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 a tax burden of 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 multinational corporations to minimize the amount of taxes.

At the same time, many tax havens can maximize their profits by taking advantage of the low tax regimes offered by other countries.

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, an offshore financial center, 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 corporate tax rate to none.

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 run your business from Hong Kong; if you do have operations in Hong Kong, you'll only pay between 8% and 16.5% compared to higher taxes of other countries like Japan (30%).

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

Traditional and Modern Corporate Tax Havens

Modern corporate tax havens, such as Hong Kong, Singapore, the U.K., and the Netherlands are not like the traditional "offshore" financial hubs like the Cayman Islands, Bermuda, or Jersey.

Traditional offshore centers provide secrecy and low taxes, withholding little or no financial information of their investors from foreign tax authorities.

Modern corporate tax havens, referred to as low-tax jurisdictions, aim to attract multinational companies looking to save on taxes. Although they might need some local presence, like hiring local employees, to get tax benefits, these havens usually follow higher transparency standards set by global bodies.

A corporate tax haven has a wide range of tax treaties; this helps companies manage global taxes better and route profits through these areas to save on taxes.

Why Is Hong Kong Considered a Tax Haven Country?

In 2020, accounting firm Price Waterhouse Coopers and the World Bank ranked Hong Kong as one of the world's leading tax havens, second only to Bahrain.

Hong Kong's tax revenues come from a variety of sources.

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 burden on dividends, no capital gains taxes, and no customs duties on most imported goods. Hong Kong's tax system significantly contributes to its economic growth.

Hong Kong residents pay salary taxes of 2% to 17%. Additionally, employers and employees contribute 5% each to the Mandatory Provident Fund (MPF), which can be considered a form of their payroll taxes.

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

Hong Kong's tax system offers various benefits for businesses, along with low corporate tax rates and a network of tax treaties, making It an attractive location for profit-shifting strategies.

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 2023, Hong Kong has been ranked 4th 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 a low corporate tax rate and tax incentives:

• 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.
• Hong Kong is the one of the jurisdictions 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.
• 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.
• 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.
• 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.