Hong Kong is one of the few countries
in the world that tax on a territorial
basis. No taxes are levied on
income earned outside Hong Kong.
Consequently, this means that
a company that 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. For example, if shipment
of a trading company goes directly
from a developing country e.g.
China to a developed country e.g.
Germany, and the negotiation,
conclusion and execution of the
contracts are outside Hong Kong
as well, the income derived from
the trading is not taxable in
Hong Kong. If a business earns
commission by securing buyers/suppliers
for products, and if the arrangement
of such business to be transacted
between the principals is outside
Hong Kong, say in USA, the income
earned is also not taxable in
Hong Kong. In addition, the location
of bank accounts is insignificant.
For instance, the above-mentioned
HK companies with bank accounts
in HK will not be subject to HK
In fact, Hong Kong is a low taxation
city. Its tax laws are simple
and straight forward. Even if
income of a business is sourced
in Hong Kong, the profit derived
is subject to 16.5% tax rate only.
(Commencing on or after April 1, 2018, the
profits tax rate for first HK$2 million of
profits of corporations is lowered to 8.25%)
Therefore, Hong Kong, as an international
financial centre, is considered
an extremely cost-effective tax-planning
vehicle for business.
Hong Kong is one of the leading
Asian centres for both finance
and commerce. There are over 135
licensed banks with over 120 foreign
banks having representative offices
in Hong Kong. There are no exchange
controls and tax-free markets
exist in gold, stocks and futures.
Few restrictions exist in Hong
Kong on foreign investment or
the transfer of income and capital,
meaning that funds can be flown
freely in and out of the territory.
It is easy and convenient to open
bank accounts in Hong Kong and
the procedures involved are simple
and time saving.
No double taxation
Businesses operating in Hong Kong
do not generally have any problems
with double taxation of income
due to the territorial basis of
taxation, unilateral tax credit
relief for any Hong Kong tax paid
on income/profit derived from
Hong Kong provided by many countries
and deduction for foreign tax
paid on turnover basis in respect
of an income which is also subject
to tax in Hong Kong.
More than that Hong Kong recognizes
additional merits in concluding
double taxation agreements (DTAs)
as the result apart from DTAs
restricted to air/shipping income
not restricted DTAs were signed
with Belgium, Luxembourg, Mainland
China, Thailand, Vietnam and many
others are in negotiation status.
Hong Kong has a very stable social
and political environment. It
is located at the doorstep of
Mainland China and has excellent
relationship with China. For a
company wishing to establish a
presence in China e.g. set up
factories in Shenzhen etc.,
a HK company will certainly facilitate
the business. The HK company can
be structured to hold the shares
for the Chinese company.
Hong Kong SAR is a well-known
international, industrial and
financial centre. It ranks as
the world's third largest financial
centre after New York and London.
It has the world's largest container
port and it is a major gateway
for investment and finance into
China and the rest of Asia. English
and Chinese are the official languages.
With British legal system as background,
which is well adopted, each company
limited is a separated legal entity
and is well protected by laws
The Closer Economic Partnership
CEPA was signed in 2003 by Central
People's Government and the Government
of Hong Kong Special Administrative
Region and came into effect on
1 January 2004. It provides preferential
access to China market and reduced
tariffs for qualified enterprises.
This arrangement is exclusive
to Hong Kong. Therefore, it further
strengthens Hong Kong's position
as the ideal location from which
to do business with China.