THE ECONOMY
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superimposed upon the schedular system. Since April 1, 1984, the standard rate of tax has been 17 per cent.
Profits tax is charged only on profits arising in, or derived from, Hong Kong from a trade, profession or business carried on in Hong Kong. Profits of unincorporated businesses are taxed at 17 per cent whereas profits of corporations are taxed at 18.5 per cent. Assessable profits are determined on the actual profits for the year of assessment. The tax is paid provisionally on the basis of profits of the year preceding the year of assessment. As in many countries, profits assessable to profits tax in Hong Kong are the net profits. Generally, all expenses incurred in the production of assessable profits are deductible, as are charitable donations to the extent of 10 per cent of net assessable profits. There is no withholding tax on dividends paid by corporations, and dividends received from corporations are exempt.
Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and the method of payment are similar to the system for profits tax. Tax payable is calculated on a sliding scale which varies from five per cent to 25 per cent on $10,000 segments of income (that is, income after deduction of allowances). With effect from the year of assessment commencing on April 1, 1985, the segment to which the 20 per cent rate applies has been widened from $10,000 to $20,000. However, the overall effective rate is restricted to a maximum of 17 per cent of income before the deduction of personal or other allowances.
Property tax is charged on the owner of land or buildings in Hong Kong at the standard rate of 17 per cent on the actual rent received, less an allowance of 20 per cent for repairs and maintenance. A system of provisional payment of tax similar to that under profits tax and salaries tax has been in operation since April 1, 1983. Property owned by a corporation carrying on a business in Hong Kong is exempt from property tax but the profits derived from the ownership are chargeable to profits tax.
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Interest tax is charged on interest arising in or derived from Hong Kong. This is basically a withholding tax deducted at source unless the interest forms part of the profits of a corporation carrying on a trade or business in Hong Kong, in which case it is subject to profits tax. The rate of interest tax on chargeable interest is 17 per cent. Interest payable on foreign and Hong Kong currency deposits placed with financial institutions carrying on business in Hong Kong is exempt from tax. Interest paid or payable by the government and public utilities is also exempt from tax, provided it does not exceed a specified rate, which varies according to the prevailing level of interest rates.
Business registration fees, which form part of the revenue from fees and charges, are also collected by the Inland Revenue Department. Business registration is compulsory for companies incorporated in Hong Kong, overseas companies with a place of business in Hong Kong and businesses operating in Hong Kong, except those run by charitable institutions and licensed hawkers. The annual registration fee is $500 but exemption from payment is granted where the business is small. With effect from October 1, 1984, every branch of a business is required to obtain a branch registration certificate and pay an annual registration fee of $15. In addition, a levy of $100, which is to be paid to the Protection of Wages on Insolvency Fund, is imposed on each business registration certificate issued to a business or its branch.
Other revenue arises from taxes on the registration of motor vehicles, fines, forfeitures and penalties, royalties and concessions, yields from properties, investments and land transactions, reimbursements and contributions, government utilities, and from fees and charges for the provision of a wide range of goods and services.