Offshore Company Formation - Hong Kong
Hong Kong is situated in the southeast of China. It consists of more than 260 islands, the largest of which are Hong Kong Island, Kowloon Peninsula and Lantau Island. Being a colony of the Great Britain for more than one hundred and fifty years Hong Kong has succeeded to connect the sophisticated traditions of China with the European entrepreneurial spirit, which became the key factor of rapid economic development of the region in the past century. Today Hong Kong is a Special Administrative Region of China, one of the largest financial centers in the world and the trading hub in the Asia Pacific region. Despite the lack of natural resources Hong Kong is one of the most prosperous regions in the world with large levels of GDP per capita (42.4 thousand US dollars in 2015), strong national currency (Hong Kong Dollar – HK$), high standards of living and quality of life. According to the Basic Law, the Hong Kong Government guides all policy directions of the region except those under the China’s Government control – foreign relationships and security issues. The economy of the region bases on the free market, low taxation and government noninterference.
Launching a business in Hong Kong
Hong Kong is well-known for its loyal taxation rules and business-friendly environment.
The average costs of launching a new business in Hong Kong is nearly 750$. This amount includes expenditure on the following:
- preparing the documents necessary to start a new business and their registration;
- all annual fees and dues;
- opening a bank account;
- making a stamp;
- annual expenditure on a secretary;
- payments for a legal address;
- preparing annual reports (excluding the financial report).
The expenditure on preparing the financial report depends on the number of transactions taken during a year (the minimum amount is 350$).
Annual prolongation of all these services will cost about 575$.
Some other services (for example, a legal address in the most prestigious party of Hong Kong or resending letters to the other address) can be ordered for an additional fee.
In other words, the costs of starting and running a business in Hong Kong are lower than those, for example, in Russia. Besides the Hong Kong taxation system is perfectly transparent and fair.
Taxes in Hong Kong
Hong Kong adopts a territorial tax system under which incomes must be taxed only if they have been obtained on the territory of the region. Businesses profits, worker’s salaries, and property incomes represent the main objects of taxation in Hong Kong.
The profit tax is paid on taxable incomes of businesses and self-employed entrepreneurs. The rate of this tax equals 16.5% for businesses and 15% for entrepreneurs (in 2015). Having any doubts about whether the company incomes are taxable or not taxpayers can order a consultation in the Revenue Department of Hong Kong (this service costs about 30 000 HK$ or 3,850 US$).
The salary tax is paid by individuals. The tax base includes not only personal salary incomes but also the costs of all additional service packages received by the employee. The tax is due to be paid only if the individual has lived in Hong Kong for more than 60 days. The amount of salary tax can be calculated using either the progressive scale (the rate varies from 2% to 17% depending on net income) or the standard rate (15% of net income). Personal net income is the base for calculating the amount of tax in both cases.
The property tax is to be paid by both individuals and businesses if they gain any rent incomes. The rate of this tax equals 15% of the net taxation value of realty (buildings, apartments, landed property, etc.)
There is no a value added tax (VAT) or any kind of tax on sales.
Accounting and reports
According to the current rules all firms and individual entrepreneurs in Hong Kong have to keep accounts and give reports to the Inland Revenue Department. Six main reports are required:
- Annual report contains details about the legal address of registration as well as partners and directors of the company.
- Financial report includes information about financial activities of the company during the reporting period.
- Directors report provides more detailed information about company’s directors and shareholders.
- Auditor’s report includes necessary information given by the licensed audit company, a member of Hong Kong Association of Accounting.
- Tax report shows data about taxes paid in the reported period.
- Declaration of the profit tax provides step-by-step calculations of the profit tax.
The workers of the Revenue Department might also ask for other documents if they want to have a close look at some operations (chiefly operations connected with tax-free incomes from overseas sources).
In general, you have no need to trouble yourself with keeping accounts as there are a good many of private accountants and special outsourcing firms in Hong Kong that can do this part of a job.