Applicable Tax Laws for Income Derived Outside of Hong Kong

A number of my offshore clients were curious as to the extent of their tax liability when it comes to doing services for people outside of Hong Kong. Here is an example; one of my client is a non-permanent resident in Hong Kong. He is planning to provide consultation services to clients in Malaysia. He is concerned whether the income derived from such services are subject to income tax under Hong Kong tax laws. Or in the event that it is subject to a profit tax, he would want to know the tax rate and the estimated tax due. Or whether a consultation service to be provided by a Hong Kong limited company has a simpler tax computation than that of an individual taxpayer.

As for his first concern, the Inland Revenue Ordinance exempts income derived outside of Hong Kong from income taxes.
As for his second concern regarding profit tax, though he is not subject to this kind of tax, the computations are the following:

1. Under the Two-Tiered Rates, profit arising from April 1 onwards shall have a tax rate of 7.5% for income below HKD 2,000,000.00, and a tax rate of 15% for a profit of over HKD 2,000,000.00. The tax due is based on the income of the year multiplied by the corresponding tax rate.

2. Under the Progressive Rate, the tax payable is based on the Net Chargeable Income which is Income from Business Activity Less Basic Allowance. It is then multiplied by a rate of 2%.

As for his third concern, the Two-Tiered Rate of a profit of a corporation commencing on April 1 onwards is as low as 8.25%. Lesser than an individual taxpayer’s 7.5%.

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