Hong Kong Companies
Hong Kong has a significant trading economy and is a center for both
multinational and local companies operating in Asia. Although not commonly
regarded as a tax haven, Hong Kong companies have significant tax advantages
including low rates of taxation and the ability to legally earn profits
tax-free under certain conditions.
Hong Kong companies can easily carrying out business in the Peoples Republic
of China and throughout Asia. Hong Kong incorporated companies are
increasingly becoming the chosen entities for conducting trading activities
in Asia as they benefit from a tax friendly environment and business
friendly legal system.
Below are the highlights of the benefits of Hong Kong companies
Taxation of Hong Kong Companies
Taxation of Hong Kong companies is based on a territorial source principle
rather than based on residency. This translates to individuals and companies
incorporated in Hong Kong paying tax only on income or profits earned or
sourced in Hong Kong.
The taxation system is relatively straightforward with the following major
Profits Tax - based on a company's trading profit
Salaries Tax - based on an individual's income
Estate Duty - no estate duty is payable with effect from 11 February 2006
There are no taxes on capital gains, no withholding taxes on dividends or
interest and no sales taxes.
Profits Tax of Hong Kong Companies
Profits tax of Hong Kong companies is levied at the rate of 17.5% (FY2005
and FY2004) / 16% (FY2003) on taxable profits arising in Hong Kong.
Deductions are given for expenses incurred in earning assessable profits.
The determination of where profits are earned is the key to whether profits
are taxable in Hong Kong. If profits are earned from activities that take
place entirely outside of Hong Kong then these profits would not be taxable
in Hong Kong. It is possible for certain 'back office' functions to take
place in Hong Kong without creating a tax liability; it is even possible for
funds to be received and paid out of the company's bank account in Hong Kong
without jeopardizing the tax status.
It should be noted that the offshore profits tax exemption outlined above is
a legal exemption and not achieved through non disclosure. There is well
developed case law and it is even possible to obtain advance rulings from
the Hong Kong tax authorities.
Salaries tax is levied on the income of individuals arising from employment
within Hong Kong. There is a sliding tax scale with a ceiling of 16% of
taxable income. Various allowances and relieves are available.
Apportionments may be used for individuals based in Hong Kong if part of
their duties are performed outside of the SAR. Professional tax planning is
often beneficial to ensure the maximization of allowances and the
minimization of income subject to tax.
Estate duty in Hong Kong has been abolished with effect from 11 February
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