Why Hong Kong is More Than Just a Tax Haven

If you open a company in another country like the United States, you’ll end up paying 21% in corporate taxes. Or in Spain, you’ll pay 25%, 28% in New Zealand, or 31% in Canada.

And this doesn’t include the duties you need to pay for goods and services sold.

Running a business is undoubtedly expensive, and depending on where the business is operating, it definitely remains expensive because of local tax rules.

So it’s no surprise when we hear about companies moving their registration, or even their whole operations, to what we know as, Tax Havens.

Tax havens are a great way for businesses to minimize the amount of taxes.

At the same time, they can maximize the profits they make by taking advantage of the low tax regime that other countries offer.

It sounds simple enough, right? Who could say no to saving money?

One of the most popular tax havens in the world is Hong Kong.

It doesn’t tax corporate profits made outside the territory.

The local government encouraged foreign investment.

And the companies that choose to do business in Hong Kong will find a generous 0% VAT on goods and services sold.

However, while commonly known as a tax haven, Hong Kong is much more than that.

What is a tax haven?

Understanding how Hong Kong is more than a tax haven starts with understanding what really makes up a tax haven.

So, What exactly is a tax haven?

Essentially, a tax haven is an offshore country that offers foreign businesses extremely low to no tax rates.

Businesses registered in countries like Hong Kong, Luxemburg, or the British Virgin Islands usually don’t need to be physically present in these countries to enjoy tax incentives.

For example, if you register your business in Hong Kong, you will pay zero corporate tax if you don’t actually run your business from Hong Kong; or, if you do have operations in Hong Kong, you’ll only be paying between 8% and 16.5%.

Other than offering low tax liability, a tax haven must also have a politically and economically stable environment.

Why is Hong Kong considered a tax haven?

In 2020, accounting firm Price Waterhouse Coopers and the World Bank ranked Hong Kong as the world’s most friendly tax system, second only to Bahrain.

The corporate tax for companies goes from 0% for any business conducted outside Hong Kong, to a maximum of 16.5% for business in the territory.

There are no Value-Added Taxes on goods and services, no tax on dividends, and no customs duties on most imported goods.

In terms of salary tax, Hong Kong residents pay between 2% to 17% tax.

As well, any employees of a Hong Kong company who do not live in Hong Kong are not subject to salary tax in Hong Kong.

What makes Hong Kong different from other tax havens?

However, the anatomy of Hong Kong’s tax haven status comes from more than a simple tax reduction.

For one thing, Hong Kong is also well known for its ease of doing business, with companies registering their business in the territory without ever needing to go there.

As of 2021, Hong Kong has been ranked third in the World Bank’s Ease of Doing Business Index.

Hong Kong is also known as the gateway to China, and is a key port for goods to flow in and out of the biggest economy in Asia.

Generally speaking, foreign businesses who register in Hong Kong often times find it’s easier to set up a subsidiary company in Mainland China or other jurisdictions like Singapore or Vietnam.

Third, Hong Kong has one of the most friendly laws and policies for foreign investment.

In Hong Kong, foreigners are allowed to be the ONLY shareholder and directors of their company which a lot of countries don’t allow.

Wrapping up

With more than 1.5 million companies registered and around 100,000 new companies each year for a population of only 8 million, the question is: what makes Hong Kong so special?

Well, the answer is simple – Hong Kong is more than just a tax haven.

Hong Kong is a go-to destination for businesses who wish to leverage the territory’s connections, influence, and status to drive their growth.

Let’s wrap up some major reasons Hong Kong is a popular business registration hub besides tax incentives:

  1. Hong Kong is located at the heart of China & Asia, situated as the gateway that allows foreign businesses to freely import and export goods without too many restraints. Registration in Hong Kong also serves to make further registration in nearby jurisdictions easier.
  2. Hong Kong is the only jurisdiction in Asia with no foreign exchange control system. What it means is that your company can easily receive and make payments in any currency and to any other country in just a few minutes.
  3. Hong Kong is home to many first-class banks and international fintechs. Options like our partners at Statrys often help new businesses open business accounts quickly, and remotely in just a few days.
  4. When new businesses just start in Hong Kong, they can then often enjoy the many subsidies and incentive programs provided by the local Hong Kong government.
  5. If you set up your company in Hong Kong, even if you never expect to do business there, you will end up sooner or later visiting the city. Hong Kong is a major air transit hub where many industries across the globe coalesce and put together some of the most important events and expos you won’t want to miss out on.

So is Hong Kong just a tax haven? Or is it more?

If you have a business idea that needs to get off the ground, start by registering your business in Hong Kong with Air Corporate today.

Our experts will walk you through the process, and with as little as $90, you could be taking advantage of all that Hong Kong has to offer.

Vivian Au photo
Vivian Au

For many years, I worked at big accounting and company secretary firms in Hong Kong. I started Air Corporate to make the life of entrepreneurs and SMEs easy.

Vivian Au

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