Hong Kong

Hong Kong (HK) is the third largest financial center in the world behind Tokyo and New York. Its gross national produce is surpassed in the Pacific basin only by Japan, New Zealand and Australia, and is about equal to its financial rival Singapore.

In 1997 Hong Kong’s tenure as a British colony will end, and sovereignty will be transferred to the People’s Republic of China. Under the Joint Declaration negotiated in 1984, HK will stay autonomous for 50 years in all areas except defense and foreign affairs. The Chinese have assured everyone that HK will retain its capitalistic economy and lifestyle, will direct its own legislation, and be responsible for its own financing. Nevertheless, an exodus has already started and many businessmen have left or plan to leave HK before 1997.

As a territory of the British Crown, Hong Kong cannot tax worldwide income. This policy will remain unchanged even after the ceding of HK to the Chinese.

Hong Kong is known for its political stability despite the fact that Communist China is right at its doorstep. Peking, it is said, has far more to gain if leaving its window to the west open. Others are not so sure.

Hong Kong is really not a tax haven in the conventional sense, as HK does tax local business corporations at a rate of 17% and individuals at 15,5%. HK does not tax foreign source income even if repatriated back to Hong Kong. This is unlike Singapore’s tax system, which will tax foreign source income when repatriated back into Singapore. HK is said to have a territorial system of taxation.

Capital gains go tax free in Hong Kong. Dividends, whether from HK sources or from abroad are excluded from the taxpayer’s gross income and are entirely exempt from tax. There are no withholding taxes on dividends paid to nonresident shareholders of HK companies. There are no payroll, sales, value-added, or gift taxes imposed in Hong Kong.

1. Interest on HK or foreign currency deposits placed with licensed banks and deposit taking companies carrying on business in HK are not taxed.
2. There are no withholding taxes on royalties, bank interest (described in #1 above), or dividends.
3. There is no accumulate earnings tax in HK. A company does not have to distribute its profits to its shareholders.
4. The part of an annuity payable in HK that is computed and deemed to be the capital element under provisions of the HK Inland Revenue rules is exempt from tax.
5. Alimony payments for maintenance from a husband or former husband are excluded from the computation of taxable income.

Royalties and professional fees paid to nonresidents are deductible by the HK payer as long as the expenses are commercially realistic. Only 10% of the gross royalties received for the use of a trademark, copyright, secret process, cinematographic or television film or tape, etc. are subject to HK tax. A foreign company with HK subsidiary would pay tax at an effective rate of just 1.7% for the lending of its trademark, etc. The expense incurred by the HK subsidiary permitted to be deducted when computing taxable income. Also deductible as a business expense is interest paid.

The principal forms of business enterprises used by foreign investors in Hong Kong are the public and private company, and the branch of a foreign company. The Companies Ordinance governs the formation of all HK companies. Companies may be limited or limited by guarantee.

A private company can have no more than 50 shareholders, and cannot invite the general public to subscribe to its share. A private company restricts the rights to transfer shares. Unlike a public company, a private company is not required to file a copy of its annual accounts with the Registrar of Companies.

Typically the costs for forming a HK company, excluding capital registration fees, is HK$7,000 to HK$8,000 (about US$1,2000). This represent costs for lawyers, printing, and other incidental expenses. Capital fees payable to the Registrar of Companies are HK$1,000 (about US$141) of authorized capital.

Companies are formed by lodging a Memorandum and articles of association with the Registrar, upon which a certificate of incorporation will be issued you in about 6 weeks. A public company must also file a prospectus. A company can commence business immediately after receiving its certificate of incorporation. In the case of a public company, a statutory meeting of shareholders is required no sooner than 1 month, and not later than 3 months, after the date it is allowed to commence business.

Every company is required to keep proper books at the company’s registered office, which must be in Hong Kong. An independent auditor must be appointed by the company to report to the shareholders on the accounts examined by him.

There is an estate duty on resident and nonresident estates over HK$2,000,000. The estate tax rate begins at 6% and tops-out at 18% on estates over HK$5,000,000. Shares held in HK companies are subject to HK estate taxes. HK businessmen often use a Panamanian or Vanuatu holding company to hold their HK and other assets to avoid the HK estate taxes. This is a legitimate and recognized tax planning technique.

Hong Kong is a common-law jurisdiction. The HK Trust Ordinance was modeled after the English Trustee Act of 1925.

Because HK does not tax capital gains, dividends or foreign source incomes, passive investments of many types can be held in a HK trust. For example, interest on U.S. Treasuries paying 11% pa could be received 100% tax free by a HK trust. Note, the issue date of the U.S. Treasuries would have to be after 7-18-84, as the Tax Reform Act of 1984 repealed interest withholding taxes on bonds issued after (but not before) that date.

Beneficiaries, whether resident or nonresident, are not subject to any form of tax on the distributions made by the trust. There is no requirement that a trust be registered, and a HK trust does not have to file annual returns.

Hong Kong Company & Hong Kong Bank Account

You can now easily acquire a prestigious world class Hong Kong company and Hong Kong bank account with internet banking and an ATM card for a surprisingly low cost. For full particulars just follow this link to the right. HONG KONG.

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