SYNOPSIS: Reintegrated into China under the banner of one country two systems in July 1997 when the former colonial power, Britain, surrendered control. Since 1997 Hong Kong has undergone a readjustment period with some contraction in tourism and the general economy. Nevertheless, China has not tried to intervene too much in the running of the economy with corporate and fiscal laws remaining almost identical to those in operation during the former British administration. Geographically strategic location in South East Asia. The main financial centre in South East Asia. Excellent communications and infrastructure. No currency controls. Low corporate tax applied only on a territorial basis. Virtually no double taxation treaties. No capital gains or withholding taxes. Legal system based on the English common law. Highly developed shipping centre. Technically not a tax planning jurisdiction but treated as such by many international traders. Population is approximately 6,500,000

 

 

 

In many ways Hong Kong could be considered one of the three major trading hubs of South-East Asia together with Singapore and Malaysia. Like Singapore it has a territorial system of corporate taxation making it a very attractive international/regional corporate base especially when combined with administrative facilities in a low, zero or exempt tax jurisdiction. Further, even where transactions do take place in Hong Kong corporate tax on Hong Kong derived profits are only 16% (although it should be noted that the corporate tax rate is prospective in the first year meaning that the actual tax liability in the first fiscal year is effectively 32%) with a similarly attractive tax regime for individuals. One downside to Hong Kong is that the territory only has a very limited double taxation treaty network and even where treaties do exist they are not comprehensive. For this reason Hong Kong companies tend to be purchased primarily as trading vehicles and not for intellectual, interest or dividend exploitation. It should be noted that whilst Hong Kong has a territorial tax system, it is important to show to the local Inland Revenue department that there is a logical purpose to locating the company in Hong Kong. This normally means that certain functions must be carried out, e.g. such as issuing letters of credit from the territory, which expose the company to local, albeit controlled, and somewhat voluntary tax exposure

 

 

COMPANIES

 

The Hong Kong Company Ordinance is very closely related to the British Companies Act of 1948 with the issuance of virtually identical Memorandum & Articles of Association. For tax planning purposes the principal company employed is the private company limited by shares although there are also public limited companies

Double Taxation Treaty Network

 

As already stated, Hong Kong has only partial tax treaties, one with the United States and the other with the United Kingdom.