Unique Characteristics Of Hong Kong’s Taxation Laws
At the moment, Hong Kong has the lowest corporate taxes for anywhere in Asia. Even when compared to rest of the world, Hong Kongs tax rates are amongst the most competitive rate for any nation. Hong Kongs taxation policy is often seen as simple and pragmatic. Hong Kong believes in offering a competitive low taxation burden to companies to encourage them to grow and increase profits. As the revenue of a company goes up, so does the overall tax collection in the city thereby benefiting both the economy as well as the businesses operating in Hong Kong. The city follows some unique taxation policies, some of which are as follows:
1) Hong Kong does not believe in creating too many taxes or complicating the taxation system. Hence the two main taxes in the city remain direct corporate taxation and personal income tax. Apart from this, there are no capital gains taxes; no withholding taxes on dividends, no value added taxes as well as no estate duty.
2) Hong Kong also does not tax any income which was sourced from outside the city. This is due to the territorial principle of taxation followed in Hong Kong. As per the territorial principle, only that income which was derived from inside of Hong Kong is to be taxed. If the source of the income was outside of the city, then it becomes completely tax free. This is one of the key reasons why so many foreign investors setup an offshore company in Hong Kong. With such a taxation policy, it becomes possible for entrepreneurs to setup a company in Hong Kong but have zero tax liabilities if their source of income is from outside of Hong Kong.
3) As mentioned earlier, corporate tax rates in Hong Kong are the lowest in entire Asia and one of the lowest in the world. Currently the corporate tax rate in the city stands at 16.5 per cent.
4) Even personal income tax rates are extremely low in Hong Kong. Given that corporate taxes are already low and also the fact that there are no other taxes in Hong Kong such as taxes on dividend or capital gains taxes, Hong Kong is a haven for entrepreneurs and business owners. Currently personal income tax rates in Hong Kong start at only 2 per cent and ends at 17 per cent.
5) Keeping up with its policy of not creating too many taxes for companies or individuals in the city, Hong Kong follows the single-tier taxation system and also has treaties with several countries around the world to avoid double taxation for its residents.