2015/16 HONG KONG BUDGET HIGHLIGHTS

Transcription

1 25 FEBRUARY /16 HONG KONG BUDGET HIGHLIGHTS HIGHLIGHTS On 25 February 2015, our Financial Secretary, Mr John Tsang, delivered his eighth Budget Speech for 2015/16. The estimated consolidated budget for 2014/15 is expected to be a surplus of $63.8 billion, instead of an original forecast surplus of $9.1 billion. The 2014/15 estimated surplus is significantly higher than last year, and Hong Kong s fiscal reserves will reach $819.5 billion by 31 March The forecast for 2015/16 is a surplus of $36.8 billion with estimated fiscal reserves of $856.3 billion by 31 March 2016, representing 36.8% of GDP and equivalent to 23 months of government expenditure. Despite his last year s attempt to start gradually withdrawing sweeteners, the issue of giveaways is still the main concern for many to allay their burdens. Apart from typical sweeteners like tax rebates, waiver of rates, child allowance increase, extra allowance to CSSA/old age/disability, rental wavier in public housing; the in tax rates Increase child allowance and additional child allowance from $70,000 to $100,000 One-off sweeteners Reduce profits tax, salaries tax and tax under personal assessment for 2014/15 by 75%, capped at $20,000 Waive rates for the first two quarters of 2015/16, quarterly capped at $2,500 for each rateable property Pay two extra months to recipients of CSSA/Old Age Allowance/Old Age Living Allowance/Disability Allowance Pay one month s rent for public housing, except those required to pay additional rent and non-elderly tenants of HKHS s Group B estates Short-term targeted support measures Waive license fees for travel agents, hotels and guesthouses, restaurants and hawkers and fees for restricted food permits for six months Waive vehicle examination fees for specified vehicles once within a year SMEs: Extend application period for concessionary measures under SME Financing Guarantee Scheme for one year Allow interest deductions for corporate treasury centres in Hong Kong and reduce profits tax for specified treasury activities by 50% Consider tax deductions for more types of intellectual property rights Extend profits tax exemption to private equity funds Step up exchange of information for financial institutions according to OECD standard Further issuance of $10 billion ibond

2 2015/16 HONG KONG BUDGET HIGHLIGHTS 2 Budget introduces short-term relief measures like waivers of license fees/vehicles examination fees for the catering/hotel/hawkers/travel agent/transport industries to help businesses hit by the occupy movement earlier. This year s sweeteners cost $34 billion, compared to $20 billion last year. Hong Kong is famous for its simple and low tax system. But the price it is paying for it due to our ageing population and rapid changes of global fiscal policies is increasingly acute. There are repeated calls for broadening Hong Kong tax base and to ensure its international competitiveness. Only a very small portion of our working force is paying tax in Hong Kong: 40% of our working population pays salaries tax, 10% of registered corporations pay profits tax, the top 5% of payers of salaries tax and payers of profits tax generate 60% of salaries tax revenue and 80% of profits tax revenue respectively. A consultation on the introduction of a Goods and Services Tax was conducted in 2006 and the community did not support the new tax then. The Budget reinforced the need to explore again the feasibility of broadening the tax base. The Budget has addressed the repeated calls to increase Hong Kong s competitiveness in attracting multinational conglomerates to establish their corporate treasury centres in Hong Kong to manage their global or regional treasury functions. Under the tax symmetry treatment of Section 16(2) of the Inland Revenue Ordinance (IRO), while interest income derived by Hong Kong in-house finance companies can be taxable as being income from the carrying on of money lending business in Hong Kong, the interest expense they paid to group companies (especially overseas companies) can be non-deductible. The IRO will be amended to allow, under certain conditions, interest deductions for corporate treasury centres and reduce profits tax for specified treasury activities by 50%. To further enhance Hong Kong s competitiveness for developing it as a premier intellectual property (IP) hub providing high value-added IP services in the region, the Budget considers extending tax deduction for capital expenditure incurred on purchase of IP for more types of IP rights. Currently, tax deduction of capital expenditure is allowed on purchase of patent, rights to any know-how, copyrights, registered designs and registered trade marks. There are also anti-avoidance provisions eg denying deduction where the IP is used wholly or principally outside Hong Kong by a person other than the taxpayer. Many considered this anti-avoidance provision as unwarranted and not practical in that Hong Kong IP owners often contract manufacturer outside Hong Kong to manufacture goods with the use of IP outside Hong Kong when the manufacturer affixes the mark to the goods ordered by the owner. Other considered the restrictions in allowing only registered trade mark or design as unrealistic step to screen out those without genuine commercial value as it is quite feasible to register a valueless trade mark or design, but valuable trade mark or design may not be registered for various commercial reasons. The related bill to extend profits tax exemption for offshore funds to private equity funds will soon be tabled to the Legislative Council. Currently, profits tax exemption is not available to offshore funds transacting in shares of private companies to avoid non-residents dealing in underlying assets of a private company (such as landed property). While the 2013 Budget has mentioned to extend profits tax exemption to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong property nor carry out any business in Hong Kong, the exact content of the proposed bill is yet to be seen. Legislative proposals will also be formulated to provide legal framework for introducing an open-ended fund company structure.

3 2015/16 HONG KONG BUDGET HIGHLIGHTS 3 IMF s May 2014 report acknowledged Hong Kong s financial sector is one of the largest and most developed in the world. As a responsible member of the international community, Hong Kong will step up efforts in combating cross-border tax evasion in accordance with the latest global standard. Consultation will be done with the financial service industry for introducing amendment bill in 2016 to enact the requirement of financial institutions to report specified financial account information to the Inland Revenue Department on a regular basis. BDO S SUPPORT AND ASSISTANCE 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong Tel: Fax: info@bdo.com.hk KATHERINE YEUNG Director, Head of Tax Tel: katherineyeung@bdo.com.hk ALFRED CHOI Director Tel: alfredchoi@bdo.com.hk BDO Limited, a Hong Kong limited company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Limited to discuss these matters in the context of your particular circumstances. BDO Limited, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

4 2015/16 HONG KONG BUDGET HIGHLIGHTS APPENDIX-1 Profits Tax Rates, Deductions and Allowances 2014/ /16 Tax rate Corporations 16.5% Unincorporated businesses 15% Royalties to non-residents - Deemed assessable profits rate 30% or 100% - Effective tax rate 4.95% or 16.5% Deductions Charitable donations Up to 35% of assessable profits Intellectual property rights 100% or 20% write-off for 5 years Depreciation allowances Allowances for plant and machinery - Initial allowance - Annual allowance 60% 10%, 20% or 30% Commercial building allowance 4% Industrial building allowance - Initial allowance - Annual allowance 20% 4% Manufacturing plant and machinery, and computer 100% immediate write-off hardware and software Building refurbishment 20% write-off for 5 years Environmental protection installations 20% write-off for 5 years Environmental protection machinery 100% immediate write-off Environment-friendly vehicles 100% immediate write-off Salaries Tax Rates, Deductions and Allowances 2014/ /16 Standard tax rate 15% Progressive tax rates First $40,000-2% Next $40,000-7% Next $40,000-12% Remainder - 17% Personal allowances* Single taxpayer $120,000 Married couple $240,000 1st to 9th child (year of birth) $140,000 each $200,000 each 1st to 9th child (other years) $70,000 each $100,000 each Single parent $120,000 Dependent parent / grandparent Aged 55 to 59 - Basic - Additional, living with taxpayer Aged 60 or above - Basic - Additional, living with taxpayer $20,000 $20,000 $40,000 $40,000 Disabled dependent $66,000 Dependent brother / sister $33,000 Deductions Charitable donations Up to 35% of assessable income Self education expenses Up to $80,000 Home mortgage interest (up to 15 years) Up to $100,000 Elderly residential care expenses Up to $80,000 Contributions to recognised retirement schemes Up to $17,500 Up to $18,000 * Personal allowances are only applicable to progressive tax rates calculation. One-off measures 2014/ /16 Types of tax Salaries tax, tax under personal Salaries tax, tax under personal assessment and profits tax assessment and profits tax Amount waived 75% of tax for 2013/14, 75% of tax for 2014/15, capped at $10,000 capped at $20,000 Cash handout Nil Nil

5 2015/16 HONG KONG BUDGET HIGHLIGHTS APPENDIX-2 Property Tax 2014/ /16 15% Stamp Duty 2014/ /16 Stock Transactions Hong Kong Stock 0.2% per transaction (payable half by vendor and half by purchaser) Property Transactions (Table 1) Property Consideration $0-2,000,000 $100 $2,000,001-2,351,760 $ % of excess over $2,000,000 $2,351,761-3,000, % $3,000,001-3,290,320 $45, % of excess over $3,000,000 $3,290,321-4,000, % $4,000,001-4,428,570 $90, % of excess over $4,000,000 $4,428,571-6,000,000 3% $6,000,001-6,720,000 $180, % of excess over $6,000,000 $6,720,001-20,000, % $20,000,001-21,739,120 $750, % of excess over $20,000,000 Above $21,739, % Property Transactions on or after 23 Feb 2013 (Table 2) Double Stamp Duty (DSD) Property Consideration $0-2,000, % $2,000,001-2,176,470 $30, % of excess over $2,000,000 $2,176,471-3,000, % $3,000,001-3,290,330 $90, % of excess over $3,000,000 $3,290,331-4,000, % $4,000,001-4,428,580 $180, % of excess over $4,000,000 $4,428,581-6,000,000 6% $6,000,001-6,720,000 $360, % of excess over $6,000,000 $6,720,001-20,000, % $20,000,001-21,739,130 $1,500, % of excess over $20,000,000 Above $21,739, % Stamp duty in Table 1 (instead of Table 2) continues to apply to residential property acquired by a Hong Kong Permanent Resident who does not own any other residential property in Hong Kong at the time of acquisition or fulfilment of other conditions. Buyer s Stamp Duty (BSD) 2014/ /16 Residential Property Transactions on or after 27 Oct % Buyer s Stamp Duty is also imposed on acquisition of residential properties on or after 27 Oct 2012 by any person (including companies) except a Hong Kong Permanent Resident. Special Stamp Duty (SSD) 2014/ /16 Residential Property Transactions between 20 Nov 2010 and 26 Oct 2012 Period of Ownership 6 months or less 15% More than 6 months but for 12 months or less 10% More than 12 months but for 24 months or less 5% Residential Property Transactions on or after 27 Oct 2012 Period of Ownership 6 months or less 20% More than 6 months but for 12 months or less 15% More than 12 months but for 36 months or less 10% Special Stamp Duty is also imposed on any seller (including companies) for disposal of residential properties acquired during the above relevant periods and resold within specific time limit of ownership.

6 2015/16 HONG KONG BUDGET HIGHLIGHTS APPENDIX-3 Business Registration Fees 2014/ /16 Fee Main business (1 year certificate) $2,000 Branch business (1 year certificate) $73 Levy Main business (1 year certificate) $250 Branch business (1 year certificate) $250 Rates 2014/ /16 Percentage charge 5% on rateable value One-off waiver Number of quarters First 2 quarters First 2 quarters Ceiling $1,500/quarter/tenement $2,500/quarter/tenement Duty on Alcoholic Beverage 2014/ /16 Liquor with an alcoholic strength of more than 30% by 100% volume Liquor with an alcoholic strength of not more than 30% by 0% volume (except wine) Wine 0% Duty-free concessions 1 litre of alcoholic beverages Duty on Tobacco 2014/ /16 Cigarettes $1,906/1,000 sticks Cigars $2,455/kg Chinese prepared tobacco $468/kg All other manufactured tobacco except those $2,309/kg intended for the manufacture of cigarettes Duty-free concessions 19 cigarettes or 1 cigar or 25 grams of other manufactured tobacco First Registration Tax on Vehicles 2014/ /16 Environment-friendly petrol private cars 45% tax reduction, capped at $75,000/car Tax reduction will terminate on 1 April 2015^ Environment-friendly commercial vehicles meeting the Euro V emissions standards 30%, 50% or 100% tax reduction, depending on types of vehicles and subject to vehicle-class-specific caps per vehicle Electric vehicles Exempt^^ Other private vehicles Taxable value Rates First $150,000 40% Next $150,000 75% Next $200, % Remainder 115% ^ Announced by the Environmental Protection Department on 24 February ^^ Exemption extended to 31 March The information contained in this publication is based on the Budget proposals announced by the Financial Secretary on Wednesday, 25 February The Budget proposals will be subject to review and modification by the Legislative Council prior to the enactment of the legislation.