Your Comprehensive Guide To Tax Exemption in Hong Kong


Have you been planning to set up a business or company internationally? If your answer to the question is yes, then Hong Kong is the best place to set up your new business. Today, Hong Kong ranks among the most attractive places for new investors. It also ranks among the most accessible business cities in the world.

The business environment of Hong Kong is ideal for investment activities, asset protection, international trade, and banking activities. The country has no restrictions on the formation of a company and that has made it top choice jurisdiction for people who want to establish foreign businesses.

Many people claim that Hong Kong is tax-free, but that is not the case. After Hong Kong got its independence from the British in 1997, it adopted a low tax regime that has been attracting many foreign investors.

This guide will provide you with all the information you need about the taxation procedures in the country, including how you can benefit from tax exemption.

Why Some People Claim that Hong Kong is Tax-Free For Businesses?

Your Comprehensive Guide to Tax Exemption in Hong Kong

People claim that Hong Kong is tax-free mainly because they enjoy very low taxes compared to what is expected in other countries, particularly western countries.

Under Hong Kong’s territorial taxation system, any profit earned within the country is subject to 17 percent corporate taxation.

Any profit below US$250,000 is subject to 8.25 percent taxation. However, the jurisdiction never charges any tax on capital gains, dividends, and interest.

What Businesses Qualify for Tax Exemption in Hong Kong

Your company might qualify for tax exemption in Hong Kong if it executes all its activities outside the country.

However, the Inland Revenue Department has to approve the tax exemption. Here is a list of some of the activities that may quality your offshore company in Hong Kong for tax exemption.

  • Your Hong Kong business does not have any suppliers or clients on the island. That means a large percentage of its activities happen in other countries.
  • The owner of the company and the staff operate in another country.
  • Your offshore company does not offer services in Hong Kong.
  • All day-to-day operations decisions are made and signed outside the island.
  • The company does not have any employees in Hong Kong and you (the owner) rarely travel to the country.
  • ┬áThe services or products of your company are not available or they do not enter Hong Kong.

Keep in mind that the territorial taxation system is fundamental to the taxation of companies on the island. In other words, only the profits your company makes inside Hong Kong are subject to taxation.

For example, if your company negotiates and completes the sale of a product with clients outside the country and every relevant operation is made outside Hong Kong, then the profit will be non-taxable.

Everything You Have to Do to Benefit from Tax Exemption

Reasons Why You Should Do a Tax Return

Even though the requirements for tax exemption are well laid out, you must apply for tax exemption when filing for your first tax returns.

Further, you should note that the examination and approval for the tax exemption would proceed smoothly if you have all the needed documents.

The process may take several months after submitting your application. Here are the steps involved in the tax exemption process.

  • Application for the tax exemption. You have to submit all the documents indicating that your business profits are a result of operations outside Hong Kong when applying for tax exemption.
  • Inspection of the provided documents by IRD.
  • IRD grants a letter of tax exemption after it is convinced that your business qualifies for tax exemption.

Hong Kong has continued to attract many foreign investors due to the many due to the many benefits it offers such as the possibility of tax exemption.

When completing your company registration in Hong Kong, it is always a good idea you rely on an agency of experts. The agency will help you understand the tax exemption concept and other matters, such as formulating business strategies and bookkeeping.

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