Is It Really Possible to Set Up a Company in Hong Kong with Low Corporate Tax?

Setting up a business in a jurisdiction with low corporate tax rates can significantly boost profitability, and Hong Kong stands out as one of the most tax-friendly regions globally. Corporations and entrepreneurs opt for Hong Kong company incorporation not only to minimize tax but also to operate in an environment that is transparent, robust, and business-friendly at the same time. 

But can one really set up a company with low corporate tax in Hong Kong? The answer is yes, and that is what this blog will discuss, along with the reasons why. Using the tax system in Hong Kong, businesses can enjoy low tax rates, a simple tax filing process, and a myriad of tax incentives favoring the growth of corporate bodies. 

Understanding Hong Kong’s Corporate Tax System 

One of the primary reasons a company is formed in HK is that it has a quite clear and favorable tax regime. The low tax rates within the region have greatly benefited businesses and individuals, making it one of the most attractive places for corporations worldwide. There are only three direct taxes in Hong Kong: 

• Profits tax: The profits of a company shall be charged at 8.25% when they are within HK$2 million. Profits that exceed HK$2 million are taxed at 16.5%. Unincorporated businesses are taxed at 7.5% and 15% respectively. 

• Salaries tax: This is applicable to people earning income from sources in Hong Kong and its standard rate is 15%. 

• Property tax: This tax is levied at 15% on any rental income from property located in Hong Kong. 

For example, Hong Kong company incorporation offers the added advantage of no sale tax, value-added tax, or capital gains tax. The dividends and interest earnings are free from withholding taxes, and there is no estate tax. This is why Hong Kong is one of the ideal jurisdictions for minimizing corporate tax liabilities. 

Why Hong Kong is a Tax Haven for Businesses? 

Hong Kong has designed its tax system to attract businesses from all over the world. Such attractive features in this tax system include: 

1. No VAT or Sales Tax: One of the huge differences between Hong Kong and any other place is that the former does not charge a VAT or sales tax on goods and services. When this happens, the money saved by businesses is incredibly high, especially for those operating large-scale trades or retail operations. 

2. No Capital Gain Taxes: Business firms can completely retain the profit from sales of tangible or intangible assets since no such tax is levied on capital gains in Hong Kong. 

3. No Withholding Tax on Dividends and Interest: Companies are not subject to withholding taxes on dividends or interest. This enables easy repatriation of profits back to the foreign shareholders. 

4. Low Corporate Tax Rates: Due to the tiered profits tax system, the first HK$2 million is being taxed at the lower rate, which is 8.25%, while the rest is taxed at 16.5%. Because of this tier system, more small businesses and new ventures have a chance to grow. 

5. Territorial system: Territorial basis of taxation is another attractive feature of Hong Kong’s tax regime. Normally, these taxes are imposed only on profits earned in Hong Kong while foreign source incomes are exempted. So this is beneficial for companies that conduct business around the world since profits earned in other countries are never taxed in Hong Kong. 

How Does the Territorial Tax System Work? 

The territorial tax system is one of the advantages of running international businesses in Hong Kong. The system is made in a way that profits earned outside Hong Kong are not levied with profits tax, even if they are remitted to Hong Kong.  

To put it simply, a business can spread its activities worldwide, and it need not fear that its profit earned in other countries will be taxed here by Hong Kong authorities. Such a tax system makes it highly appealing to multinational corporations and entrepreneurs in cross-border trade.  However, determining whether profits are “offshore” can be complex. The IRD determines the source of profits based on where the core business activities take place. Consulting a Hong Kong corporation expert is advisable to ensure compliance with regulations and structure your operations to maximize offshore profit exemptions. 

How to Incorporate a Company in Hong Kong and Enjoy Low Corporate Tax? 

Steps to incorporate a company in Hong Kong are quite straightforward, but knowing the process is necessary to derive maximum benefit from this low-tax regime. Here's step-by-step guidance to help you through the process. 

1. Choose a Company Name 

The first step to incorporate a company in Hong Kong is selecting an original name. The name can be purely in English, purely in Chinese, or a combination of both. Nonetheless, it has to conform with the strict legal naming requirements in Hong Kong, and it also must not infringe on any existing trademark. 

2. Present the Required Documents 

The following documents must be presented upon the Hong Kong corporation establishment: 

• Photocopies of the directors’ and shareholders’ passports 

• Residential addresses for the directors and shareholders 

• Filled up NNC1 Form-Incorporation Form 

• Articles of Association, which outlines the rules that govern the internal governance of the company. 

• A registered office address in Hong Kong. 

• Appoint a Hong Kong-resident company secretary  

3. E-Registration 

E-registration is one of the quickest ways in which companies can be incorporated in Hong Kong. A few hours will suffice for simple business ideas or small set-ups while a few days will suffice for bigger companies, or for such companies that require more complex structures. 

4. Open Corporate Bank Account 

Once your Hong Kong company has been incorporated, you’ll need to open a corporate bank account. Most of the banks require you to come in-person; although some do allow remote services. You’d need to bring documents showing the company’s incorporation, as well as documents that outline the nature of your business and the projected revenue. 

Special Business Operations Tax Incentives 

Besides offering low corporate tax rates, Hong Kong provides other tax incentives to foster business activities. These include: 

• Offshore Funds: Generally, profits acquired by offshore funds are relieved from profits tax, but only if they pass specific conditions. 

• Reinsurance Companies Tax Relief: The reinsurance companies based in Hong Kong enjoy tax relief because their tax rate is 50% less than the common corporate rate. 

• Corporate Treasury Centers: Profits from qualifying corporate treasury centers are taxed at a reduced rate of 8.25%. 

• Vessel and Aircraft Operations and Leasing: All earnings from Hong Kong-leased vessels in addition to all profits from aircraft leasing from Hong Kong are tax-free or, in certain cases, are taxed at reduced rates. 

Through the services of a Hong Kong corporate consulting firm, a company can know what special tax incentives they are entitled to and capitalize on them. 

Filing and Compliance Requirements 

Once registered, a Hong Kong business is required to fulfill local tax and regulatory requirements. The tax year runs from April 1 to March 31, and companies are subject to submit returns every year. In the event that the company has assessable profits, the return has to be accompanied by audited financial statements. 

The tax return deadlines vary according to the financial year-end of the company: 

• For companies that close their books from January 1 through March 31, the return is due for submission on November 15th of the same year. 

• Companies whose accounting books are closed between April 1 and November 30, the return is due by May 2 of the following year. 

• For companies closing their books between December 1 and 31, the return is due by 15 August of the following year 

There are also other types of financial commitment which companies have to fulfill, including provisional tax, which is calculated on profits during the previous year. This provisional tax is credited against the final profits tax for that year. Ensuring compliance will help businesses avoid penalties and keep operations running smoothly. 

Double Taxation Treaties and International Cooperation 

Another reason for Hong Kong corporation establishment is that Hong Kong has a network of double taxation agreements. More than 40 countries and significant economies like the United Kingdom, Japan, and China have signed double taxation agreements with Hong Kong.  

Double taxation treaties stop businesses from levying income in two or more countries. It provides multinational companies relief from being charged with the same income more than once in a foreign tax territory. 

Under these agreements, Hong Kong company incorporation allows businesses to claim tax credits on foreign taxes paid in DTA partner countries, further reducing their overall tax burden. 

Mirr Asia: Your Partner for Success 

Incorporating a company in HK is straightforward, but dealing with tax laws and compliance obligations can be complex. That’s where Mirr Asia comes in.  

Mirr Asia has years of experience in Hong Kong corporation establishment. They offer a range of services to ensure a smooth incorporation and compliance with local laws, while maximizing tax benefits for businesses. 

Our Hong Kong corporate consulting guidance helps you from formation of a company to achieving optimum tax optimization. Whether it is just a startup hoping to utilize the low-tax regimes of Hong Kong or a multinational pursuing offshore tax exemption, we can help get the job done both cost effectively and efficiently. 

Let Mirr Asia help you set up a company in HK, while building for success in one of the world's most business-friendly environments.