[ESTABLISHING A BUSINESS ENTITY IN HONG KONG]
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(2) Size of the business (3) Number of owners (4) Legal status of the entity (E.g., Is the vehicle a separate legal entity? Can it own property in its own name? Does it have perpetual succession?) (5) Management of the business (6) Liability of owners (7) Formation requirements and procedures (8) Formalities (9) Registration procedures (if required) (10) Ongoing maintenance and other compliance requirements (e.g., filing of statutory returns and forms, audit, maintenance of registers and keeping of books and records) and the fees and costs involved (11) Tax implications in Hong Kong and overseas (12) Any implications for employment matters (e.g., visa applications) (13) Transfer of ownership (14) Business exit 4. Taxation Tax Hong Kong adopts a territorial source principle of taxation. There are three principal heads of tax in Hong Kong, namely profits tax, salaries tax and property tax. There is no sales tax or value-added tax, withholding tax, capital gains tax or estate tax in Hong Kong. As to profits tax, as a general principle, any persons (including corporations, partnerships, trustees, whether incorporate or unincorporated, or bodies of persons) carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits
(excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. No distinction is made between residents and non-residents. Whether a business is carried on in Hong Kong and whether profits have a Hong Kong source are largely questions of fact. While the principle itself seems clear, its application in particular cases can at times be contentious. It is therefore crucial to obtain tax advice before establishing any business in Hong Kong in order to come up with a tax-efficient structure. Hong Kong has implemented a two-tiered tax rates regime for years of assessment commencing on or after 1 April 2018. The profits tax rate for the first $2 million of assessable profits has been lowered to 8.25% (half of the rate specified in the Inland Revenue Ordinance) for corporations and 7.5% (half of the standard rate) for unincorporated businesses (mostly partnerships and sole proprietorships). Assessable profits above $2 million will continue to be subject to the rate of 16.5% for corporations and the standard rate of 15% for unincorporated businesses. All entities with profits chargeable to profits tax in Hong Kong would qualify for the two-tiered profits tax rates, except those with a connected entity which is nominated to be chargeable at the two-tiered rates. Hong Kong has also entered into Comprehensive Double Taxation Agreements / Arrangements (DTAs), also referred to as tax treaties, with over 40 jurisdictions, including Mainland China, United Kingdom, Japan, Canada, New Zealand and Switzerland, just to name a few. Generally, the DTAs operate to reduce or eliminate double taxation caused by overlapping tax jurisdictions, provide a level of security about the tax rules that will apply to particular international transactions, and
ILN Corporate Group – Establishing a Business Entity Series
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