Hong Kong is a vibrant and densely populated urban center with a skyscraper-studded skyline and is a major regional free trade port and global financial center.

This jurisdiction has one of the most liberal, competitive, and laissez-faire economies in the world. It features a simple tax system with a competitive corporate tax rate (8.25%/16.5%), tax-free capital gains and dividends, no sales tax, and no customs 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 a 0% tax rate for its activities conducted outside the jurisdiction.

It is supported by a legal system derived from common law, very scrupulous regarding private property, and by an independent judiciary 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 very easy company formation, which can be done remotely in just two days. Hong Kong in Asia is comparable to Panama in Latin America.

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

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

Hong Kong participates in the OECD's Automatic Exchange of Information (AEoI) and is exchanging information through the Common Reporting Standard (CRS).

Hong Kong Offshore Companies: Types of Business and Controls

Overall, Hong Kong is an excellent jurisdiction for incorporation and its limited liability company, a powerful vehicle for international trade, start-ups, internet entrepreneurs, investment activities, intellectual property holdings, and as a holding company.

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

Basis: Corporate income tax is levied on profits derived from Hong Kong; foreign-sourced profits may be exempt from tax, remitted or not.

Tax Rate: Companies incorporated in Hong Kong are subject to a profit tax of 8.25% on the first HKD 2,000,000 and 16.5% on profits exceeding HKD 2,000,000. Capital Gains – Capital gains are generally not subject to tax.

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

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

Foreign-Source Income: Foreign-source profits are generally exempt from taxation. The source of profits is usually determined by the location of the purchase and sale contracts or the location of the key activities generating the profits.

Withholding Tax: Payments to non-residents on dividends and interest are exempt from tax. 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 profits tax purposes. If the royalties arise from the use of intangible property previously owned by a person conducting 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 using the First in First out (FIFO) method.

Anti-avoidance rules: On 4 July 2018, Hong Kong passed the Inland Revenue (Amendment) (No. 6) Ordinance 2018 (IRO), which codifies the transfer pricing rules (Fundamental Rule) and requires that transactions between affiliates be conducted 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 arising from transactions with associated persons differ from offsets that would have been made between independent parties and have resulted in a tax advantage.

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

The IRO amendment also codifies transfer pricing documentation requirements. Hong Kong companies transacting with affiliates are required to prepare a master file and local transfer pricing documentation, and Hong Kong ultimate controlling entities (UPEs) must prepare country-by-country (CbC) reports (CbCRs).

The local file typically includes documentation of 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 report that includes key financial statements for a specific multinational group, broken down by jurisdiction. It provides tax authorities with information on revenue, taxes paid and accrued, employment, capital, retained earnings, tangible assets, and business activities, among other things.

These transfer pricing reporting requirements are becoming a standard international tax practice worldwide in line with the OECD BEPS anti-tax 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 HK UPE with a consolidated group turnover of less than HKD 6.8 billion may not be required to file a CbCR.

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

The IRO amendment also includes enhanced economic substance requirements for benefiting from Hong Kong's tax treaties, and changes to certain preferential regimes.

Employment taxes: Employers are required to contribute 5% of employees' monthly income to the Mandatory Provident Fund (MPF), capped at HKD 1,500. Employees whose salary exceeds HKD 7,500 contribute an additional 5%, also capped at HKD 1,500.

Tax credits and incentives: A tax credit may be available for foreign tax paid on taxable income, provided it originates in 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 may be tax-exempt. Reduced rates (up to 50% of the standard tax rate) may be available for certain authorized treasury, reinsurance, and captive insurance companies.

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

Personal Income Tax: Individuals who ordinarily reside in Hong Kong or stay in the country for more than 180 days per year or more than 300 days in two consecutive years may be considered tax residents of Hong Kong. However, tax residency rules may vary based on a tax treaty.

Income tax in Hong Kong 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, while foreign-source income is exempt from tax.

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

Rental income is taxed under the property tax rate, at 15% of the net taxable value of land or buildings. The property tax does not apply to owner-occupied residential properties for personal use. Note that while it is possible to purchase condominium units, the land is owned by the government and its ownership is renewable.

Other taxes: There are no sales taxes or 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 owners of land and buildings at a rate of 15%.

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

There are no taxes on capital, net wealth, inheritance, or 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 the authorized share capital is typically 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. Shareholder details are made public.

Directors: At least one director, who may be a natural or legal person, resident or non-resident. A director must not be a bankrupt or have been convicted of negligence. A single shareholder may also be the director. The directors' details are disclosed to the public register.

Secretary: A local secretary, either a company or an individual, must be appointed. The secretary must also maintain statutory books and company records to ensure the company's 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 must be held annually, with no restrictions on its location. The first general meeting after incorporation must be held within 18 months. A written resolution is permitted instead of a general meeting.

Electronic signature: Allowed.

Rehome: Not allowed.

Compliance: Limited liability companies are required to prepare and maintain financial statements, which must be audited annually by a certified public accountant in Hong Kong, file them with the annual return to the Registrar of Companies, and pay the annual registration fee. The business registration certificate can be renewed annually or every three years. Resident entities must file their tax returns annually with the Inland Revenue.

In addition to opening your Hong Kong Offshore, you will probably be interested in creating a life insurance policy on your tax situation by taking 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