The Key Advantages of the Hong Kong Tax Regime - Damalion - Independent consulting firm.

Hong Kong is a popular destination for wealth management due to its low tax rates for domestic and foreign investors alike. Its existing laws, developed by the Inland Revenue Department (IRD) essentially limit taxation on high-net-worth foreign residents and legal corporate entities.

As of 2020, Hong Kong is considered the nation with the friendliest tax regime. The People’s Republic of China, of which Hong Kong is a territory, allows Hong Kong’s autonomy in its financial activities- something that adds to its secrecy. At present, Hong Kong presents various laws that aims to protect assets of foreign residents and corporations. Here are some key points which make Hong Kong’s tax regime appealing to both residents and non-residents:

  • Residents who earn income in the region pay taxes between 2% and 17%, depending on their respective salaries.
  • Residents who warn income beyond the region’s border are exempt from paying tax on earnings.
  • Corporate tax for companies based in Hong Kong ranges between 8.25% and 16.5% or depending on the income earned.
  • No taxes are assessed on capital gains, interest, and dividends.
  • No net worth tax and public benefit tax.
  • No sales tax, hence, Hong Kong shoppers enjoy greater purchasing power.

Hong Kong’s Attractive Tax Regime

There are many factors that contribute to Hong Kong’s prevailing tax regime:

  • Hong Kong, a Special Administrative Region of China is one of the world’s leading financial markets. Major financial institutions set up shop in Hong Kong.
  • It has one of the largest stock exchanges.
  • It carries its own currencies which makes the Hong Kong dollar more appealing than the Chinese yuan.

Reasons Why Foreigners Park their Money in Hong Kong

  • Hong Kong does not assess tax on income earned beyond its borders.
  • For those who are earning salaries in Hong Kong pay income tax between 2% and 17%, rates that are significantly lower than those levied in Europe and North America.
  • The Autonomous Region of Hong Kong does not assess net worth taxes and public benefit taxes among its resident foreigners.

Foreign Tax Relief

  • Under the territorial tax system, all income or profits generated in Hong Kong are taxable.
  • Double taxation is not a major concern in Hong Kong.
  • Double taxation regime is eliminated due to tax credits under a tax treaty or unilateral deduction where requirements and conditions are fulfilled,

Withholding Tax

  • Dividends

No withholding tax on dividend distributions from a Hong Kong entity to both residents and non-residents.

  • Interest

No withholding tax on interest payments from a Hong Kong entity to both residents and non-residents.

Royalties

  • Royalties for the use or right to use intellectual property Hong Kong are deemed taxable.
  • The table amount of 30% of the gross amount of royalties paid, resulting in an effective rate of 4.95%
  • Royalties paid to affiliated non-residents and an intellectual property tight was owned by an individual hosting business in Hong Kong shall be assessed with 16.5% tax rate.

Hong Kong’s Commitment to Confidentiality and Privacy

Private wealth assets under management in Hong Kong is valued at HKD 19.1 trillion as of 2019. Due to its greater sense of secrecy, Hong Kong was included in the European Union’s blacklist of non-cooperating tax jurisdictions. Hong Kong ranks high on the Financial Secrecy Index.

Hong Kong offers an attractive tax regime making it a favorable place for foreigners to keep their money, as well as for corporations to run their businesses. Its relentless commitment of upholding great secrecy for investors influenced its reputation as a well-known investment destination and major financial hub.

New laws are being developed to reduce incidence of the tax evasion among individuals and corporations. The G7 and United States proposed the inclusion of wealth tax for individuals and global minimum corporate tax for corporations. Once enforced, these laws are deemed to be implemented by Hong Kong as well.

Hong Kong-Luxembourg Double Tax  Treaties

Existing double tax treaties further strengthen the relationship between Luxembourg and Hong Kong. The two financial powerhouses have signed a treaty for the avoidance of double taxation and measures to prevent fiscal tax evasion. These double tax treaties are applicable on income and capital taxes and beneficial for investors with businesses in both Hong Kong and Luxembourg. 

To learn more about the extensive tax advantages and key benefits of investing in Hong Kong, contact us today. Reach out to our team of Damalion experts who will be more than happy to discuss about great investment opportunities of establishing funds and corporate structures in Hong Kong.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.