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Hong Kong in international tax planning

Published:
July 30, 2020

Hong Kong in international tax planning is a popular jurisdiction not only in regions of Asia, but also in countries all around the world. It has reached the title of one of the most prestigious areas for registration of a company and starting of own business.

It is a jurisdiction with an honest reputation, one of the most flexible and understandable, not perceived as offshore at all. The Hong Kong tax system offers many tax planning opportunities, eliminating the risks inherent in conventional offshore companies.

You can register a company in Hong Kong in just a week. During this time, you will receive fully prepared documents.

Any citizen can register his or her organization under the jurisdiction of Hong Kong, however, the beneficiary or shareholder, or the head is required to provide information about himself or herself, which is necessary to confirm that they are not on any black lists.

Procedure for establishing an organization in Hong Kong

Contrary to popular belief, Hong Kong is not a classic offshore company. The first thing we should mention here is the taxation system in Hong Kong. This is a territorial tax collection system.

It means the following: if a company carries out its business activities outside of Hong Kong and does not import goods into the territory of this region of China, then it can obtain the status of “offshore”.

This means that no profits received are subject to any taxes.

A company does not receive the status of “offshore” if the activity in which it is engaged in some way has a connection with the territory of Hong Kong. Then the entire income of such a company is subject to income tax.

However, the rates for tax collection in Hong Kong are quite loyal and affordable for different types of business. The standard rate is 16.5%, while the first 2 million HKD are under the rate equal 8.25.

What else distinguishes Hong Kong from a regular offshore is the mandatory financial reporting and auditing. All companies, without exception, are obliged to prepare reports annually and submit the necessary declarations to the appropriate authorities.

The first declaration is filed within three months from the date the form was issued to fill out, where you also need to indicate a tax period. The organization receives the form in 1.5 years after the registration procedure.

Companies for business development

If you plan to cooperate with China, then Hong Kong will be the ideal location for registering your organization. It is not in vain that starting entrepreneurs choose this region of China for themselves, because it has an excellent reputation and loyal conditions.

Companies that are registered in Hong Kong are also uses for such a tax optimization tool as re-invoicing, and for accumulation of differences between the values of goods exported outside China.

Nevertheless, it is worth remembering that in this case it is necessary to take into account the transfer pricing scheme of the state in which the buyer’s enterprise is registered.

Opening a bank account in China

Opening a Hong Kong bank account is currently a complicated procedure. Nowadays many Hong Kong banks are abandoning their potential clients.

It will be much easier to get approval and start working with a particular banking institution if you can confirm that you live in Singapore, China, and Australia, or in one of the respectable European countries.

There is also very little chance for those beneficiaries who do not speak English or Chinese. The owner of the company is obliged to appear personally for the interview procedure and answer as accurately as possible all the questions of the bank employee.

Of course, without knowing the language you will not be able to do this. The main advantage when opening a Hong Kong account is the client’s honesty and respect for the local banking system.

Changes to  law relevant to companies

Register lists for beneficiaries were introduced in Hong Kong in 2018. Accordingly, all Hong Kong organizations are required to maintain a register that is available for inspection by regulatory authorities. Third parties do not have access to it.

Although the registers in Hong Kong are not public, as in the EU, their maintenance will require some additional costs, both financial and time.

However, if you choose a flexible, loyal jurisdiction for registering a company, with a good reputation and optimal conditions, then Hong Kong is an excellent and respectable option.

The accounting department of the company must compile quarterly, annual financial reports and provide declarations to the tax service. Contact us for more information.

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