If you start a business in a different country, like the U.S., you’ll have to pay 21 percent in corporate taxes. Or, you’ll have to pay 25% in Spain, 28% in New Zealand, or 31% in Canada.
And this doesn’t include the taxes and fees you have to pay for selling goods and services.
Running a business is definitely expensive, and local tax rules can make it even more expensive depending on where the business is.
So it’s not surprising to hear that companies are moving their registration or even all of their operations to places we call “Tax Havens.”
Tax havens are an excellent way for businesses to pay less tax.
At the same time, they can make the most of the low tax rates in other countries to increase their profits. It sounds easy, doesn’t it? Who wouldn’t want to save some money?
Hong Kong is one of the best places to avoid paying taxes. It doesn’t tax profits made by companies outside the country. Foreign investment was encouraged by the local government.
And companies that decide to do business in Hong Kong will find that the VAT on goods and services they sell is a generous 0%. Hong Kong is often called a tax haven, but it is much more than that.
What does “tax haven” mean?
Hong Kong is more than a tax haven, but first you must grasp what that means.
Tax haven? Tax havens are offshore jurisdictions with low or no taxes for foreign corporations.
Businesses registered in Hong Kong, Luxembourg, or the British Virgin Islands don’t need to be there to gain tax savings.
If your company registration in Hong Kong but doesn’t conduct it there, you won’t be taxed. If you manage your firm from Hong Kong, you’ll pay 8-16%. Tax havens need more than cheap rates. Politically and economically stable.
Why does everyone think of Hong Kong as a tax haven?
In 2020, the accounting firm Price Waterhouse Coopers and the World Bank said that Hong Kong’s tax system was the second friendliest in the world, after Bahrain’s.
Companies pay a corporate tax that ranges from 0% for business done outside of Hong Kong to a maximum of 16.5% for business done in the territory.
There are no Value-Added Taxes on goods and services, no taxes on dividends, and no customs duties on most imported goods.
When it comes to salary tax, people who live in Hong Kong pay between 2% and 17%.
Also, people who work for a Hong Kong company but don’t live there don’t have to pay salary tax in Hong Kong.
What is different about Hong Kong compared to other tax havens?
But Hong Kong’s status as a tax haven is made up of more than just a lower tax rate.
One thing that Hong Kong is known for is how easy it is to do business there. Businesses can register in the territory without ever having to go there.
The World Bank’s Ease of Doing Business Index ranks Hong Kong third as of 2021.
Hong Kong is also known as the “Gateway to China” because it is a major port where goods go in and out of Asia’s biggest economy.
Most of the time, it’s easier for foreign companies that register in Hong Kong to set up a subsidiary company in Mainland China or other places like Singapore or Vietnam.
Third, Hong Kong has one of the most investor-friendly sets of laws and policies.
In Hong Kong, foreigners can be their company’s only shareholders and directors, which is something that many other countries don’t let them do.
Wrapping up
Only 8 million people live in Hong Kong, but the city has more than 1.5 million registered businesses and adds about 100,000 new businesses each year. What makes Hong Kong so special?
Well, the answer is easy: Hong Kong is more than just a place where people don’t pay taxes. Hong Kong is the place to go for businesses that want to grow by taking advantage of the territory’s connections, power, and status.
Let’s review, in addition to tax incentives, why Hong Kong is a popular place to start a business:
- Hong Kong is in the middle of China and Asia. It is a gateway that lets foreign businesses bring goods in and out of the country without too many restrictions. Getting registered in Hong Kong also makes it easier to get registered in other nearby places.
- Hong Kong is the only place in Asia that doesn’t have a way to control foreign exchange. It means that your company can easily receive and send payments in any currency and to any other country in just a few minutes.
