The introduction of the inward company re-domiciliation regime in Hong Kong presents significant tax considerations for businesses contemplating this transition. Understanding the tax framework is crucial, as it impacts financial planning and compliance obligations.
Taxation Principles in Hong Kong
Hong Kong adopts a territorial taxation system. This means that tax liabilities are determined by the source of income rather than the nationality, residence or domicile of the entity. In other words, only Hong Kong source income is subject to Hong Kong income tax. Under the Inland Revenue Ordinance (“IRO”), profits tax is levied on profits derived in Hong Kong by every person (defined to include corporation, partnership, and sole proprietorship) carrying on a trade, profession, or business in Hong Kong. This system offers significant advantages, providing greater flexibility and potential for lower tax burdens compared to jurisdictions that use a worldwide taxation model.
