Stock trading fees are charges levied by brokerages when investors buy or sell shares on the stock market. These fees can be in commission, transaction charges or both. In Hong Kong, stock trading fees are typically charged as a percentage of the total value of the trade.
Stock trading fees are not tax-deductible in Hong Kong because they are considered personal expenses and, as such, are not eligible for deduction under the Inland Revenue Ordinance.
However, some circumstances may arise where part of the fee may be deductible. For example, if the fee is charged for advisory services relating to investments held to generate income, then a portion of the fee may be deductible as a business expense.
The Inland Revenue Department has specific rules and requirements that you must meet for expenses eligible for a deduction. It would be best if you conversed with a tax professional before claiming any deductions.
What are these requirements?
For stock trading fees to be tax-deductible in Hong Kong, they must meet the following requirements. However, as these fees are typically charged as a percentage of the trade value, it is unlikely that the entire fee will be deductible.
- You must incur the expense solely to earn income from investments.
- The expense must not classify as capital.
- You cannot have deducted the expense previously deducted in any other year.
- There must be sufficient documentary evidence to support the deduction claimed.
- The expense must not be excluded explicitly from deduction by the Inland Revenue Department.
You should also note that even if an expense is tax-deductible, the amount you can deduct may be limited by other factors. These include the type of investment, the investor’s tax bracket, and whether the deduction is claimed as a business expense or a personal expense.
When can Hong Kong traders deduct tax from their stock trading fees?
To sum up, there are two main instances in which Hong Kong traders can deduct tax from their stock trading fees. They are as follows:
Charitable donations
If the shares are sold, and the proceeds are donated to a charitable organisation, the stock trading fees may be eligible for deduction as a charitable donation.
Losses
If your shares are sold at a loss, the stock trading fees may be deducted as a capital loss.
Why are stock trading fees not tax-deductible in Hong Kong?
In short, stock trading fees are not tax-deductible in Hong Kong in general, for these two reasons:
Stock trading fees are considered to be personal expenses
The Inland Revenue Department considers stock trading fees to be personal expenses because they are incurred to buy or sell shares, which is a personal investment.
Stock trading fees are of a capital nature
Stock trading fees are also considered capital because they relate to the purchase or sale of shares, which is considered a capital asset.
What are the tax benefits of stock trading in Hong Kong?
No capital gains tax
Investors in Hong Kong do not have to pay capital gains tax on profits earned from the sale of shares.
No stamp duty
Hong Kong does not levy stamp duty on the purchase or sale of shares.
Low-income tax rates
Hong Kong has a progressive tax system, meaning taxpayers who earn more money are taxed at a higher rate. The highest marginal tax rate is only 17%, much lower than in many other countries.
Tax-free dividends
Dividends received from Hong Kong companies are not subject to income tax. It is a significant benefit for investors who hold shares in Hong Kong-listed companies.
The attractive tax regime for foreign investors
Hong Kong has a territorial tax system, which means that only income derived from or remitted to Hong Kong is subject to taxation. This makes the city an attractive destination for foreign investors, as they will not be taxed on income earned outside of its borders.
Double taxation agreements
Hong Kong has double taxation agreements with many countries, so taxpayers will not be taxed twice on the same income.
In conclusion
Stock trading fees in Hong Kong are not tax-deductible because they are considered personal expenses and of a capital nature. However, there are many tax benefits of stock trading in Hong Kong. Taxpayers who are not residents of Hong Kong may also be eligible for certain benefits under the double taxation agreements.
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Muhammad Aqib