Considered one of the most open and cosmopolitan economies in the world, Hong Kong is probably the best place to do business. First, it has a great location in the geographic center of Asia, offering quick and easy access to the region's major markets. Located on China's south-east coast, Hong Kong is the world's largest single market, not least because its economy is built on free trade, free enterprise and the free market open to all: there are no restrictions on domestic or foreign investment and no barriers to trade such as Quotas, tariffs or exceptions. In addition, there are no nationality restrictions on sectoral or corporate ownership, no exchange controls and a simple tax regime in this jurisdiction. Hong Kong also has the lowest corporate tax rate (currently 16.5%) of any major Asian economy.
Taxation and the tax system in Hong Kong
Hong Kong is often referred to as a tax haven as tax rates are very low - dividends, offshore income and capital gains are not taxed at all. When levying taxes, Hong Kong applies the principle of territorial source. This means that income is generally only taxed if it comes from business or dealings within Hong Kong. However, there are a small number of sources of income from companies that are not subject to the territorial source principle, and such income is taxed at source (e.g. royalties received by non-residents for the use of literary property or copyrighted material).
Hong Kong has a scheduler income tax system, which means different types of income are taxed separately. For corporations, the relevant taxes are: profit tax (tax on business, professional services or trade income in Hong Kong), payroll tax (tax on employment, office or pension income) and property tax (tax on income earned from Hong Kong real estate).
As for corporate income tax, the tax rate is 15% for unincorporated companies and 16.5% for corporations (the lowest in the region, compared to 17% in Singapore and 25% in mainland China). Capital gains are not taxable. Dividends from local companies are taxable, but dividends from foreign companies are not, as they are offshore in nature. Tax residency is not relevant for the calculation of income tax, only for double taxation treaties or arrangements.
Payroll tax is levied at a progressive rate on a scale between 2% and 17% or at the standard rate of 15%. Payroll tax includes salaries and wages, bonuses, commissions, pensions, holiday pay, fees, gratuities, etc. There is a sixty-day income exemption, making anyone visiting Hong Kong less than sixty days per calendar year exempt from payroll tax. Depending on the employment relationships, however, a tax return is required in some cases. Property tax is currently 15% in Hong Kong and is payable by the owner of the building or land.
Advantages of choosing Hong Kong
Incorporating a company in Hong Kong offers many benefits. First of all, company registration is easy and cheap. Your biggest expense will be the flight to open your bank account, although in some cases this can be done remotely. Hong Kong has an excellent, world-renowned banking system and excellent communications infrastructure. There are no minimum share capital requirements and only one shareholder and director is required to incorporate a limited liability company. In addition, Hong Kong resident companies have no restrictions on foreign directors or shareholders. The main business language is English - one of the official languages in Hong Kong. All notices, information and documents can be prepared in English.
As you can see, Hong Kong is a great place for your business for many reasons. It is an international economic center with a reliable and stable legal system, an open-minded spirit, and strong and well-established institutions. With its pro-business government, Hong Kong has been voted the world's most liberal economy for 20 years in a row. It is probably an ideal choice whether you are starting or continuing your business adventure.