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Digital Company Formation

Hong Kong

Tax Mitigation Jurisdictions

Synopsis:

Reintegrated into China under the banner of one country two systems in July 1997 when the former colonial power, Britain, surrendered control. Since 1997 Hong Kong has undergone a readjustment period with some contraction in tourism and the general economy. Nevertheless, China has not tried to intervene too much in the running of the economy with corporate and fiscal laws remaining almost identical to those in operation during the former British administration. Geographically strategic location in South East Asia. The main financial centre in South East Asia. Excellent communications and infrastructure. No currency controls. Low corporate tax applied only on a territorial basis. Virtually no double taxation treaties. No capital gains or withholding taxes. Legal system based on the English common law. Highly developed shipping centre. Technically not a tax planning jurisdiction but treated as such by many international traders. Population is approximately 6,500,000

Star Ratings

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Companies

The Hong Kong Company Ordinance is very closely related to the British Companies Act of 1948 with the issuance of virtually identical Memorandum & Articles of Association. For tax planning purposes the principal company employed is the private company limited by shares although there are also public limited companies.

Double Taxation Treaty Network

As already stated, Hong Kong has only partial tax treaties, one with the United States and the other with the United Kingdom.

Tax Planning Credentials

In many ways Hong Kong could be considered one of the three major trading hubs of South-East Asia together with Singapore and Malaysia. Like Singapore it has a territorial system of corporate taxation making it a very attractive international/regional corporate base especially when combined with administrative facilities in a low, zero or exempt tax jurisdiction.

Tax Planning Credentials

In many ways Hong Kong could be considered one of the three major trading hubs of South-East Asia together with Singapore and Malaysia. Like Singapore it has a territorial system of corporate taxation making it a very attractive international/regional corporate base especially when combined with administrative facilities in a low, zero or exempt tax jurisdiction. Further, even where transactions do take place in Hong Kong corporate tax on Hong Kong derived profits are only 16% (although it should be noted that the corporate tax rate is prospective in the first year meaning that the actual tax liability in the first fiscal year is effectively 32%) with a similarly attractive tax regime for individuals. One downside to Hong Kong is that the territory only has a very limited double taxation treaty network and even where treaties do exist they are not comprehensive. For this reason Hong Kong companies tend to be purchased primarily as trading vehicles and not for intellectual, interest or dividend exploitation. It should be noted that whilst Hong Kong has a territorial tax system, it is important to show to the local Inland Revenue department that there is a logical purpose to locating the company in Hong Kong. This normally means that certain functions must be carried out, e.g. such as issuing letters of credit from the territory, which expose the company to local, albeit controlled, and somewhat voluntary tax exposure.

Advantages

  1. Pro-business environment
  2. Territorial system of taxation
  3. Corporate tax on profits generated directly in Hong Kong is only 16%
  4. Individual taxation for legal persons other than companies is 15%
  5. Personal tax allowances are available even for non-resident directors
  6. Income remitted to Hong Kong is not subject to tax.
  7. Dividend payments are not a taxable source of income
  8. There are no withholding taxes
  9. There are no nationality requirements for directors or shareholders.
  10. No minimum capitalization requirements
  11. There must be a resident Hong Kong secretary
  12. No capital gains taxes
  13. No exchange control provisions
  14. One of the world’s most important financial centres.
  15. One of the world’s largest ports.
  16. Well-educated and entrepreneurial population.
  17. Capable lawyers and accountants.
  18. Local courts are stable and administered to British standards.
  19. Virtually all business is conducted in English.
  20. Excellent communications.
  21. Company registration procedures are efficient and take no more than 3-4 weeks
  22. Hong Kong Dollar is pegged against the US Dollar