In Hong Kong, profit tax is a income tax payable to commercial business carried out in Hong Kong. Under the territorial tax system, only personal profits derived in Hong Kong are tax-free in principle. Capital gains tax is generally not applicable in Hong Kong, though it is still debated whether an asset is property in itself or simply capital gain derived therefrom. The Hong Kong Corporation Taxation Law, the taxation law of Hong Kong, states that "the profits of a non-business firm from the sale or transfer of the partnership interest" are liable to income tax, and that this income should be taxed only once.
Capital Gains Tax (CGT) is basically a profit tax on profits. Unlike personal profits, however, CGT is subject to a flat rate of 3% above the amount of profit actually realized through the sale or transfer of a partnership interest. This rate of CGT is typically higher than the combined total tax rate of the various domestic taxes (such as income tax, corporate tax, and property tax). Thus, CGT is basically an additional internal revenue tax on profits. In addition, CGT is not refundable, like personal profit tax.
There are two basic types of profit taxes discussed on hkwj-taxlaw.hk: regressive and progressive. Regressive profit taxes reduce a corporation's profit after taxation by taking away some of the profit earned by the corporation in the first place. Thus, for instance, the corporate tax on corporate income in Hong Kong is one of the more regressive forms of profit taxes. Progressive profit taxes, meanwhile, increase a corporation's profit after taxation. Compressed capital gains tax and dividends are examples of progressive profit tax systems.
Both regressive and progressive profit tax systems in Hong Kong impose a series of financial penalties on corporations that fail to meet the specified requirements. Generally, these requirements include meeting the specified exit limit, paying the stamp duty for corporate acquisitions, paying the prescribed stamp duty on corporate stock sales, paying the prescribed fees for giving a notice of intention to purchase or selling shares, paying the prescribed stamp duty on the acquisition of certain assets, paying the prescribed corporate income tax, and finally paying the prescribed fee for the operation test. An operation test, which is a combination of a performance examination and an audit, is also often imposed on companies with a low turnover. A company's initial public offering is also subjected to a performance examination by the Hong Kong central government.
A third type of profit tax in Hong Kong is the excess profits tax. This tax is levied on companies' gross profit less the deduction for the exceeding of the corporate tax. For instance, in the case of a private company, excess profits tax will be computed by subtracting the amount of its paid-in capital from its current share of capital stock. In this way, the excess profits tax will be calculated on the outstanding balance of capital rather than the amount of capital employed. The excess profits tax is implemented to encourage companies to retain more of their income from the sale of their outstanding shares of stock. You may opt to click on this link to view here on more of the basic types of profit taxes by Hong Kong Company Registration.
Aside from these three basic types, there are other types of profit taxes. Some local governments impose taxes on the value of materials and labor utilized in local businesses. These local taxes, however, differ from company size, location, and industry. There is also a tax loss on businesses that engage in speculative transactions, such as buying and selling rights to foreign currencies. In Hong Kong, there are also other taxes on businesses such as stamp duty, custom and trade taxes, and land tax. A key component of Hong Kong's economic model is the use of a VAT or a goods and services tax, which is collected by the reglower and re-circulated by the retailers and suppliers. Acquire more here: https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/money-banking-and-investment/taxation.