Hong Kong is situated at the south-eastern tip of the mainland of China, covering approximately 1,100 square kilometres. The territory includes Hong Kong Island, Kowloon, and the New Territories, as well as 235 outlying islands.
A former British colony, Hong Kong reverted to the Chinese government on 1 July 1997. China converted Hong Kong into a Special Administrative Region of the People’s Republic of China retaining its current political, social, commercial and legal system for a minimum period of 50 years after 1 July 1997. Hong Kong’s legal system is separated from China’s Mainland and English common law prevails. The Chinese government has assured a government based on the principles of “One Country, Two Systems” and “No change for 50 years”. Maintaining the laws Hong Kong has had during its English rule and the commitments of the Chinese government, guarantee a stable and mature legal system.
Hong Kong has one of the most open and modern economies in the world. Hong Kong is a prosperous city and a world-renowned business and service hub. There is a complete understanding of world markets and those of the Mainland and how business is conducted worldwide. The local language is the Cantonese dialect and Mandarin Chinese is increasingly spoken in Hong Kong. Hong Kong is not commonly referred to as an offshore financial centre but its tax advantages are significant for locally incorporated companies.
Hong Kong is a major international financial centre with a large representation of banks, insurance companies, merchant banks, fund managers, venture capital companies and other financial intermediaries.
Taxation in Hong Kong is based on a territorial source principle rather than on residency or management and control. Hong Kong companies only pay tax on profits sourced in Hong Kong and the rate of taxation is currently 16.5% on assessable profits. Hong Kong companies do not pay tax on profits sourced outside Hong Kong.
There are no withholding taxes on dividends paid to foreign shareholders, no withholding taxes on interest paid to foreign creditors, no taxes on capital gains, and no inheritance tax.
Doing business without paying tax
Hong Kong is a major domicile for offshore companies in the Asian Pacific Region. Hong Kong companies can be structured as tax free entities since a territorial source definition of profits prevails. A Hong Kong company may avoid a local tax liability in Hong Kong even though management and control are situated in Hong Kong.
Professional advice is necessary to ensure that established commercial relationships do not trigger a tax liability in Hong Kong. Hong Kong’s corporate income tax of 16,5% does not apply to foreign sourced profits but it is important to structure the business operations in accordance with best practices. Since Hong Kong is a significant trading economy, a Hong Kong company does not have an offshore or tax haven image.
Favourable double tax treaties with Luxembourg and Belgium
Hong Kong concluded interesting double tax treaties with Luxembourg and Belgium. A parent-subsidiary structure between Hong Kong and one of these two European countries can lead to a tax-efficient solution for many entrepreneurs and investors. Very interesting solutions.
Do not hesitate to contact us if you would like to receive more information about Hong Kong and the potential solutions.