If you are an entrepreneur looking to set up a company overseas, Hong Kong is an optimal jurisdiction for many businesses. Whether you own an established company or a startup, Hong Kong's combination of a globalized economy with a low corporate tax advantage make it a prime place to incorporate an offshore company.
Corporate Tax in Hong Kong
Corporate Tax in Hong Kong
Any Hong Kong company conducting business in Hong Kong is liable to corporate tax. Profits sourced in Hong Kong are taxed at a low rate of 16.5%, and unincorporated businesses are taxed at 15%. Profits that are sourced overseas, also known as ‘offshore profits', benefit from a zero tax rate, even when remitted back to Hong Kong. Profits derived from operating ships in Hong Kong are treated as ‘offshore profits' and are not liable to tax, but profits derived by professional reinsurers for reinsuring offshore risks are taxed at 8.25%, i.e. half the corporate tax rate.
Hong Kong has one of the lowest corporate tax rates in Asia and internationally, at 16.5%. Combined with low personal income tax, HK's tax system is an attractive advantage for foreign entrepreneurs looking to expand their business into Asia. An effective tax system allows companies to conduct business without being overpowered by their tax liabilities.
Hong Kong Company Incorporation
A central hub for business in Asia, Hong Kong is extremely popular for its political stability, economic freedom and tax benefits.
- Hong Kong has the most globalised economy in the world, according to the newly released Ernst & Young Globalisation Index (2011). The report analyzed 60 of the world's largest economies in regards to the five categories of i) openness to trade, ii) capital movements, iii) exchange of technology and ideas, iv) movement of labor and v) cultural integration.
- Hong Kong is the most economically free country in the world, rated by the Heritage Foundation and the Wall Street Journal (2011).
- Hong Kong is positively ranked as the world's 13th least corrupt country, in the 2010 Corruption Perceptions Index by Transparency International, a measure of corruption amongst public officials and politicians.
- A Hong Kong company is subject to one of the lowest tax rates in the world for a developed country, rated the world's 3rd friendliest tax system by Forbes' Tax Misery & Reform Index (2009).
Advantages of a Hong Kong Company for Foreigners
Foreign entrepreneurs enjoy a number of advantages from Hong Kong company formation, including:
1. Legal tax exemption on company profits, if sourced from outside HK.
2. A company familiar to Chinese suppliers. A Hong Kong company is popular for foreigners wishing to undertake business on Mainland China.
3. China suppliers can be paid in RMB from a Hong Kong corporate bank account.
4. No travel is required to incorporate in Hong Kong from overseas.
5. Hong Kong's reputation as a financial hub continues to grow and is recognized as number 3 in the world after New York and London.
Hong Kong is a reputable, regulated international trading jurisdiction. Hong Kong company formation is especially popular with foreign investors setting up regional or global headquarters, particularly those looking toaccess markets in China.
Hong Kong Company Options
Foreign entrepreneurs wishing to set up a company in Hong Kong have 3 avenues to pursue. The types of business entities available are:
1. Hong Kong Limited Company – this form of company, sometimes referred to a subsidiary company, enjoys all the benefits of a fully incorporated business. The term Hong Kong Offshore Company can also be applied to a Limited Company if it sources all of its business income outside of Hong Kong. The HK corporate tax system means that such a company is a tax-free company.
2. Branch Office – a Branch must register with the HK Companies Registry as a non-Hong Kong company and is not a separate legal entity from its parent company.
3. Representative Office – a rep office cannot undertake profit making business operations so is not suitable for objectives of most foreign entrepreneurs.
Fees & support services
Company formation in Hong Kong incurs standard fees, which can include company registration, resident company secretary (if required), virtual office, auditing and tax, government licenses, and opening a Hong Kong corporate bank account. Reputable consultants are the best means to incorporate your business, to ensure all legal paperwork and fees are filed properly. Additionally, virtual office services can be a big money saver as it meets the requirement of having a registered office in Hong Kong and allows you to save the brick-and-mortar hassles of traditional set ups, if your business doesn't justify the extra costs. Hong Kong is an excellent location for international entrepreneurs to register their business. Hong Kong is a diverse multi-cultural environment and its recognition as an international business hub and exciting place to live will continue to support the investment from foreign entrepreneurs.
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