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Hong Kong
ASIACITI TRUST IN HONG KONG
Asiaciti Trust Hong Kong Limited offers corporate secretarial and management services for both Hong Kong companies and offshore companies principally from the British Virgin Islands, Samoa, Bahamas, the Cayman Islands, and the Cook Islands. Offshore trust services and advice on international tax and pre-migration planning issues are also provided. The Hong Kong office is also responsible for the marketing of the Asiaciti Trust Group services and products in Hong Kong, the People's Republic of China and Taiwan.
HONG KONG - A TAX EFFECTIVE INTERNATIONAL TRADING CENTRE
Hong Kong is internationally recognised as the most commercially acceptable offshore jurisdiction for international trading companies. The commercial image of Hong Kong is enhanced by :
- its status as a major trade, shipping and commercial centre. Hong Kong is regional business centre with well established commercial links particularly for trade with China and the North Asian region. It is the world's largest container port.
- its recognition as one of the four major financial centres of the world with leading global ratings for banking, trade finance, funds management, securities dealing, foreign exchange dealing, and investment banking services.
This commercial respectability combined with Hong Kong's low tax regime and lack of exchange controls, makes it uniquely attractive for offshore based international trading and investment transactions.
In July 1997, Hong Kong became a Special Administrative Region of China, with considerable autonomy in running its own affairs and with guarantees by the Chinese Government to preserve the stability and prosperity of Hong Kong.
Taxation system
Hong Kong is recognised as a low tax jurisdiction rather than as a tax haven. Taxation is based on a territorial concept, i.e.it does not tax foreign sourced income. Taxes are levied on profits, salaries and property. Interest income derived from any deposit placed in Hong Kong with a financial institution is exempt from profits tax, unless the deposit secures a borrowing the interest expense of which is deductible. There is no sales nor value added tax, no capital gains tax, no taxes on dividend income, no withholding taxes on dividends or interest nor on undistributed profits. Only profits derived from sources in Hong Kong are assessable. Consequently the primary criterion for determination of liability to Hong Kong tax is the location of the transaction(s) that gives rise to the profits. Corporate residency has no significant relevance in such determination.
Corporations carrying on business in Hong Kong are subject to profits tax which is levied at 16.5% on assessable profits. Royalties paid to non-residents may be subject to a deemed profit rate of 30% and is charged to Hong Kong Profits Tax. The normal tax rates, which for 2008/2009 are 16.5% for corporations and 15% for other persons, giving an effective withholding tax rate of 4.95% and 4.5% respectively on royalties. Hong Kong has entered into comprehensive double tax agreements with Belgium, Thailand, PRC, and Luxemburg. There are no exchange controls nor restrictions on the remittance of dividends nor on the repatriation of capital or profits.
All companies registered in Hong Kong must file profits tax returns annually unless exempted therefrom. Companies registered to carry on business in Hong Kong must obtain a business registration certificate, currently HK$450 p.a. (US$60) for the 2008/2009 fiscal year.
Corporate Law
Corporate law in Hong Kong is founded on English common law. The Companies Act is based on the United Kingdom 1948 Companies Act with the last substantive amendments made in 1984.
A Hong Kong Company must have a company secretary resident in Hong Kong and maintain a registered office there. Each company must have a minimum of one director who need not be resident in Hong Kong. If the company has a sole director, that person is not allowed to act as its compnay secretary. Corporate directors are permitted for companies which are not subsidiaries of public companies. The minimum number of shareholders is one and bearer shares cannot be issued. Accounting records must be maintained and audited annually by a locally registered auditor. An annual return must be filed within 42 days of the anniversary date of incorporation. Penalties are imposed for non-compliance.
A foreign corporation can establish a branch office in Hong Kong by registering as an overseas company. It must maintain a registered Hong Kong address and appoint an authorised representative situated in Hong Kong. The Hong Kong branch of a foreign company may be exempted from the need to prepare audited accounts if it is not required to do so under its domestic law.
TAX EFFECTIVE USE OF HONG KONG COMPANIES
It will be apparent from the above comments that a properly structured Hong Kong company or Hong Kong branch of a suitable foreign company can be used to minimise global tax liabilities on international trading profits. Under the Hong Kong laws a company will be liable to profits tax if it (a) carries on a trade (profession or business) in Hong Kong, and (b) derives a profit from such trade, and (c) that profit has a source in Hong Kong. Consequently the liability to Hong Kong profits tax can be legally avoided by ensuring that the company does not satisfy either (a) or (c). A company which is established so as not to carry on a trade, profession or business in Hong Kong will not be liable to profits tax in Hong Kong. Secondly, a company that is carrying on a trade (profession or business) in Hong Kong can structure its trading transactions to ensure that the profits do not have a source in Hong Kong.
There are a number of factors that need to be considered in determining the source of income or profits. However in the Hong Kong profits tax context the two most important factors are the negotiation and conclusion of the contracts that give rise to the profit. If the purchase contracts and sales contracts are effected outside Hong Kong then the profits do not have a source in Hong Kong.
The Hong Kong office of Asiaciti Trust can assist clients to set up and operate Hong Kong based trading structures in a tax effective manner.
For further information, please send email to
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