In which cases it is beneficial to be a tax resident and pay taxes in Hong Kong in 2020
Many states have signed an agreement on the automatic exchange of bank data, and Hong Kong is one of these jurisdictions. The agreement specifies requirements for the transfer of account data from one country to another.
If the account holder is an individual, the information is forwarded to the Tax Authorities of the country where the bank is located and then to the services of the country to which the account holder belongs. If the owner is a legal entity, the data are forwarded to the country where the company is registered or to the jurisdiction where the company has a tax number.
Special features of taxation in Hong Kong
Hong Kong is a region with a territorial principle of taxation. The advantage of incorporating a firm in a jurisdiction is that companies that are established in Hong Kong but conduct their business activities outside of Hong Kong may not pay a profit tax. You can find out more about incorporating a company in Hong Kong at IT-OFFSHORE.
A company is considered to be conducting business outside of Hong Kong if the firm does not enter into contracts in the jurisdiction, does not sell goods to residents of the area, etc. When opening a company, a standard package of documentation is drawn up with the inclusion of the tax number. The difference between companies that do business outside of Hong Kong is that after the audit, the report shows that the company does not have taxable income in the jurisdiction.
Along with audit, the firm must confirm its tax status. Previously, the tax authorities of the jurisdiction were interested in the fact of the presence of business within Hong Kong. The situation began to change, and in the last few years there are questions related to finding out whether the firm does not violate the laws of the country, by not paying taxes on profits where it operates. The firm may need to provide an explanation with documented proof that the law has not been breached.
It can be concluded that the procedure for confirming tax-free status is becoming more complicated and that many financial institutions open accounts for companies that operate within the country of registration. When executing contracts, it is more often required to provide documents proving tax residence.
What to consider when doing business in Hong Kong
There are several things to consider when choosing Hong Kong as a tax residence. In the jurisdiction only one tax is applied on the net profit of the company. It has a two-level scheme of charging. Net profit, which is the difference between income and expenses, is divided into 2 shares.
Profits of 260000 USD or less will be taxed by 8.25%. The remaining share will be subject to a higher rate, which is 16.5%. If you compare the tax figures with other countries, the Hong Kong one is not the highest.
In Hong Kong there is no tariff on distributed dividends, accumulated capital. There is no tariff and the salary fund. However, there is a fee of 5% to the pension fund from paid-out funds of resident employees.