Hong Kong is not an offshore centre in the usual sense, but rather a territory that offers a favourable low-tax regime governed by the ‘territorial principle’, under which only income arising in or derived from Hong Kong is taxable there. This makes it the ideal location for a holding company. As such its attraction lies not in the tight secrecy, minimal corporate disclosure and administrative requirements which characterize a number of offshore common-law island jurisdictions, but rather in low tax rates, generous tax-deductible allowances, taxation only on income from within the jurisdiction and the complete absence of taxes on capital gains, withholding, interest, sales or VAT.
The establishment of an office in Hong Kong does not of itself render a company liable to profits tax where that office is not generating profits from within the territory. Indeed Hong Kong has been a favourite choice for regional headquarters, for this reason.
The total number of overseas and Mainland Chinese companies running business operations in Hong Kong was 8,225 in 2017, an increase of 3% on 2016 , according to the Census and Statistics Department survey.
Invest Hong Kong is the Hong Kong government department responsible for foreign direct investment and supporting Mainland, Taiwanese and overseas businesses setting up or expanding in Hong Kong. The ‘Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong’ aims to elucidate the profile of those businesses and their views on the business environment in Hong Kong.
Of the total number of companies, 1,413 are regional headquarters (RHQs), 2,339 are regional offices (ROs) and 4,473 are local offices (LOs). Director-General of Investment Promotion, Simon Galpin, said that the survey had shown “the highest increase in the number of LOs. We work with these companies to help them set up and expand their business and to, hopefully, fulfil their potential as the RHQs and ROs of tomorrow.”
In terms of sectors, finance and banking demonstrated the most robust growth and, it was said, reinforced Hong Kong’s status as a world-leading international financial centre
With regard to country of origin, more than half of the parent companies came from four countries. Japan with 1,378 companies, the USA with 1,313, Mainland China with 1,264 and the UK with 675.
Galpin added “we are seeing greater numbers of overseas companies setting up in Hong Kong as a base from which to expand into the Mainland and beyond. The same is also true of Mainland companies that use Hong Kong as a springboard from which to go global. This phenomenon highlights the strategic importance of Hong Kong to access business opportunities in the Mainland as well as offer geographical proximity to north and south-east Asian markets.”
When choosing to set up RHQs, ROs or LOs, the top five factors in Hong Kong rated as most important were its simple tax system and low tax rate, free flow of information, corruption-free government, absence of exchange controls, and political stability and security. Evidently, the rapid opening up of mainland China, and Hong Kong’s special relationship with the mainland, have increased the attractions of Hong Kong as a regional base from which to operate.
Hong Kong has thrived historically as a trading entrepot serving many Asia Pacific countries and also as a low-cost manufacturing centre, and has turned towards the provision of services, particularly financial services. Its economic success is largely based on a whole-hearted adherence to free and open trade, the values encompassed in a British common law legal system and a laissez-faire, non-interventionist attitude on the part of government. There are few if any significant barriers to investment by foreigners. The government has consistently followed business friendly policies and continues to do so. It is not an ‘offshore’ jurisdiction as such, but has low tax rates which are levied only on Hong Kong-source income. There is no capital gains tax, no withholding tax, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them.
- Country: Hong Kong
- Region: Asia
- Currency: Hong Kong Dollar (HKD) (HK$)
- Languages: Cantonese, English
- Time Zone: UTC +8
- Phone Code: +852
- Communications: Very Good
- Capital primary business districts: Victoria, Kowloon
- Good Relationships: China, Singapore, United States
- Bad Relationships: Burma, Cuba, Iran, Korea (Democratic People’s Republic of), Libya, Somalia, Sudan, Syria
- Hong Kong is one of the most liberal economies in the world and also a prominent banking hub. It is an epicentre of foreign investment, and international capital transactions are a cinch.
- Hong Kong is the most convenient gateway to do business in and with mainland China, owing to the Closer Economic Partnership Arrangement (CEPA).
- The corporate tax in Hong Kong is just 16.5%, and the taxation simple is simple.
- In terms of infrastructure, Hong Kong is one of the most developed countries in the world, with several international corporate offices housed in it.
- The general populace of Hong Kong is educated, skilled and English-speaking – so sourcing human resources for deploying a business here is not a problem at all.
- 100% foreign ownership is permitted for a Hong Kong company.
- Hong Kong has a reputation as being the best route to begin doing business in China for western countries.
- Hong Kong is a developed nation with a highly advanced business infrastructure.
- Hong Kong is rated as one of the least corrupt countries.
- Headline tax rates: CIT 16.5%, PIT 15%, VAT 0%
- Treaty Jurisdictions: Austria, Belgium, Brunei, Canada, China, Czech Republic, France, Guernsey, Hungary, Indonesia, Ireland, Japan, Jersery, Kuwait, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, New Zealand, Portugal, Qatar, Spain, Switzerland, Thailand, United Kingdom, Vietnam
- TIEA Jurisdictions: Denmark, Faroe Islands, Greenland, Iceland, Norway, Sweden, United States
One thing to remember about taxation in Hong Kong is that the exemptions from corporate taxes do not apply to individuals who are subject to income taxes in their home countries. For instance, if you own a Hong Kong corporation which pays you a salary, your wages will be subject to income taxes in the country in which you reside if it taxes worldwide income, or in some countries, the income of the corporation itself.
No corporate or income taxes are imposed if the sole source of income is generated outside of Hong Kong. The corporate tax rate is 16.5% for all profits derived from income sourced in Hong Kong. The tax is paid by the company and not the individual shareholders. Annual tax returns are filed with the Inland Revenue Department (IRD).
- Suitable for: Banking, Insurance, Fund Management, Shipping, Trading Goods, Trading Financial, Intellectual Property/Licensing, Holding Companies, E-commerce, Property Ownership
- Company Types: Limited companies, public limited companies, trusts, branches, general partnerships, limited partnerships and sole proprietorships
- Formation Cost: 2000 – 2800 USD$
- Formation Time: 12 – 20 days
- Maintenance cost: 600 – 1200 USD$
- Decide upon a name for your company.
- Prepare the Articles of Association (AoA) and incorporation form to submit to the Business Registration Office.
- Get the required documents signed by the director(s) and the shareholder(s).
- Submit these documents to the Companies Registry, along with paying the required fee.
- The Companies Registry examines the application, and issues a Certificate of Incorporation if everything is in order.
- Arrange for the statutory books of the company.
- Get a corporate bank account opened by presenting the certified documents of the company to a desired bank.
Trading Company: Corporations can no longer open a sole trading company in Hong Kong unless obtaining residential status. However, a limited company can be opened without having to obtain residency. A foreigner has the option of traveling to Hong Kong to open the company, but this is not a requirement. A limited company simply needs to maintain an office and secretary in Hong Kong.
Office & Secretary: Hiring a secretary in Hong Kong is a relatively easy process. Finding an office to rent is more involved. However, several agencies exist that can help you obtain the required office for 5-6,000 HKD each year. Furthermore, not only are these agencies typically provide experienced secretaries for many companies. The same agencies also provide a registered office in Hong Kong.
Registration: Your corporation can be formed easily without traveling to Hong Kong. A corporation has the option of registering faster online. Registration for corporate status in Hong Kong typically takes place through your chosen agency, as you will complete the necessary documentation with them and then pay your fees.
Corporate Name: To start the documentation process, you need to pick a unique name for your company and have your agency make sure that no other Hong Kong Corporations have the same name.
Identification: Next, provide a copy of the corporation owner’s passport along with a second document proving residency (like a driver’s license), and completion of a basic questionnaire about the business as well as the names of the directors and shareholders must be completed.
Registered Agent: Upon completion of providing these documents, your registered agent will help set up your corporation by completing the electronic registration process. This process is short and fast with many foreigners reporting completion under two hours once the appropriate documentation is received by your agent.
Certificates: Once registration is complete, the corporation will be provided with a Certificate of Incorporation and Business Registration certificate.
- A copy of the Articles of Association of the company
- An incorporation form specifying the following details:
- Company name
- Registered address
- Brief description of business activities
- Particulars of shareholders, directors and company secretary
- Liability of members
- Share capital registered on incorporation
- Number of shares allocated to subscribers
- Copies of Hong Kong identity card and residential address proof (for resident directors and shareholders)
- Copies of passport and overseas residential address proof (for non-resident directors and shareholders)
- Copies of parent company registration documents such as Certificate of Incorporation and Articles of Association (for corporate directors and shareholders)