Hong Kong strives to reduce double taxation burdens on enterprises

Hong Kong has adopted the territorial source principle of taxation – that is, only profits that have a source in Hong Kong are taxable in Hong Kong. Profits sourced elsewhere are in general not subject to tax.

Several countries that implement the principle of levying tax on income earned worldwide offer unilateral tax exemptions to citizens who operate a business in Hong Kong, and if they have paid taxes on their profits or income sourced in Hong Kong, these taxes can be set off against their taxes payable in their home country. With respect to profit on which tax is payable in Hong Kong, the government of the Hong Kong Special Administrative Region (SAR) also allows, based on the turnover principle, tax reductions or exemptions for profits on which tax has been paid in another country.

In short, companies operating in Hong Kong basically need not worry about double taxation, although in certain circumstances some may run into trouble. Uncertainty in taxation is, and has always been, an obstacle to business expansion.

Matt Hu is the head of North China investment promotion at InvestHK, a department of the Hong Kong SAR Government