Freight tax applicable in Hong Kong SAR

Taxation
Hong Kong, SAR operates a territorial basis of taxation under which only income that has a source in Hong Kong is taxable. 


Profits tax
for the year of assessment 2008/09 and onwards is charged at the rate of 16.5% of assessable profits. For the years of assessment 2003/04 to 2007/08 the rate was 17.5% and for 1999/2000 to 2002/03 the rate was 16%.


Ascertainment of the assessable profits
with respect to shipping is covered under Inland Revenue Ordinance Chapter 112, Section 23B. I.e. Assessable Profits are equal to "Total Shipping Profits" multiplied by "Relevant Sums" divided by "Total shipping Income". 

"Total Shipping Profits" equals profits derived from "total shipping income" 

"Relevant Sums" includes:  

i. sums derived from the uplift of goods, livestock, mail or passengers in Hong Kong, but excluding that applicable to goods, etc. in transit or re-embarking passengers.
ii. sums derived from towage operations which in Hong Kong waters or beginning within Hong Kong waters.
iii. sums derived from dredging operations within Hong Kong waters.
iv. sums from charterhire earned in respect of a ship which is operated (navigated) solely or mainly within Hong Kong waters.
v. from charterhire earned under a charterparty for less than the whole of a ship, where the charterhire is attributable to a voyage which commences in Hong Kong.
vi. one half of the charterhire earned by ship operating between Hong Kong waters and ports within the Pearl River Delta (i.e. Macau and ports in the Pearl River estuary).

"Total shipping Income" equals worldwide income.

The Inland Revenue may, due to difficulties in applying the above-mentioned formula, assess the assessable profits for a particular year* of assessment on the basis of a "fair" percentage. If an assessment is made on the basis of a "fair" percentage, the owner has the option at any time within two years after the end of the year of assessment, to have the profits revised to those based on the formula method.

* The tax year runs from 1 April to 31 March.

 

Exemption Agreements
Residents of the following countries may benefit from double taxation agreements which reduce or waive the tax. 

The rate of reduction shown is based on voyage earnings derived from international trade. 

Country Reduction Date of entry
into force
Date of effect
(Year of assessment)
 
 
Comprehensive Double Taxation Agreements
Austria 100% 01/01/2011 2012/2013  
Belgium 100% 07/10/2004 2004/2005  
Brunei 100% 19/12/2010 2011/2012  
Canada 1 100% 29/10/2013 2014/2015  
China 2 (Renegotiated) 100% 08/12/2006 2007/2008  
Czech Republic 100% 24/01/2012 2013/2014  
France 100% 01/12/2011 2012/2013  
Guernsey
100% 05/12/2013 2014/2015  
Hungary 100% 23/02/2011 2012/2013  
 India 100% 30/11/2018  2019  
Indonesia 50% 28/03/2012 2013/2014  
Ireland 100% 10/02/2011 2012/2013  
Italy 100% 10/08/2015 2016/2017  
Japan 100% 14/08/2011 2012/2013  
Jersey 100% 03/07/2013 2014/2015  
Korea, Republic of  100%  08/07/2014  2017/2018  
Kuwait 100% 24/07/2013 2014/2015  
Liechtenstein 100% 08/07/2011 2012/2013  
Luxembourg 100% 20/01/2009 2008/2009  
Malaysia 100% 28/12/2012 2013/2014  
Malta 100% 18/07/2012 2013/2014  
Mexico 100% 07/03/2013 2014/2015  
Netherlands 100% 24/10/2011 2012/2013  
New Zealand 100% 09/11/2011 2012/2013  
 Pakistan 100% 01/07/2017 2017/2018  
Portugal 100% 03/06/2012 2013/2014  
Qatar 100% 05/12/2013 2014/2015  
 Romania 100%   18/11/2015  Income derived on or after 01/01/2017  
Russia  100%  18/01/2016  2017/2018  
Spain 100% 13/04/2012 2013/2014  
South Africa 100% 20/10/2015  2016/2017  
Switzerland 100% 15/10/2012 2013/2014  
Thailand 50% 07/12/2005 2006/2007  
United Arab Emirates
100% 10/12/2015 2016/2017  
United Kingdom 100% 20/12/2010 2011/2012  
Vietnam 100% 12/08/2009 2010/2011  
         
Limited Treaties (Air and/or Sea):
Bangladesh 0% 09/12/2005 2005/2006 Air transportation only
Canada 0% 20/12/1996 1994/1995 Air transportation only
China 3 0% 09/01/2012 2013/2014 Air transportation only
Croatia 0% 06/08/2004 2005/2006 Air transportation only
Denmark 100% 16/12/2005 2005/2006 Sea Transport only 
Denmark 0% 20/12/2002 01/01/1997 Air transportation only
Ethiopia 0% 25/05/2010 2011/2012 Air transportation only
Finland 0% 05/12/2008 2002/2003 Air transportation only
Germany 100% 17/01/2005 1988/1989 Sea Transport only 
Germany 0% 12/11/1998 1998/1999 Air transportation only
Iceland 0% 18/01/2006 2007/2008 Air transportation only
Israel 0% 03/03/1999 2000/2001 Air transportation only
Jordan 0% 09/02/2006 2007/2008 Air transportation only
Kenya 0% 28/04/2006 2007/2008 Air transportation only
Korea, Republic of 0% 09/07/1996 1996/1997 Air transportation only
Kuwait 0% 10/07/2006 2007/2008 Air transportation only
Mauritius 0% 03/07/1998 03/07/1998 Air transportation only
Mexico 0% 03/12/2008 2009/2010 Air transportation only
Netherlands 100% 17/10/2001 1998/1999 Sea Transport only 
Netherlands 0% 26/05/1997 1996/1997 Air transportation only
New Zealand 0% 12/11/1996 1996/1997 Air transportation only
Norway 100% 11/01/2005 2005/2006 Sea Transport only 
Norway 0% 23/08/2001 01/01/1997 Air transportation only
Russia 0% 01/06/2010 2011/2012 Air transportation only
Singapore 100% 30/12/2004 2005/2006 Air & Sea transport
Sri Lanka 100% 30/03/2005 2006/2007 Air & Sea transport
Sweden 0% 20/12/2003 01/01/1997 Air transportation only
Switzerland 0% 26/03/2007 2007/2008 Air transportation only
United Kingdom 100% 03/05/2001 2002/2003 Sea Transport only 
United Kingdom 0% 02/11/1998 1998/1999 Air transportation only
United States 100% 16/08/1989 1987/1988 Sea Transport only 
 
Comprehensive Double Taxation Agreements signed, but not ratified
 Belarus  100% Signed  16/01/2017   
 Latvia  100%  Signed  13/04/2016  
 Saudi Arabia  100%  Signed 24/08/2017   
Limited Treaties signed, but not ratified
Estonia 0% Signed 30/04/2001 Air transportation only
Fiji 0% Signed 03/12/2009 Air transportation only
Laos 0% Signed 09/09/2009 Air transportation only
Maldives 0% Signed 10/11/2009 Air transportation only
Seychelles 0% Signed 24/06/2013 Air transportation only
         
Reciprocal exemption under Section 23B(4A)  4
Chile     01/12/2010  
Korea, Republic of     1998/1999  
New Zealand     1998/1999  
         
Notes:        
           
1. The treaty provides that "... profits derived by an enterprise of a Party from the carriage by a ship or aircraft of passengers or goods taken on board at a place in the other Party for discharge at another place in that other Party may be taxed in that other Party, unless all or substantially all of the passengers or goods were taken on board at a place outside that other Party"
2. Treaty excludes Macao SAR and the province of Taiwan.
3. Only applies to Macao SAR.
4.

Chapter 12, Section 23B(4A) of the Inland Revenue Ordinance.

"For the purposes of this section, where a person who is deemed to be carrying on a business as an owner of ships in Hong Kong under subsection (2) is resident in any territory outside Hong Kong, he shall be regarded as having a reciprocity status, if the Commissioner is satisfied that any profits earned by or accrued to a person to whom subsection (1) applies from a business carried on in the territory as an owner of ships are, under the laws of that territory, exempt from a tax which is of substantially the same nature as the tax chargeable under this Part. " 

5. Owners of Hong Kong, China registered ships are exempted from profits tax on international incomes derived from the operation of their ships. 
6. Casual callers may benefit from Inland Revenue Ordinance Chapter 112, Section 23B , Item 6 which reads:

"Where the Commissioner is satisfied that the call at any location within the waters of Hong Kong of any ship owned by a person to whom subsection (2) applies is of a casual natural, and that further calls at any location within those waters by that or any other ship in the same ownership are improbable, he may in his discretion direct that that person shall be deemed not to be carrying on a business as an owner of ships in Hong Kong under subsection (2) by reason of the casual call of that ship and accordingly, in the event of his making such a direction, that person shall be so deemed not to be carrying on that business." 
     

Double taxation agreement related link:

 Inland Revenue Department of the Government of Hong Kong SAR

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