Hong Kong is one of the few countries in the world that tax on a territorial basis. Many countries levy tax on a different basis and they tax the world-wide profits of a business, including profits derived from an offshore source. Hong Kong profits tax is ONLY charged on profits derived from a trade, profession or business carried on in Hong Kong. Consequently, this means that a company which carries on a business in Hong Kong, but derives profits from another place, is not required to pay tax in Hong Kong on those profits. Hong Kong sourced income is currently subject to a rate of taxation of 16.5 per cent. There is no tax in Hong Kong on capital gains, dividends and interest earned.

 

The Hong Kong Profits tax is levied on the "assessable profits" of corporate entities, partnerships, trusts and sole proprietorships. It is levied according to the "territorial principle". In other words it is the source of the income, not the nationalities of the entities involved that determines the applicability of the tax. This means that only income which meets the following three conditions is subject to the Hong Kong profits tax:

 

1. the entity must trade in Hong Kong
2. the income must arise from such a trade
3. the income must arise in or be derived from Hong Kong

 

The residential or non-residential status of the entity is irrelevant. Neither is the tax status of the income in a foreign jurisdiction. Advance tax rulings are available in Hong Kong and you are encouraged to take advantage of it to determine whether your profits are taxable or tax exempt.

 

The "source of income" for profits tax purposes has been defined as the geographical location of the operation which substantially gave rise to the income, which has been further interpreted to mean that:

 

1. the establishment of an office in Hong Kong: does not of itself render a company liable to profits tax where that office is not generating profits from within the territory.
2. the place where the contract was negotiated and executed a key criterion Income relating to a sale contract negotiated by the seller from the territory by way of facsimile or telephone where the negotiation did not require travel outside the territory is deemed Hong Kong source income for profit tax purposes. On the other hand, if the contract is negotiated and signed outside the territory and the goods sold are not sourced from within the territory then any income arising is not deemed Hong Kong source income for profits tax purposes. This is often achieved by utilizing an offshore company which re-registers in the territory as a foreign company but whose directors both remain non resident and negotiate and execute the contract from the offshore jurisdiction.

 

 

A Booking Center is especially applicable to those companies wishing to have a Hong Kong point of presence but actually conduct their business elsewhere. A booking center is an entity that does not negotiate or draft the sale agreement (which is carried out abroad) but merely issues an invoice on instructions, operates a bank account and maintains accounting records covering the transaction, In this case, then the income from such a transaction is not deemed Hong Kong income for profits tax purposes.

 

Shares & Securities : Gains from shares and securities purchased and sold on the territory's stock exchange are deemed Hong Kong source income for profit tax purposes (assuming the entity is subject to profit tax on such an activity).

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Key Corporate Features

 

General
Type of Entity	Limited
Type of law	Common
Shelf Company Availability	No
Minimum Government Fees (Excluding Taxation)	US$ 500
Corporate Taxation	Foreign Profits: None Local Profits: 16.5%
Double Taxation Treaty Access	Yes
Share Capital or Equivalent
Standard Currency	HKD
Permitted Currencies	Any
Usual Authorized	HK$ 10,000
Minimum Paid-up Capital	HK$1.00
Directors or Managers
Minimum Number	One
Local Required	No
Public Access to Records	Yes
Location of Meetings	Anywhere
Members
Minimum Number	One
Public Access to Records	Yes
Location of Meetings	Anywhere
Company Secretary Required	Yes
Local or Qualified	Local
Accounts
Requirement to Prepare	Yes
Audit Requirements	Yes
Requirement to File accounts	Yes
Public Access to Accounts	No
Other
Requirement to File Annual Return	Yes
Change of Domicile Permitted	No

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General Information

Hong Kong is on the south east coast of China and consists of a large number of islands and a part of the mainland totalling approximately 1,064 sq km. On 1 July 1997 all of Hong Kong reverted from British Control back to China and became a Special Administration Region 'SAR' within the People's Republic of China (PRC).

 

Infrastructure & Economy

Hong Kong has excellent communication facilities and a major new international airport. Hong Kong is the leading South East Asian centre for both finance and commerce and ranks as the world's third largest financial centre after New York and London. The Hong Kong Stock Exchange is the most active in Asia outside Japan.

 

• Language

• The official languages are English and Chinese, with English being used in the commercial and political context and Cantonese Chinese used widely in industry and domestic trade.

 

• Currency

• The Hong Kong Dollar, which is officially pegged to the US Dollar.

 

• Exchange Control

• None

 

• Type of Law

• Common Law based on English Common Law but with direction from China.

 

• Principal Corporate Legislation

• Companies Ordinance (Cap 32).

 

 

Company Information

 

• Type of Company for International Trade and Investment

• Private Company Limited by Shares.

 

• Restrictions on Trading

• Cannot undertake banking or insurance activities or solicit funds from or sell its shares to the Public.

 

• Powers of Company

• A Hong Kong Company has all the powers of a natural person.

 

• Language of Legislation and Corporate Documents

• Chinese and English.

 

• Shelf Companies Available

• No.

 

• Language of Name

• Names can be expressed in any language using the Latin alphabet, if the Registrar of Company receives a translation thereof. The corporate documents will however be in English.

 

• Registered Office Required

• Yes, must be maintained in Hong Kong.

 

• Name Restrictions

• A name that is similar to or identical to an existing company. A name that constitutes a criminal offence or is otherwise contrary to the public interest. A name that implies royal or government patronage.

 

• Names requiring Consent or License

• Building society, Chamber of Commerce, co-operative, imperial, Kaifong, mass transit, municipal, royal, savings, tourist association, trust, trustee, underground railway, bank, insurance, assurance, reinsurance, fund management, asset management and investment fund.

 

• Suffixes to Denote Limited Liability

• Limited

 

• Disclosure of Beneficial Ownership to Authorities?