The Reasons Hong Kong Is More Than Just a Tax Haven
Corporate taxes, excluding additional levies on goods and services, range from 21% to 31% in nations including the United States, Spain, New Zealand, and Canada. Because of this, operating a firm is expensive, and municipal tax laws further drive-up costs. Because of this, a lot of businesses try to move their activities or registration to so-called "Tax Havens" in order to reduce their tax liability.
Tax havens are used by multinational firms to reduce their tax obligations, and many havens profit from other nations' low taxation policies. Hong Kong is a well-known tax haven since it offers 0% VAT on products and services and doesn't tax business earnings made outside of its borders. Because of the local government's promotion of international investment, Hong Kong is a desirable offshore financial hub. Yet, there's more to Hong Kong than merely being a tax haven.
What Is a Tax Haven?
In order to comprehend how Hong Kong goes beyond being a tax haven, it is necessary to first define one: an offshore nation that provides low or no corporation tax rates to foreign enterprises. Tax benefits can be obtained by companies established in jurisdictions such as Luxembourg, Hong Kong, or the British Virgin Islands, even if they are not physically present there. Compared to Japan's 30% corporate tax, businesses in Hong Kong pay either no tax at all if they do not operate locally, or between 8% and 16.5% if they do. Tax havens need to be politically and economically stable in addition to having low tax obligations.
Traditional and Modern Corporate Tax Havens
Conventional offshore hubs like the Cayman Islands, Bermuda, or Jersey are not like modern corporate tax havens like Hong Kong, Singapore, the United Kingdom, and the Netherlands. Multinational corporations looking to save money on taxes are drawn to modern havens, or low-tax jurisdictions, while traditional centers provide privacy and cheap taxation. For rewards, they might need to be somewhat present in the area and follow stricter guidelines for transparency. Additionally, they have a large number of tax treaties that let businesses manage international taxes and reroute income to reduce taxes.
Why Is Hong Kong Considered a Tax Haven Country?
Hong Kong was recognized as the second-best tax haven in 2020 by Price Waterhouse Coopers and the World Bank, behind Bahrain. Hong Kong receives tax income from a number of sources. Businesses must pay up to 16.5% in local taxes and 0% on their foreign profits. For the majority of imports, there are no value-added taxes, dividend taxes, capital gains taxes, or customs charges. In addition to businesses and employees contributing 5% to the Mandatory Provident Fund, residents pay salary taxes ranging from 2% to 17%. Employees of non-resident companies in Hong Kong are not liable to pay salary tax in Hong Kong. Hong Kong's tax structure, combined with its many tax treaties and low corporate tax rates, makes it a desirable place to move profits.
What Makes Hong Kong Different from Other Tax Havens?
Beyond only having low taxes, Hong Kong is considered a tax haven. It is well known for its business-friendly atmosphere, which permits organizations to register even if they don't have a physical location. Hong Kong, ranked fourth in the World Bank's Ease of Doing Business Index as of 2023, facilitates trade by acting as a gateway to China. After registered in Hong Kong, many international companies find it simpler to create subsidiaries in China, Singapore, or Vietnam. Furthermore, Hong Kong's laws and policies are very welcoming to foreign investment, permitting foreigners to own the only shares and directorships in their businesses—a very uncommon privilege globally.
Wrapping Up
Hong Kong is unique, with over 1.5 million firms registered and roughly 100,000 new ones per year, but having only 8 million people living there. Thanks to its strategic connections, influence, and prestige, which promote corporate growth, it's more than just a tax haven—it's a premier business hub. Its popularity can be attributed to several factors, other from tax benefits and low corporation taxes.
- As a major center for China and Asia, Hong Kong makes it simple for international companies to import and export goods. Establishing a business in Hong Kong makes it easier to register it later in nearby countries.
- As one of the few Asian countries free from foreign exchange regulations, Hong Kong enables businesses to send and receive payments quickly in any currency.
- Hong Kong offers remote business account setup that is fast and can be completed in a matter of days. It is home to worldwide FinTech’s and first-rate banks.
- Hong Kong's local government offers a plethora of incentives and subsidies to new enterprises.
- Even if you don't intend to do business in Hong Kong, you'll probably there because of its important international events and expos, as well as its big air transit hub.
Prism Consultancy can simplify your Hong Kong Business setup, ensuring compliance with local regulations and tax systems. They offer efficient company incorporation, help navigate the low-tax regime, and assist in setting up business accounts quickly. As experienced visa agents and immigration consultants, Prism ensures smooth operations for foreign business owners. They also provide strategic advice for optimizing your business and exploring expansion into Mainland China, Singapore, or Vietnam. Their comprehensive services make your business journey in Hong Kong seamless and successful.