Hong Kong is a bustling and densely populated urban center with a skyline dotted with skyscrapers and is a major regional free trade port and global financial centre.

This jurisdiction has one of the most liberal, competitive and laissez-faire economies in the world. Featuring easy taxation with a competitive level of corporate tax (8.25% / 16.5%), tax-free capital gains and dividends, no sales tax and no import duties.

Although there is no specific regulation for international companies, due to its territorial tax system, a properly structured and managed company can benefit from 0% tax for its activities carried out outside the jurisdiction.

It is supported by a legal system derived from the Common Law, which is very scrupulous towards private property, and an independent judicial system in which the rule of law applies to legal and contractual procedures.

It has a high international reputation and is a business-friendly jurisdiction, with great facility to establish companies, which can be set up in just 2 days and remotely.

Incorporating a company in Hong Kong: fees and costs

Hong Kong is also one of the safest and most convenient places to do banking. It is home to some of the world's soundest banks, with the highest levels of solvency and liquidity. No exchange controls and availability of multi-currency accounts, merchant accounts and payment processing services.

Furthermore, it is the gateway to one of the largest and fastest growing markets in the world, China. The Closer Economic Partnership Arrangement (CEPA) provides Hong Kong-based companies with preferential access for goods and services entering the Mainland China market.

Hong Kong participates in the OECD Automatic Exchange of Information for Tax Purposes (AEoI) and is exchanging information via the Common Reporting Standard (CRS).

Hong Kong Offshore Company, business types and controls

All in all, Hong Kong is an excellent jurisdiction to incorporate and its limited liability company, a powerful vehicle for international trade, start-ups, internet entrepreneurs, investment business, intellectual property holdings and as holding.

Tax Residency: A legal entity is considered to be tax resident in Hong Kong if it is incorporated and/or managed and controlled in Hong Kong.

Basis: Corporate income tax is levied on Hong-Kong derived profits, foreign-sourced profits can be tax-free, remitted or not.

Tax Rate: Corporations incorporated in Hong Kong are subject to tax on profits of 8.25% on the first HKD2,000,000 and 16.5% on profits exceeding HKD2,000,000. Capital Gains – Capital gains are usually not subject to tax.

Dividends: Dividends received from resident entities are exempt from tax, while dividends received from non-resident entities are generally treated as foreign source income and exempt from taxation.

Interest: Hong Kong-derived interest income is subject to profits tax, except for interest arising from any deposit in a financial institution.

Foreign Sourced Income: Foreign sourced profits are generally exempt from taxation. The source of the profits is usually determined by the place where the purchase and sale contracts are involved or the place where the key activities to generate the profits are carried out.

Withholding Tax: Payments to non-residents on dividends and interest are exempt from taxation. Royalties are subject to an effective tax rate of 4.95% if paid to a resident of a jurisdiction where royalty payments are deductible for profit tax purposes. If royalties arise from the use of intangibles that were previously owned by a person carrying on business in Hong Kong, they may be subject to an effective withholding tax rate of 16.5%.

Losses: Losses from taxable income can be carried forward indefinitely. Losses cannot be carried forward.

Inventories: Inventories may be stated at cost or market value, whichever is lower, and must be valued on a first in first out (FIFO) basis.

Anti-Tax Avoidance Rules: On July 4, 2018, Hong Kong passed the Inland Revenue (Amendment) (No. 6) Ordinance 2018 (IRO), which codifies the Fundamental Rule and requires that transactions between affiliates are made on an arm's length basis for tax purposes.

The Fundamental Rule authorizes Hong Kong's Inland Revenue Department (IRD) to adjust a company's profits or losses if the offsets resulting from transactions with associated persons differ from the offsets that would have been made between independent parties and have led to a tax advantage.

The Fundamental Rule applies to transactions involving the sale/transfer/use of goods and provision of services and financial and commercial arrangements within a group structure.

The IRO amendment also codifies requirements for transfer pricing documentation. Hong Kong companies transacting with affiliates are required to prepare a master file and local file transfer pricing documentation, and Hong Kong Ultimate Controlling Entities (UPE) are required to prepare country-by-country (CbC) reports ( CbCR).

The local file typically includes documentation about the local entity's intercompany transactions, while the master file includes high-level information about the group's global business operations and transfer pricing policies.

A CbCR is an annual return that includes key elements of a given MNE group's balance sheet by jurisdiction. It provides information to tax authorities on income, taxes paid and accrued, employment, capital, retained earnings, tangible assets and business activities, among others.

These transfer pricing reporting requirements are becoming a worldwide standard international tax practice in line with OECD BEPS anti-avoidance requirements.

Companies that meet certain conditions, such as total revenues not exceeding HKD 400 million or total assets not exceeding HKD 300 million, among others, may be exempt from preparing tax documentation. For its part, a UPE HK with a consolidated group turnover of less than HKD 6.8 Bil may not be required to file a CbCR.

Companies subject to prepare master file and local accounting documentation, if they fail to do so, they may face a fine of HKD 50,000 and can be ordered by the court to prepare such documentation within a specified time limit. Failure to comply with this order can result in a fine of HKD 100,000 if convicted.

The IRO amendment also provides for enhanced economic substance requirements to benefit from Hong Kong tax treaties; and changes to certain preferential regimes.

Labor Tax: Employers are required to make contributions to the Mandatory Provident Fund (MPF) at 5% of employees' monthly income, capped at HKD1,500. Employees whose salary is over HKD7,500 contribute another 5%, which is also capped at HKD1,5000.

Tax Credits and Incentives: A tax credit may be available on foreign tax paid on taxable income, provided it originates from a jurisdiction with which Hong Kong has a tax treaty. A tax credit is usually limited to the amount of tax payable in Hong Kong on the same income.

Investment funds can be tax exempt. Discounted rates (up to 50% of the standard tax rate) may be available for some corporate treasury, reinsurance and licensed captive insurance centers.

Compliance: The Hong Kong tax year starts on 1 April and ends on 31 March. On average, a limited liability company may require 3 payments and 74 hours a year to prepare, file and pay taxes.

Personal Income Tax: Individuals who are ordinarily resident in Hong Kong or stay in the country for more than 180 days in any year or more than 300 days in any two consecutive years can be regarded as tax residents of Hong Kong. However, tax residency rules can vary based on a tax treaty.

In Hong Kong, income tax is levied on a territorial basis. This means that both residents and non-residents are subject to income tax on income earned in Hong Kong, foreign-source income being exempt from taxation.

Personal income tax on salaries is levied at a progressive rate from 2% to 17% on income above HKD 120,000. Business income is taxed with the profit tax (16.5%). Dividends and interest income are exempt from taxation. Capital gains are generally exempt from tax, although those arising from certain business activities may be subject to profit tax.

Rental income is taxed under property tax, at 15% on the net taxable value of land or buildings. Property tax does not apply to owner-occupied residential properties for self-employment. Note that while it is possible to purchase condominium units, the land is government owned and tenure is on a renewable basis.

Other taxes: There are no sales taxes, no customs duties on general imports, some commodities such as tobacco, alcohol and hydrocarbons may be subject to excise duties.

Hong Kong levies a property tax on land and building owners at a rate of 15%.

There is a stamp duty on share purchase contracts registered in Hong Kong (0.2%) and on the transfer of real estate, up to 8.5%. There is a special stamp duty on the resale of properties held for less than 36 months ranging from 10% to 20%.

There are no taxes on capital, net wealth, inheritance and taxes.

Country code: HK

Legal basis: Common law

Legal framework: Companies Ordinance

Corporate form: Private limited company (Ltd.).

Liability: The shareholder's liability for the company is limited to the amount of their respective holdings.

Share capital: There is no minimum share capital, but usually the authorized share capital is HKD 10,000 represented by 10,000 ordinary shares of HKD 1.00 each. The minimum issued share capital is HKD 1.00. It can be denominated in any currency. Bearer shares are not permitted.

Shareholders: A minimum and maximum of 50 shareholders, who may be natural or legal persons, resident or non-resident, without limitation. The details of the shareholders are made public.

Directors: At least one director, who may be a natural or legal person, resident or non-resident. An administrator must not be bankrupt or convicted of malpractice. A single shareholder can also be the director. The data of the administrators are communicated to the public register.

Secretary: A local secretary, company or individual must be appointed. The secretary must also maintain statutory books and company records to ensure company compliance.

Registered Address: Limited Liability Companies must have a local registered physical address, a PO Box is not allowed.

General meeting: A general meeting of shareholders is to be held annually, with no restrictions on its location. The first general meeting after establishment must be held within 18 months. Instead of a general meeting, a written resolution is permitted.

Electronic signature: Allowed.

Rehome: Not allowed.

Compliance: Limited liability companies are required to prepare and maintain accounts, which must be audited annually by a certified public accountant in Hong Kong, file them in the annual declaration to the Commercial Register and pay the annual registration fee. The business registration certificate can be renewed annually or every three years. Resident entities must annually submit their tax return to the Revenue Agency.

In addition to opening your Hong Kong Offshore, you will probably be interested in creating a life insurance policy on your taxation, taking up a second tax residence, in a country with territorial taxation, such as a residence in Panama or a residence in Paraguay

Also consider a company in Panama