Hong Kong

INTRODUCTION

It is one of the leading Asian centers for both finance and commerce. It is a major gateway for investment and finance into China and the rest of Asia. The Legal System on which Hong Kong is based on is the British legal system which is well adopted. Each company is a separated legal entity and is well protected by laws and regulations. Banking accounts can be opened for Hong Kong companies in different currencies with international reputable banks.

TAXES

Hong Kong is one of the few countries in the world that tax is charged 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 of HK taxes.

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 17.5% tax rate only. Therefore, Hong Kong, as an international financial centre, is considered an extremely cost-effective tax-planning vehicle for business.

No double taxation treaty: This implies there is no exchange of tax information between HK and other countries. Hong Kong is not subject to review by the OECD, leaving HK as one of the few respectable international banking centers not subject to automatic exchange of information on savings accounts belonging to EU residents.

USES OF HONG KONG COMPANY

Companies may be incorporated in Hong Kong for a broad variety of business purpose:

  1. Trading: Hong Kong companies can engage in trading activities e.g. handling shipment of goods, invoicing and letters of credits etc.
  2. Market Entry: Hong Kong companies can enter the market, expand research, promote planning and promote trading.
  3. Investment: Investment accounts for securities, bonds, options, precious metals etc. can be opened for Hong Kong companies. Capital gains and dividends are tax-free in Hong Kong.
  4. Re invoicing: Many Hong Kong companies are used for re-invoicing purposes. Profit made on buying goods from one country (e.g. China) and reselling to another (e.g. Bulgaria) will be tax-free as goods are shipped directly between two countries, without going through Hong Kong.
  5. Income: Overseas commissions, royalties from patents, books, rights, consultation fees, rental fees, interest, dividends etc. are tax free in Hong Kong and can be received in the name of a Hong Kong company.
  6. Asset Holding: Hong Kong companies may hold overseas or local real estate, vessels, companies, stock, etc. to protect owners from estate tax, probate, and divorce settlements. Asset can change hands easier and cheaper by transferring the shares of the holding company.

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