Hong Kong Presents 2010/2011 Budget
Hong Kong’s Financial Secretary, Mr. John Tsang, delivered his third budget speech of the current government to the Legislative Council on 24 February 2010.
In his budget speech, the Financial Secretary reaffirmed the “mantra” of “Market Leads, Government Facilitates” and “Big Market, Small Government,” and stated that the government will continue to create conditions for market development. These include maintaining the rule of law and a simple and low-tax regime, nurturing talent, investing in infrastructure, and helping enterprises tap markets outside Hong Kong.
In this Flash International Executive Alert, we focus principally on the budget measures that impact individuals.
Please note that legislative proposals do not generally become law until their enactment and may be modified by the Legislative Council before enactment.
The Financial Secretary has proposed a one-off reduction of 75 percent of the Salaries Tax (and tax under personal assessment) assessed for 2009/2010, subject to a ceiling of HK$6,000. No other changes to Salaries Tax were proposed.
The tax charge for 2009/2010 and 2010/2011 is as follows:
(a) net assessable income less charitable donations and allowable deductions at the standard rate; or
(b) net assessable income less charitable donations and allowable deductions and personal allowances, charged at the following progressive rates.
The standard rate of Salaries Tax for 2010/2011 is 15 percent.
The personal allowances for 2009/2010 and 2010/2011 are set out below.
In addition to the child allowance available annually, an allowance of HK$50,000 is available for each child in the year of birth.
Applying the above Salaries Tax rates and allowances, a family of four will have to earn more than HK$3,286,000 in 2010/2011, before paying tax at the standard rate.
The following items are deductible in determining a person’s Salaries Tax liability:
• Mortgage relief
Home mortgage interest payments are deductible against income subject to Salaries Tax. Owner-occupiers may claim a deduction for mortgage interest payments up to a maximum of HK$100,000 per year for one property. The deduction can be claimed for up to 10 years.
• Caring for the elderly
As an alternative to the dependent parent / grandparent allowance, a deductible expense (maximum of HK$60,000 each year) is available for expenses relating to a dependent parent / grandparent in residential care.
• Contributions to retirement schemesA deduction up to a maximum of HK$12,000 each year is available for contributions made by employees to recognized retirement schemes and Mandatory Provident Fund schemes.
• Self-education costsA deduction of up to a maximum of HK$60,000 per annum is available in respect of self-education expenses. The deduction is available in respect of fees for training courses, run by approved institutions.
• Charitable donationsA deduction of up to a maximum of 35 percent of assessable income is available for approved charitable donations.Property TaxThe standard rate of Property Tax remains at 15 percent for 2010/2011.
Property Tax is payable in addition to rates and is charged on the owner of any land or buildings situated in Hong Kong at the standard rate on the “net assessable value” of such land or buildings. Generally, “net assessable value” is calculated as the amount of rent receivable by the owner of the subject land or buildings (net of any rates, which are paid by the owner) less a statutory 20-percent allowance for repairs and outgoings.
There are several exemptions, notably for corporations carrying on business in Hong Kong.
Rates on properties remain at 5 percent of the rateable value throughout the territory.However, the rates for the each quarter of 2010/2011 will be waived, subject to a ceiling of HK$1,500 per quarter for each rateable tenement.Stamp DutyProperty
A change is proposed to the Stamp Duty rate on property transactions valued over HK$20 million from 1 April 2010. The Stamp Duty rate on these transactions will be increased from 3.75 percent to 4.25 percent.
In addition, buyers will no longer be allowed to defer payment of Stamp Duty on such transactions. The Stamp Duty rates and banding on property transactions not exceeding HK$20 million are unchanged.
The Stamp Duty rates and banding for 2009/2010 and 2010/2011 are set out below.
Sales and Purchases of Hong Kong Stock
No changes were announced to the Stamp Duty rate payable in respect to transfers of Hong Kong stock. This remains at an aggregate ad valorem rate of 0.2 percent of the actual consideration or the value of the stock at transfer date, whichever is higher.
Stamp Duty concession on exchange traded funds (ETFs) will be extended to cover ETFs that track indices, comprising not more than 40 percent of Hong Kong stocks.
Persons carrying on business in Hong Kong are liable to Profits Tax on profits arising in or derived from Hong Kong.
The Financial Secretary has elected not to change the Profits Tax rates. The Profits Tax rate for corporations will remain at 16.5 percent for 2010/2011 and that for unincorporated businesses will remain at 15 percent.