TNAG-1054-FCO40-1304-Trade-relations-between-Hong-Kong-and-the-UK-1981 — Page 72

-Salaries Tax is charged on any individual who is in receipt of income from employment or a pension. The taxable income is limited to income arising in and derived from Hong Kong, after deduction of various allowances which vary with the individual's family circumstances. Salaries Tax is charged on a sliding scale from 5 per cent on the first HK$10,000 (US$2,000) of taxable income per year, up to 25 per cent on taxable income of over HK$40,000 (US$8,000). There is, however, an overriding limit which prevents the Salaries Tax of any person from exceeding the standard rate of 15 per cent of the total income without any deduction for allowance. -Interest Tax is basically a withholding tax applied at the standard rate of 15 per cent to interest arising in, or derived from, Hong Kong on any debenture, mortgage, bill of sale, deposit, loan, advance or other indebtedness. Interest Tax is also chargeable on that part of a purchased annuity payable in Hong Kong which represents the interest element in the annual payment. The apportionment as between interest and a return of capital is made in accordance with a prescribed table. Interest Tax is required to be deducted by the payer of interest and remitted to the Inland Revenue Department. There is, however, provision to make a direct assessment on the interest recipient where Interest Tax has not been recovered in this way. The following are exempt from Interest Tax:

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Interest paid by the Hong Kong Government, by licensed banks and by certain specified public utilities at a rate not exceeding the one specified by the Financial Secretary, from time to time, by notice in The Hong Kong Government Gazette. Interest paid to a licensed bank, or to a corporation carrying on trade or business in Hong Kong or to the Government.

Interest paid on a Tax Reserve Certificate issued by the Commissioner of Inland Revenue.

Interest paid on a Government Bond issued under the Loans (Government Bonds) Ordinance 1975.

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Personal Assessment

Any resident of Hong Kong (except an individual under 18 or a married woman) may elect for personal assessment. If they do elect, the various items of income and profit-or losses-which would otherwise be charged to the four taxes mentioned above are aggregated; the appropriate personal and family allow- ances deducted; and tax calculated on the balance in the same manner as Salaries Tax. Such an election will only offer relief where the tax so computed is less than the tax at the standard rate on a person's Hong Kong income and profits.

Exemptions and Deductions

Dividend received from a corporation which is subject to Hong Kong Profits Tax, as well as amounts already included in the assessable profits of other persons chargeable to Profits Tax, are exempt from the assessable profits of the recipient.

Generally, all expenses to the extent to which they have been incurred by the taxpayer in the production of chargeable profits, are allowed as deductions, including:

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Interest on funds borrowed, and rent of buildings or land occupied for the purpose of producing the profits.

Bad and doubtful debts (any recoveries to be treated as income if subsequently received).

Depreciation allowances (subject to certain limita- tions explained below).

Repairs of articles, premises, plant and machinery used in producing the profits.

Registration in Hong Kong of a patent or trade-mark used in the production of such profits.

Expenditure for scientific research and payments for technical education, subject to certain rules. Employers' annual contributions or premia paid to approved retirement scheme funds, limited in respect of any one employee to 15 per cent of his total emoluments for the relevant period.

Depreciation Allowances

Deductions are allowable in respect of capital expen- diture incurred in the construction of industrial buildings and structures for use in certain trades (including, for example, the manufacture, processing or storage of goods; trades carried on in mills and factories; and farming). An initial allowance of 20 per cent of such capital expenditure is given, with an additional four per cent annually thereafter until the total expenditure is written off.

However, in the case of a non-industrial building or structure which is used for trade, professional or business purposes, a Rebuilding Allowance of 0.75 per cent of capital expenditure is given every year.

An initial allowance of 25 per cent of capital expenditure on machinery and plant is given for the year of assessment during which the expenditure was incurred, with an annual Wear and Tear Allowance thereafter for: