Considered one of the most open and outward-facing economies in the world, Hong Kong is probably the best place to do business. First, it has a great location in the geographical center of Asia, which provides quick and easy access to the region's major markets. Located on the south-east coast of China, 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 that is open to all: there are no restrictions on foreign or foreign investment and no trade barriers like Quotas, tariffs or exceptions. In addition, there are no restrictions on the nationality of any sector or company, no exchange controls, and a simple tax system 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 because tax rates are very low – dividends, offshore income, and capital gains are not taxed at all. Hong Kong applies the territorial source principle when collecting taxes. This means that income is generally only taxed if it comes from doing business or trading within Hong Kong. Nonetheless, there are a small number of sources of income to which the territorial source principle does not apply, and that income is taxed at the 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 that different types of income are taxed separately. Taxes on corporations are: corporate income tax (tax on income from business, professional services or commerce in Hong Kong), wage tax (tax on income from employment, office or pension), and wealth tax (tax on income earned on Hong Kong real estate).
For corporate income tax, the 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). Investment income is not subject to taxation. Dividends from local companies are subject to taxation, but dividends from foreign companies are not, as they are offshore in nature. The tax residence is not important for the calculation of the profit tax, but only for agreements or agreements on double taxation.
The wage tax is levied progressively on a scale between 2% and 17% or at the standard rate of 15%. Salary tax includes salaries, bonuses, commissions, pensions, vacation pay, fees, allowances, etc. There is a 60-day income exemption, which means that anyone who visits Hong Kong for less than 60 days per calendar year is exempt from payroll tax. In some cases, however, depending on the employment relationship, a tax return is required. Hong Kong property tax is currently 15% payable by the owner of the building or land.
Advantages of choosing Hong Kong
There are many benefits to starting a business in Hong Kong. First of all, company registration is easy and inexpensive. Your biggest expense will be the flight to open your bank account, although in some cases it can be done remotely. Hong Kong has an excellent, world-renowned banking system and an excellent communication infrastructure. There is no minimum share capital requirement and only one shareholder and one director is required to set up a limited liability company. In addition, there are no restrictions on foreign directors or shareholders with Hong Kong based companies. The main business language is English – one of the official languages in Hong Kong. All communications, information and documents can be created 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, a cosmopolitan spirit and strong and established institutions. With its pro-business government, Hong Kong has been voted the most liberal economy in the world for 20 years in a row. It is probably the ideal choice whether you are starting or continuing your business adventure.