Travel to Hong Kong

Hong Kong is a central hub for business in Asia. It is extremely popular for a variety of reasons, including political stability, economic freedom and tax benefits. Hong Kong has one of the lowest tax rates in the world for a developed country, and has an intricate and effective tax system that allows companies to conduct business without being overpowered by their tax liabilities. Indeed, Hong Kong is rated as the world's 3rd friendliest tax system by Forbes (Tax Misery & Reform Index 2009).

Corporate Tax in Hong Kong

Given the large number of companies that operate in Hong Kong or have a Hong Kong offshore company, an understanding of Hong Kong tax implications begins with corporate tax.

In Hong Kong, any company conducting business on or offshore can be 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 will be taxed at 8.25% -i.e. half the corporate tax rate.

To note: offshore payments for intellectual property usage are liable to tax at 4.95%, goods sold by Hong Kong consignment agents on behalf of non-residents are also liable to tax on 0.5% of gross proceeds. On the other hand, bank deposit interest, interest on Tax Reserve Certificates, interest income on long-term debt instruments, dividends and capital gains are free from tax.

With the low tax rates there are also other regulations that protect business from unjustified taxes. Hong Kong is fully committed to its double tax agreement with thirty three nations, including PRC, Thailand and Belgium, to relieve companies from having to pay two taxes on one set of profits, as a result of multinational enterprise and multiple jurisdictions. For full details on Hong Kong's double tax agreements, see the website for the Inland Revenue Department of Hong Kong (IRD).

Companies that conduct business through a branch in Hong Kong or are incorporated in Hong Kong cannot offset losses against the profits of other members in a group of companies –through consolidated accounting systems, however the Hong Kong jurisdiction allows losses to be carried forward indefinitely. Assets are depreciated at authorized prescribed rates of depreciation, for example, computer equipment can be depreciated at 100% in the first year.

The general procedure for corporate taxation after incorporation in Hong Kong is straightforward. Typically a Hong Kong incorporated company will be tracked by the Hong Kong authority and sent a tax return at year end. Even when no tax return is issued to a company, they are responsible for notifying the government of any profits liable to tax. In standard practice, estimated tax assessments will be issued provisionally during the tax year based on historic profit information. A final assessment will then be released after filing of the tax return.

It should be noted that the Hong Kong tax year begins on April 1st. Also, companies liable to tax in Hong Kong are required to fulfill accounting and auditing standards i.e. be audited by a firm of Hong Kong accountants.

Other Taxes

In Hong Kong, people also benefit from zero sales tax, zero value added tax and zero annual net worth taxes.

In the 2009 Index of Economic Freedom, Hong Kong has once again been placed first, the fifteenth consecutive year it has held this position. The index is an annual survey conducted by The Heritage Foundation and The Wall Street Journal that compares 183 countries in relation to 10 ‘freedom’ variables including business freedom, investment freedom, property rights, freedom from corruption and more. 

Economic freedom is still largely regarded as an important key to growth and prosperity. As free trade is the life-blood of Hong Kong, Hong Kong embraces globalisation of trade and services. There are no barriers to trade – such as tariffs and quotas – being put in place, and there is no foreign exchange controls or restrictions on both inward and outward investments. Additionally, the Hong Kong Government also does not place any nationality restrictions on corporate or sectoral ownership. This makes company formation in Hong Kong an attractive and relatively fuss-free option.

It has been proven that investing in Hong Kong is a very attractive and popular proposition for investors. According to the latest World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD) in 2008, Hong Kong was the world's seventh and Asia's second largest Foreign Direct Investment (FDI) recipient, attracting US$54.4 billion worth of inward investment in 2007. Taking into consideration the small size of Hong Kong, it comes as no surprise that it was also ranked first globally in the report's Inward FDI Performance Index – which measures the amount of FDI relative to the size of the economy.

Gateway to Mainland China

Situated at the mouth of the Pearl River Delta (PRD), Hong Kong is strategically located for trade with Mainland China. China's rapid economic development of increasingly competitive industries has created more opportunities for even greater economic expansion. With the Closer Economic Partnership Arrangement (CEPA) that took effect in 2004, Hong Kong can now benefit from additional and exclusive Mainland market access. Company incorporation in Hong Kong would mean that the vast market of Mainland China is readily accessible.

Mainland China is now Hong Kong's largest trading partner and they are both key to one another's economic success. Hong Kong is the largest source of overseas direct investment in Mainland China. Mainland China’s direct investment in Hong Kong is also a very significant – accounting for 40.7% of the total stock of inward direct investment in 2007. This shows that there is great interdependence between Hong Kong and Mainland China’s economies, and that by incorporating a company in Hong Kong, it serves as a great springboard for expansion into Mainland China.

Low Taxes

At 16.5%, Hong Kong’s corporate tax rate is among the lowest in the world. Hong Kong adopts a territorial basis principle of taxation, where only profits which have been sourced in Hong Kong are taxable.

The effective tax rate is even lower after taking into consideration tax exemptions and deductions such as Industrial Buildings Allowances on Industrial Buildings and Structure, Commercial Buildings Allowances on Commercial Buildings and Structures, Plant and Machinery Allowances, approved Donations and other allowable Deductible Expenses in accordance to Hong Kong’s Inland Revenue Ordinance.

In addition, there is no capital gains tax in Hong Kong and no withholding tax on dividends and interest or collection of social security benefits. There is no Value-Added Tax (VAT) in Hong Kong. The limited tax base, coupled with very low tax rates, makes Hong Kong's tax incidence one of the lowest, if not the lowest, among developed economies, and therefore, Hong Kong company formation makes for a very tax efficient business entity. 

A Hong Kong company is also not perceived to be an offshore company in an international tax haven because Hong Kong is a reputable, regulated international trading jurisdiction. Annual audited financial statements must be submitted to the Hong Kong Inland Revenue Department. Also, Hong Kong company incorporation requires the appointment of a Hong Kong-resident company secretary.

In conclusion, with proper planning, company formation in Hong Kong serves as a highly effective and efficient tool for investors and entrepreneurs alike. With its free and open economy, low taxes, and strategic position as a gateway to Mainland China, Hong Kong is abundant with vast opportunities for investment and growth.

As corporate offshore banking becomes less of a money laundering technique, and more of a legitimate way for businesses to reduce their tax obligations and other costs, the benefits of corporate offshore banking are starting to become well known. Certain countries are known as tax havens because of the low tax rates offshore banking services can obtain for their customers, and there is a wealth of information regarding what offshore banking can do for your company. 

Increased privacy, protection of your assets from litigation, risk in your own country, and erosion by fees and charges are some of the most prominent benefits of having your Hong Kong business finance consultancy set up an offshore bank account. Financial consultancies in Hong Kong can also get you better interest returns, assist in inheritance tax planning and allow global access to your assets with offshore bank accounts. We look at what you will need to open a corporate offshore banking account, and how to go about it.

Of course, the easiest way to do offshore bank account opening is to have an expert do it all for you. Look for Hong Kong financial services organizations, or Hong Kong business consultancies where the staff are qualified professionals in their fields. As corporate offshore banking is often conducted in an environment where English is not a native language, look for bilingualism in your Hong Kong financial services company. Business gained by word of mouth for Hong Kong business consultancies also gives them a higher recommendation - it ensures that previous customers are satisfied.

However, for those that like to understand the process themselves, here is a guide to corporate offshore bank account opening. Some of the documents you'll need include a statement of bank account purpose - whether the account will be used for the day-to-day payment of expenses and storage of income, or whether it will be a mostly deposit corporate offshore banking account. The intended annual turnover and the origin of the funds in the account should be included with this information. Put this is with your application whether or not your bank has asked for it.

You should obtain your company's certificate of incorporation; either get a copy from your Hong Kong company incorporation service, or look through your own records. You may, alternatively, need a Certificate of Good Standing. These should be signed and authenticated by the proper authority in your home jurisdiction. Your company's charter, including a memorandum and articles of association as well as your by laws should be included with your corporate offshore banking application, as should your director's mandate if applicable.

You should also get a copy of the registered directors of your company, as well as the registry of shareholders. You will obviously need confirmation of identity documents in order to open a corporate offshore banking account. If you can obtain banking references, have your Hong Kong financial services company obtain them for you, these should included also. You will then need to choose a jurisdiction to bank in. It can be time consuming checking all of the relevant tax legislation, fees and charges. Again, having an offshore banking service or Hong Kong financial consultancy do this for you is highly recommended.

However, the next step of choosing a bank and conducting due diligence on it is more a personal business decision than one for your Hong Kong financial consultancy. After all, you will have to deal with the bank day to day, and ensuring you are happy with their customer service team is essential. Ring their support line and see how long it takes to get an answer if you choose the existing customer option (not the sales option!), as well as checking the security of their online banking offering.