Many countries consider Hong Kong an offshore jurisdiction; the attitude of the Government, however, is that the territory is not an offshore centre in the traditional sense of the word but rather a low tax area which levies tax according to the territorial principle. Anyway, the result is that by using an appropriate corporate structure, the profits from most types of business activity can accrue in Hong Kong without being taxed – only those earning streams which directly result from activity in Hong Kong itself are taxed, and even then at a maximum of 17.5%.
Hong Kong’s tax system activities are as follows:
- There are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them. Taxes are only levied on income “derived from or arising in” Hong Kong and not on income sourced outside the Territory. The residential or non-residential status of an entity is irrelevant. Advance tax rulings are available on the question of whether or not for profits tax purposes trading income is deemed onshore and taxable or offshore and tax exempt.
- The establishment of an office does not of itself render a company liable to profits tax where that office is not generating profits from within the territory. A key criterion is a place where the contract was negotiated and signed. Income relating to a sale contract negotiated by the seller from the territory by way of facsimile or telephone where the negotiation did not require travel outside the territory is deemed Hong Kong source income for profit tax purposes. Likewise, if the contract is negotiated and signed outside the territory and the goods sold are not sourced from within the territory then any income arising is not deemed Hong Kong source income for profits tax purposes. This is often achieved by utilizing an offshore company which re-registers in the territory as a foreign company but whose directors both remain non-resident and negotiate and execute the contract from the offshore jurisdiction.
- Where the Hong Kong entity is merely a booking center in the sense that it does not negotiate or draft the sale agreement (which is carried out abroad) but merely issues an invoice on instructions, operates a bank account and maintains accounting records covering the transaction then the income from such a transaction is not deemed Hong Kong source income for profits tax purposes.
- An entity whose business is to grant rights to use a trademark, copyright, patent, know-how or other types of intellectual property pays a flat profit tax of 1.75% (17.5% on 10%) of the payment received with all related expenses being non-tax deductible.
- If the recipient of the payment is a related offshore licensing company the Hong Kong company must withhold and hand over 1.75% of the fee paid over.
- Income from the international operations of shipping companies is exempt from tax unless the ships are operating in Hong Kong waters or proximate to the same in which case only that proportion of income earned in Hong Kong is subject to local tax of 17.5%.
- Dividend income received by a Hong Kong parent company from either a resident or foreign subsidiary is not deemed income in the holding company’s hands and is thus not subject to an assessment to profits tax
- There are 100% first year allowances for computer equipment;
In order to start with the company opening procedure please provide us with:
- name of the company (2-3 names of your choice)
- passport copy (of all directors and shareholders)
- utility bill for confirmation purpose
- cash and capital contribution/company structure (in percent for each shareholder)
- business plan
- business proof (business card, leaflet, website or contract)
- payment to the EURO COMMERCE LLC bank account