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India- Hong Kong Income Tax Agreement

Taxation In Hong Kong for Individuals

  • Hong Kong follows a territorial principle of taxation. Individuals are taxed only on income that has been earned in Hong Kong.
  • There is no Double taxation avoidance agreement between India and Hong Kong for the year 2018.
  • Assessment year : A year of assessment runs from April 1st to March 31st of the following year.

Authority : The Governing Authority is the Inland Revenue Department(IRD).

Assessment:

The assessee will receive a provisional tax assessment initially and then a final tax assessment. The IRD issues tax returns  to individual tax payers on the the first working day in May every year. A person may opt to file a single return or a cumulative one along with his/ her spouse. The net chargeable income, i.e. assessable income after deductions and allowances, is charged at progressive rates. If duties are rendered by an individual in Hong Kong during visits of 60 days or less in a fiscal year, no liability will arise.

Every taxpayer is required to notify the Commissioner of Inland Revenue that he/she is chargeable to tax no later than four months after the end of the year of assessment in which he/she is chargeable.

The rates for the financial year 2018-19 for an individual are-

First 50,000 $ @ 2%        

Next 50,000 $ @ 6%    

Next 50,000 $ @ 10%    

Next 50,000 $ @ 14%  

Remainder @  17%

               OR

Standard rate of 15% on Total Income;

Whichever is lower

What is the definition of Income?

Assessable Income-Allowable Deductions= Net Assessable Income

Net Assessable Income-Personal Allowances=Net Chargeable Income

 

Allowable deductions would Include:

  • Qualified employment related expenses such as client entertainment expenses, certain business travel expenses, subscriptions to certain professional societies etc.
  • Approved charitable donations
  • Self-education expenses
  • Home loan interest, subject to certain qualifying conditions
  • Elderly residential care expenses
  • Depreciation and capital allowances for plant and machinery that have been used to generate assessable income.
  • Contributions to a Mandatory Provident Fund Scheme or Recognized Occupational Retirement Scheme

Personal allowances include:

AllowancesDeductions for the year 2018
Basic allowance$ 132,000
Married person's allowance$ 264,000
Child allowance 

1st to 9th year (each) - $ 240,000

Other years - $ 120,000

Dependent brother or dependent sister allowance (For whom no child allowance claimed)$ 37,500
Single parent allowance$ 132,000
Disabled dependent allowance$75,000

Capital Gains

Capital Gains are not taxed in Hong Kong.

 

Taxation on Rental Income from Property in Hong Kong

There is tax levied on the rent derived from a property in Hong Kong. The tax amount for the year 2018 is a flat rate of 15% of Net assessable value of the property  less allowance of 20 % for repairs and maintenance.

Filing

If one disagrees with the tax bill, they need to inform the tax department within 30 days from the issue date of the tax bill and state the reasons for objection. Notwithstanding any notice of objection lodged , tax must be paid on or before the due date specified in the notice of assessment.

The Commissioner of Inland Revenue may impose penalties or issue an estimated assessment if there is a delay in filing the return.

 

Relief U/s 91

As there is no DTAA provisions applicable between India and Hong Kong, for the year 2018, relief is granted under section 91. Relief is provided as a deduction from the Indian Tax payable by the assessee at the lower of Indian rate of tax or the rate of tax of the said country.

 

Double taxation Avoidance Agreement with India

Hong Kong and India have entered into a double taxation avoidance agreement which has come into force on the 30th day of November, 2018. This agreement will be applicable from 1st April, 2019.

Some of the key concepts from the agreement are as below-

As per article 16 Income in respect of salary, wages and other similar remuneration may be taxed in the source country where employment is exercised unless his/her presence  in the source country doesn't exceed 183 days in any 12 months period, commencing or ending in the year of assessment and the remuneration is paid by or on the behalf of, an employer who is not a resident of the source country, and the remuneration is not borne by a permanent establishment which the employer has in the other country.

  • Capital gain arising on sale of shares of an Indian company to be chargeable to tax in India.
  • Capital gain arising on sale of Indian securities (other than shares eg. derivatives, debt securities, etc.) to be chargeable to tax in India.
  • Interest income in Hong Kong to be taxed at the rate of 10 per cent subject to satisfying beneficial ownership test.
  • Fees for technical services payable to a resident of Hong Kong to be taxed at the rate of 10 per cent subject to satisfying beneficial ownership test**
  • Other income arising in India will be chargeable to tax in India

    **Beneficial owner is one  who ultimately owns or controls the legal person.This may be determined on the basis of a threshold, such as where an individual owns or controls more than 25% of the legal person through direct or indirect shareholding.

 

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