

maximum amount deductible is $100,000 from 2003/04 onwards.

If a taxpayer is a joint owner or tenant in common of the dwelling/car

parking space, the maximum amount deductible for each year is to be

apportioned amongst the joint tenants or tenants in common,

respectively in accordance with the number of joint-tenants or his/her

share of ownership in the dwelling/car parking space.

(f) For mandatory contributions paid to a mandatory provident fund

scheme (MPFS) by a taxpayer as an employee, the maximum

deduction for a year of assessment is $12,000 per individual.

(g) Contributions paid to a recognized occupational retirement scheme

(RORS) are subject to the following restrictions :-

deductible

the lesser of the actual amount

amount

(i) the

contributed to the RORS or the amount of mandatory

contribution that person would have been required to pay had

that scheme been a MPFS; and

(ii) the maximum deduction is $12,000 for a year of assessment.

(The maximum deduction under items (f) and (g) is $12,000 for a year

of assessment per individual irrespective of the number of

employments and businesses.)

Tax Rates

Income after deductions and allowances (net chargeable income) is charged at the following rates :-

Year of

Assessment 2003/04 2004/05 & 2005/06

Net Chargeable Income Rate Tax

Net Chargeable

Income

Rate Tax

$ $ $ $ On the First 32,500 2% 650.0030,000 2% 600

On the Next 32,500

65,000 7.5% 2,437.50

3,087.50

30,000

60,000

8% 2,400

3,000

On the Next 32,500

97,500 13% 4,225.00

7,312.50

30,000

90,000

14% 4,200

7,200

Remainder 18.5% 20%

Year of

Assessment 2006/07 (see Note 1) 2007/08 (see Note 2) 2008/09 (see Note 3) onwards#

Net Chargeable Income Rate Tax

Net Chargeable

Income

Rate Tax

Net Chargeable

Income

Rate Tax

$ $ $ $ $ $ On the First 30,000 2% 60035,000 2% 70040,000 2% 800

On the Next 30,000

60,000 7% 2,100

2,700

35,000

70,000

7% 2,450

3,150

40,000

80,000

7% 2,800

3,600

On the Next 30,000

90,000 13% 3,900

6,600

35,000

105,000

12%4,200

7,350

40,000

120,000

12% 4,800

8,400

Remainder 19% 17%17%

Net Chargeable Income = Income – Deductions – Allowances (see the part on ALLOWANCES) Tax charged shall not exceed the standard rate of tax applied to the net income without allowances, i.e. total assessable income less total deductions only :-

Year of Assessment

Standard

Rate

2003/04

15.5%

2004/05 to 2007/08 16 % (see Notes 1 & 2)

From 2008/09 onwards # 15% (see Note 3)

Note 1: Year of Assessment 2006/07

50% of the 2006/07 salaries tax or tax under personal assessment would be waived,

subject to a maximum of $15,000 per case.

Note 2: Year of Assessment 2007/08

75% of the 2007/08 salaries tax or tax under personal assessment would be waived,

subject to a maximum of $25,000 per case.

(This reduction also covers profits tax and property tax.)

Note 3: Year of Assessment 2008/09

100% of the 2008/09 salaries tax or tax under personal assessment would be waived,

subject to a maximum of $8,000 per case.

Examples(for Year of Assessment 2008/09)

EXAMPLE A EXAMPLE B

Single Income Family

Taxed at

Progressive Rates

Taxed at

Standard Rate $ $ $ $

Employment income of husband 450,0007,000,000

Income of wife Nil Nil 450,0007,000,000 Less : Husband’s deductible

outgoings

3,000 4,000 447,0006,996,000 Add : Value of quarters

10% on $(450,000-3,000) 44,700 Nil

Rent paid to employer 5,00039,700Nil Nil 486,7006,996,000

Less : Donations 4,0005,000 Mandatory contributions to

mandatory provident fund

scheme

12,00016,00012,000 17,000 470,7006,979,000 Less : Married person’s allowance 216,000216,000 Child allowance for 2

children 100,000100,000

Dependent

parent

allowance

for 1 parent 30,000346,00030,000 346,000 Net chargeable income 124,7006,633,000

Tax thereon at progressive rates 40,000@ 2% =800 40,000

@ 2%

= 800 40,000@

=2,800 40,000

@ 7%

= 2,800

40,000@ 12% =4,800 40,000

@12%

= 4,800

4,700@ 17% =7996,513,000 @ 17% = 1,107,210 9,1991,115,610

Tax thereon at standard rate N.A.6,979,000@15% = 1,046,850

Tax payable (Before Tax Reduction) 9,199[Restricted to 15% on

$6,979,000]

1,046,850 Less : 100% Tax Reduction (Restricted to $8,000) 8,0008,000 Tax payable (After Tax Reduction) 1,1991,038,850

Both Spouses Earning Income

EXAMPLE C

Separate Taxation applies :-

Mr.

A Mrs.

$ $

Assessable income after deductions 328,000226,000

Less : Allowances 208,000 108,000

Net chargeable income 120,000 118,000

Tax payable (Before Tax Reduction) 8,4008,160

Less : 100% Tax Reduction ( Restricted to $8,000 ) 8,000 8,000

Tax payable (After Tax Reduction) 400 160

Note : (1) All Child Allowance for 2 children is claimed by Mr. A.

(2) Mr. A and Mrs. A are to be assessed separately and served with separate

notices of assessment.

EXAMPLE D

Joint Assessment may be elected if one spouse has income that is less than the Basic

Allowance :-

Separate Taxation Joint

Assessment

Mr.

B Mrs. B

$ $ Assessable income after

deductions

373,00063,000Mr. B’s assessable income 373,000

Less : Allowances 208,000 108,000Mrs. B’s assessable income 63,000

436,000

Net chargeable income 165,000 Nil Less : Allowances 316,000

Unabsorbed allowance Nil 45,000Aggregated net chargeable

income

120,000

Tax payable 16,050 Nil

Total tax payable

(Before Tax Reduction) 16,050 Total tax payable

(Before Tax Reduction) 8,400

Less : 100% Tax Reduction

( Restricted to $8,000 )8,000 Less : 100% Tax Reduction

( Restricted to $8,000 ) 8,000

Total tax payable

(After Tax Reduction) 8,050 Total tax payable

(After Tax Reduction) 400

Note : (1) All Child Allowance for 2 children is claimed by Mr. B.

(2) The couple may elect to be jointly assessed and reduce their total tax payable

EXAMPLE E

An example in which one spouse earns a substantial amount of income:

(1) Child Allowances claimed by Mr. C

C Mrs. C

Mr.

$ $ Assessable income after deductions 4,508,000328,000

L ess : Allowances 208,000 108,000

Net chargeable income 4,300,000 220,000

25,400

T ax payable (Before Tax Reduction) 676,200(4,508,000

x 15% standard rate)

Less : 100% Tax Reduction (Restricted to $8,000)8,0008,000 Total tax payable (After Tax Reduction)668,200 17,400 Total tax payable $685,600

(2) Child Allowances claimed by Mrs. C

Mr.

C Mrs. C

$ $ Assessable income after deductions 4,508,000328,000 Less : Allowances 108,000 208,000

Net chargeable income 4,400,000 120,000

8,400 Tax payable (Before Tax Reduction) 676,200(4,508,000

x 15% standard rate)

Less : 100% Tax Reduction (Restricted to $8,000)8,0008,000 Total tax payable (After Tax Reduction)668,200 400

Total tax payable $668,600

Note : Mr. C is chargeable to tax at standard rate. If Child Allowances are claimed by Mrs.

C, the total amount of tax to be paid by Mr. and Mrs. C can be reduced from $685,600

to $668,600.

PROPERTY TAX

The Scope of the Charge

charged

on the owners of land and/or buildings in Hong Kong

Tax

Property

and is computed at the standard rate on the net assessable value of the property. The standard rate is 15.5% for year of assessment 2003/04, 16% for 2004/05 to 2007/08 and 15% from 2008/09 onwards.

Property owners subject to Property Tax will enjoy a reduction of 75% of the final tax for the year of assessment 2007/08, subject to a ceiling of $25,000 per case.

The Basis of Assessment

The assessable value is computed by reference to the actual consideration payable to the owner in respect of the right of use of the property. Examples of consideration to be included in the assessable value are gross rent received or receivable, payment for the right of use of premises under licence, lump sum premium, service charges or management fees paid to the owner, and the owner’s expenditure (e.g. repairs) borne by the tenant. The net assessable value is the assessable value (after deduction of rates agreed to be paid and paid by the owner and irrecoverable rent, but not other payments e.g. government rent and management fee) less a 20% statutory allowance for repairs and outgoings. However, any sums previously deducted as irrecoverable and then recovered should be treated as consideration in the year of recovery.

Properties for Owner’s Business Use

A corporation letting property in Hong Kong is regarded as carrying on business in Hong Kong and should be subject to profits tax in respect of its property income. However, if the income from property chargeable to Property Tax is included in the taxpayer’s profits for Profits Tax purposes, or if the property owned by the taxpayer is occupied by him/her for producing chargeable profits, the amount of Property Tax paid will be setoff against the amount of Profits Tax payable. Any excess Property Tax paid will be refunded. As an alternative, corporations carrying on a trade, profession or business in Hong Kong, on application made in writing to the Commissioner, may be exempt from paying Property Tax which would otherwise be set off against their Profits Tax.

ALLOWANCES

If a taxpayer is assessed to Salaries Tax or has elected Personal Assessment, he/she, in addition to or as an alternative to a Basic Allowance, may claim the following allowances if appropriate :-

? Married Person’s Allowance

A taxpayer is entitled to Married Person’s Allowance if he/she was, at any time during

the year :

(a) married and not living apart from his/her spouse ; or

(b) living apart from his/her spouse but was maintaining or supporting him/her.

and, in the situation where the taxpayer is assessed to Salaries Tax, his/her spouse did not derive any income chargeable to Salaries Tax or the couple has elected for Joint Assessment.

? Child Allowance

Child Allowances are granted to taxpayers in respect of their unmarried child(ren) maintained by them. The child must be under the age of 18 during the year of assessment or if 18 and over but under 25 during the year of assessment and receiving full-time education at a university, college, school or other similar educational establishment. In addition, Child Allowance is granted for a child of or over the age of 18 who is incapacitated for work by reason of physical or mental disability.

Under separate taxation, all Child Allowances must be claimed by either the husband or the wife.

For the year of assessment 2007/08 and onwards, child allowance is increased from $40,000 to $50,000 for each child and there is an additional allowance of $50,000 for each child born during the year. In other words, the total child allowance for a newborn child will be $100,000 in the year of birth.

? Dependent Brother/Sister Allowance

A Dependent Brother/ Sister Allowance is granted if an individual or his/her spouse

maintains an unmarried brother/sister of his/her own or of his/her spouse and the person so maintained at any time in the year of assessment was :-

(a) under the age of 18 years;

(b) of or over the age of 18 years but under the age of 25 years and was receiving

full time education at a university, college, school or other similar educational

establishment; or