Hong Kong companies and their benefits
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Hong Kong is regarded as one of the most open and outward-looking economies in the world, and it is probably the best place for doing business. Firstly, it has a great location at the geographical centre of Asia, affording quick and easy access to the region’s major markets. Situated on the southeast coast of China, Hong Kong is the largest single market in the world, not least because its economy is built around free trade, free enterprise and the free market, open to all: there are no restrictions on inward or outward investment and no barriers to trade, such as quotas, tariffs or exceptions. Furthermore, in this jurisdiction there are no nationality restrictions on sectoral or corporate ownership, no foreign exchange controls and a simple tax system. Hong Kong also has the lowest corporate tax rate (currently 16.5%) of any major economy in Asia.
Taxation and the tax system in Hong Kong
Hong Kong is often referred to as a tax haven, because taxation rates are very low — dividends, offshore income and capital gains are not taxed at all. In charging tax, Hong Kong implements the territorial source principle. This means that, in general, income is taxed only when it is derived from business or trade inside Hong Kong. Nevertheless, there are a small number of business income sources to which the territorial source principle does not apply, and these revenues are taxed at source (for example, royalties received by non-residents for the use of literary property or copyrighted materials).Hong Kong has a scheduler income tax system, which means that different kinds of income are taxed separately. For businesses, the relevant taxes are: profits tax (tax on earnings derived from conducting business, professional services or trade in Hong Kong), salaries tax (tax on income from any employment, office or pension) and property tax (tax on income obtained from property in Hong Kong).
As far as profits tax is concerned, the rate is 15% for unincorporated businesses and 16.5% for corporations (the lowest in the region, compared with 17% in Singapore and 25% in mainland China). Capital proceeds are not subject to tax. Dividends from local companies are subject to tax, but dividends from foreign companies are not, as they are offshore in nature. Tax residence is not important for calculating profits tax, only for agreements or arrangements concerning double taxation.
Salaries tax is charged at a progressive rate on a scale ranging between 2% and 17% or at the standard rate of 15%. Salaries tax includes salaries and wages, bonuses, commissions, pensions, holiday pay, fees, gratuities, etc. There is a sixty-day income exemption, whereby anyone visiting Hong Kong for less than sixty days per calendar year is not liable for salaries tax. However, tax reporting is required in some cases, depending on the employment arrangements. Property tax is currently 15% in Hong Kong, payable by the owner of the building or land.
Benefits of choosing Hong Kong
There are many benefits of establishing a company in Hong Kong. First of all, company registration is easy and cheap. Your biggest expense will be the flight to open your bank account, although in some cases this can be done remotely. Hong Kong has an excellent, world-renowned banking system and superb communications infrastructure. There is no minimum requirement for share capital, and only one shareholder and director is required to establish a limited liability company. Plus, there are no restrictions concerning foreign directors or shareholders with Hong Kong-based companies. The main business language is English — one of the official languages in Hong Kong. All communications, information and documents can be produced in English.