Hong Kong

Under its mini-constitution called the Basic Law, Hong Kong is to maintain its rather simple tax system even after its return to China. As a Special Administrative Region, Hong Kong has sole sovereignty over its taxation matters. Reflecting the simple tax structure of Hong Kong, the computation of losses in Hong Kong is simply done in the same manner as profits; losses are arrived at as the excess over profits of all tax deductible items, including depreciation allowances. They are then allowed to be carried forward indefinitely but may not be carried back. As the Hong Kong tax system does not tax gain of a capital nature, there is similarly no tax effect for capital losses. Also, as only territorial income is taxed in Hong Kong, any losses generated from offshore activities will not be recognized. There are no major changes expected to the current tax regime. While there are more provisions intended to curb the uses of losses as a tax planning tool, there is no plan being contemplated to expand the availability of losses in such manners as cross-border losses, group losses, etc.