Hong Kong is a Special Administrative Region within the People’s Republic of China. While dependent in terms of foreign affairs and national defence, she is and will be completely independent in terms of her economic policy, until 2047. Therefore, Hong Kong has become one of the most important international locations for offshore company establishment as much as it is now in terms of trade and finance.
The most popular legal form of a company with limited liability is the so called ‘Private Company’. In case of a Private Company, the director does not have to be local, and may be a natural person or another company. The same rules apply to the shareholders of the company, however, a registered seat in Hong Kong and a local company secretary is required. There is no minimum requirement for the share capital of an enterprise, so it is possible to establish a company with even 1 HK$.
At first sight, Hong Kong might not seem as a perfect offshore site, since the corporate tax is as high as 16.5%, while at the same time Hong Kong had concluded agreements to avoid double taxation with several countries. All the same, the local tax system incorporates a unique feature: it operates on a territorial basis, meaning that enterprises do not have to calculate with corporate tax when performing their activities outside Hong Kong. These activities include among others negotiations with business partners and even concluding contracts. The easiest way to avoid paying taxes is to set up a company without a local director, this way the place of supply would not be Hong Kong. On the basis of the above it is clear that if business transactions are not executed in Hong Kong, the regional tax system can provide a real offshore environment, while entrepreneurial profits may be totally free of tax.
As mentioned in the introduction, the majority of Chinese investments are realised through companies situated in Hong Kong, so to say, a significant amount of investors are likely to be acting consciously when choosing a company situated in Hong Kong for their activities. It is also important to emphasise that companies established in Hong Kong are not only used to take advantage of the tax benefits in case of Chinese investments, but are also often used in relation with other locations. Moreover, apart from investments, the use of companies situated in Hong Kong became common in international trade, especially when importing Chinese products to Europe
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