APAC Tax Update – China and Hong Kong
Presented at DFK International World Conference Vancouver, July 2026
Presented by: Dorothy Wong, Director – Business Development JCK & Associates, Hong Kong China
HONG KONG
Corporate Profits Tax (Two-Tiered System)
If you own or control multiple corporate entities in Hong Kong, only one single company within your connected group can use the lower 8.25% tier.
| Taxable Profits | Tax Rates |
| First HKD2,000,000 (Approx. USD255K) | 8.25% |
| Amounts Above HKD2,000,000 | 16.5% |
Salaries Tax
Progressive Rate
| Net chargeable Income | Rate | Salary Tax | |
|---|---|---|---|
| On the first | HK$50,000 (~USD6,410) | 2% | HK$1,000 |
| On the next | HK$50,000 (~USD6,410) | 6% | HK$3,000 |
| On the next | HK$50,000 (~USD6,410) | 10% | HK$5,000 |
| On the next | HK$50,000 (~USD6,410) | 14% | HK$7,000 |
| HK$200,000 (~US$25,640) | HK$16,000 (US$2,050) ~8% | ||
| Remainder | 17% |
Standard tax rate
| From 2024/2025 onward | Tax rate |
|---|---|
| Two-tiered standard rates – One first HK$5M of net income | 15% |
| Remainder | 16% |
Property Tax
Levied on owners of land and building situated in Hong Kong who receive rental income, 15% standard rate on net assessable value [(Gross rent – rates – irrecoverable rent) x 80%]
The Hong Kong Tax Advantages
Hong Kong maintains an elite tax status internationally due to several critical exemptions:
- No Valued-Added Tax (VAT)
- No Sales Tax
- No Capital Gains Tax
- No Withholding Tax (except for Royalty – 4.95%)
- No Inheritance Tax / Gift Tax
HONG KONG — Preferential Tax Regimes for Funds, Family Offices and Carried Interest
(1) Timeline & Effective Date
Old Rule (Before): N/A
New Rule (After): Bill enters LegCo on 24 June 2026 for first reading but applies retrospectively from the Year of Assessment 2025/2026
(2) Definition of “Fund”
Old Rule (Before): Strict multi-investor rule. Single-investor structures (“Fund-of-One”) were fully taxed.
New Rule (After): “Fund-of-One” is now permitted (0% tax). Explicitly includes pension and sovereign wealth funds.
(3) Qualifying Investments
Old Rule (Before): Only standard stocks, bonds, and funds qualified for 0% tax.
New Rule (After): Expanded to include cryptos (digital assets), private loans, offshore real estate, and precious metals.
(4) Incidental Cap on Interest
Old Rule (Before): Restrictive 5% cap on interest income. Going over 5% made all interest fully taxable.
New Rule (After): 5% cap is removed. All interest income from holding assets is 100% tax-exempt.
(5) Asset Threshold Calculation
Old Rule (Before): Required HKD240M Net Asset Value (NAV). All debts were subtracted blindly, shrinking the asset pool
New Rule (After): Switched to Assets Under Management (AUM). Family loans are NOT deducted (external bank loans still are).
(6) Joint-Venture Family SPEs
Old Rule (Before): Tax exemption was tied to ownership %. A 50% family stake meant only 50% of profits were tax-free.
New Rule (After): 100% full tax relief for the entire vehicle, regardless of ownership%, if the family retains management control.
(7) Salary Tax Waiver on Carried Interest
Old Rule (Before): Tax breaks were narrowly focused, mainly on standard private equity setups.
New Rule (After): Expands tax breaks on performance bonuses across tax-exempt funds. Requires physical work in HK and documented terms.
CHINA — VAT FRAMEWORK
| Type | (1) General Taxpayer | (2) Small-Scale Taxpayer |
|---|---|---|
| Annual Taxable Turnover | >RMB5M (~US$735K) | ≤RMB5M (~US$735K) |
| Allowed to deduct input VAT against output VAT | Uses a simplified flat levy method (no input VAT deductions) | |
| VAT Exemption Threshold | N/A | Monthly sales under RMB100K (or quarterly sales under RMB300K ~US$14,285) are exempt from VAT |
Standard VAT Rate (General Taxpayer):
- 13%: Manufacturing, sale/import of stand goods, repair/replacement services, tangible movable asset leasing
- 9%: Transportation, construction, real estate sales/leasing, land use rights
- 6%: Financial services, modern services, consumer services
- 0%: Export of goods and qualified cross-boarder services
Levy rate (Small-Scale Taxpayer): The preferential rate is 1%, effective until 31 Dec 2027.
CHINA — NEW VAT LAW (EFFECTIVE FROM 1 JAN 2026)
(1) Place of Taxable Transaction
Old Rule (Before): Vague criteria regarding the location of service provision and place of us
New Rule (After): Principle of place of consumption; consumption within the territory is taxable
(2) Excess Threshold for Small-scale Taxpayers
Old Rule (Before): Register within 15 days after the end of the declaration period
New Rule (After): Effective from the first day of the period in which the threshold is exceeded
(3) Mixed Sales
Old Rule (Before): Only one transaction combining goods and services is allowed. Combining items with different tax rates constitutes concurrent operations; if not accounted for separately, the highest tax rate applies
New Rule (After): The expanded scope now treats any transaction with multiple tax rates in a primary-secondary relationship as a mixed sale. The entire transaction is taxed at the primary activity’s rate, without distinguishing between goods and services.
(4) Input Tax Deduction
Old Rule (Before): Catering, daily household expenses, and entertainment services are non-deductible
New Rule (After): Only those directly used for consumption are non-deductible.
(5) Tax Item Classification
Old Rule (Before): 5 categories: including “processing, repair and replacement services”
New Rule (After): 4 categories: Labor services merged into services.
(6) Long-term Asset Deduction
Old Rule (Before): Full deduction allowed for mixed-use assets
New Rule (After): Assets > RMB 5 Million require annual adjustment and write off
