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Hong Kong as a tax haven

18th April 2011
By roleeben in Taxes
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Hong Kong is one of the most famous tax havens in the world. Hong Kong has the following tax rates:

•16.5% for companies
•15% for unincorporated businesses
•2%-17% for salaries

Hong Kong Offshore Companies and their Tax Liability
Taxes only apply to business profits, salaries and property rental income. This means there is no capital gains tax and no inheritance tax - the two biggest bugbears of expats.

The beauty of the Hong Kong tax regime is that it is one of the few jurisdictions in the world that tax on a territorial basis. Many countries levy tax on a different basis and they tax the world-wide profits of a business, including profits derived from an offshore source. Hong Kong offshore companies profits tax is ONLY charged on profits derived from a trade, profession or business carried on in Hong Kong. Consequently, this means that a company which carries on a business in Hong Kong, but derives profits from another place, is not required to pay tax in Hong Kong on those profits. Hong Kong sourced profits is currently subject to a rate of taxation of 16.5 per cent. There is no tax in Hong Kong on capital gains, dividends and interest earned. The principle of Hong Kong profits tax is that it is a tax on profits that has its source in Hong Kong rather than a tax based on residence. Income sourced elsewhere, even remitted to Hong Kong, is not subject to Hong Kong profits tax at all. Consequently, if a Hong Kong offshore company's trading or business activities are based outside Hong Kong no taxation will be levied.

A factor that determines the locality of profits from trading in goods and commodities is generally the place where the contracts for purchase or sale are effected. "Effected" does not only mean that the contracts are legally executed. It also covers the negotiation, conclusion and execution of the terms of the contracts.

If a business earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission income is the arrangement of the business to be transacted between the principals. The source of the income is the place where the activities of the commission agent are performed. If such activities are performed through an office in Hong Kong, the income has a source in Hong Kong.

Certain sums, like royalties, paid or payable to non-resident persons for use of or right to use certain intellectual property are subject to withholding tax. The payer who claims deduction for the use of the intellectual property against its assessable income is required to withhold a prescribed percentage from the payment while that recipient is not subject to Hong Kong profits tax. The prescribed percentage is 4.95% on the gross payment if the payer and the recipient are not related, but 16.5% if the payer and recipient are related. The recipients of the royalties who are tax residents of Belgium, Thailand, or Luxembourg enjoy the respective treaty rates.

Hong Kong Double Taxation Agreements
Hong Kong has arrangement with a number of jurisdictions for double taxation relief of shipping or airline income. It has also comprehensive double tax agreements with Belgium and Thailand respectively to relieve taxation on income, for instance, dividends, interest and royalties. The Hong Kong Inland Revenue Department allows a deduction for foreign tax paid on a turnover basis in respect of income which is also subject to tax in Hong Kong.
Therefore, businesses operating in Hong Kong do not generally have problems with double taxation of income. The respective comprehensive double tax agreements with Brunei, Hungary, Indonesia, Kuwait and Netherlands will become effective from 1 April 2011 to relieve the applicable double taxation on various incomes.

Hong Kong Offshore Company Banking
At Offshore Formations 247 we work closely with HSBC bank and can therefore combine the formation of your Hong Kong offshore company with a top class bank account.

Hong Kong Offshore Company Formation / Registration
Offshore Formations 247 are able to incorporate a Hong Kong offshore company. Company formation normally takes up to 7 days to register a new company.

The usual authorised share capital is HK$1,000. The minimum issued capital is one share of par value. Ordinary shares, preference shares, redeemable shares and shares with or without voting rights are all permitted.

There is no limitation on the amount of authorised or issued share capital. Capital duty at the rate of 0.1% of the authorised capital is payable to the government on incorporation and subsequent increase of any amount of the authorised capital. Shares must be expressed in a fixed amount. Hong Kong does not permit no par value shares. While it is usual for the share capital to be expressed in Hong Kong dollars, shares may be expressed in other currencies. A multiple currency share capital is also permissible.

Our Services - Offshore Company Formation, Nominee Director, Nominee Shareholder, Mail forwarding and Bank Accounts
Offshore Formations 247 specialize in Hong Kong company formations ranging from simple Hong Kong company registrations to complex structures including offshore Trusts and in providing a very comprehensive assortment of administrative services to Hong Kong companies, including the provision of Nominee Director, Nominee Shareholder, Mail Forwarding and Bank Account services. We are also able to offer a 'transfer in' service whereby we can take over the management of your existing Hong Kong Offshore Company, often for no cost at all.

Our specialist Hong Kong company formation and company registration team:
•Retains well-established affiliations with local company agents in the Hong Kong
•Maintains an experienced staff with knowledge of legal requirements for company formation in Hong Kong
•Guarantees that all company filing fees and documents are up-to-date and notifies clients of all Hong Kong compliance changes
•We are NOT tax planners or advisers and as such cannot give advice to clients regarding the advantages / disadvantages of Hong Kong offshore structures
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