Hong Kong

Overview

Hong Kong remains one of the most tax-efficient common law jurisdictions in the world and the only major financial centre offering unique, unobstructed access to the mainland Chinese market. Its territorial tax system — under which only income genuinely sourced within Hong Kong is subject to profits tax — has attracted successive generations of traders, holding companies, and regional business platforms that generate the majority of their revenues from cross-border activity.

Despite the significant political changes since 2019 and increased oversight from Beijing, Hong Kong's legal system, its common law courts, and its day-to-day commercial infrastructure continue to function with a high degree of effectiveness. The judiciary remains independent in commercial matters. English is co-official with Chinese in the legal system. Common law principles govern contracts, corporate law, and dispute resolution. For the vast majority of business uses — particularly those without a political dimension — Hong Kong's practical functionality remains intact.

Territorial Tax System

Hong Kong's profits tax applies only to profits arising in or derived from Hong Kong from a trade, profession, or business carried on in Hong Kong. Profits genuinely derived from offshore sources — from contracts concluded, goods delivered, and services provided outside Hong Kong — are not subject to profits tax. This is the offshore claim process, and it requires substantiated documentation.

Key points on offshore claims:

• Not automatic: the Inland Revenue Department (IRD) reviews offshore claims and issues assessment positions based on the facts of each case. Claims must be supported by documentation demonstrating that the profit-generating activities occurred outside Hong Kong
• Source of profits rules: the IRD applies a "source of profits" test based on the nature of the income and where the relevant operations were performed. Trading profits are sourced where the purchase and sales contracts are negotiated and concluded; service income is sourced where services are performed; commission income is sourced where earning activities occurred
• Advance ruling: taxpayers can obtain an advance ruling from the IRD on the offshore status of specific income streams — a practical tool for businesses seeking certainty

Profits tax applies to:

• Corporations: 16.5% (headline); 8.25% on the first HKD 2,000,000 of assessable profits (two-tier regime, applicable to qualifying companies)
• Unincorporated businesses: 15% (headline); 7.5% on first HKD 2,000,000

Tax Profile

Tax	Rate
Corporate Profits Tax (offshore income)	0% (exempt, subject to offshore claim)
Corporate Profits Tax (onshore — up to HKD 2m)	8.25%
Corporate Profits Tax (onshore — above HKD 2m)	16.5%
Capital Gains Tax	0%
Dividend Withholding Tax	0%
VAT / GST	0%
Inheritance Tax	0% (abolished 2006)
Salaries Tax (top rate)	17%
Property Tax	15% (on assessed rental value)

Company Formation

Hong Kong companies are incorporated under the Companies Ordinance (Cap. 622). Key features:

• Formation timeline: typically 1–2 business days through the Companies Registry's electronic filing system
• Minimum one director: must be a natural person (not a corporate entity); at least one director must reside anywhere — there is no Hong Kong residency requirement for directors
• Minimum one shareholder: may be a corporate entity
• Company Secretary: required; must be a Hong Kong resident individual or a registered professional firm
• No minimum share capital requirement
• Annual Return: required within 42 days of the anniversary of incorporation
• Annual General Meeting: required unless dispensed by unanimous written resolution

Government registration fee is approximately HKD 1,720 for a standard company. Annual business registration fee is approximately HKD 2,000.

Key Uses

Holding company for Asia-Pacific investments: Hong Kong companies are widely used to hold investments in mainland Chinese operating companies (as the preferred offshore holding structure for foreign invested enterprises), Southeast Asian subsidiaries, and regional assets. The absence of dividend withholding tax, capital gains tax, and estate tax creates a clean exit and distribution environment.

Trading companies: Companies buying goods in one country and selling to another — particularly those with China-sourced goods — use Hong Kong companies as trading intermediaries, with offshore income claims available where purchase and sales activities occur outside Hong Kong.

China gateway: Hong Kong's unique position as the gateway to mainland Chinese capital markets, banking, and commercial relationships cannot be replicated elsewhere. The Closer Economic Partnership Arrangement (CEPA) between Hong Kong and mainland China provides specific access rights for Hong Kong-incorporated service businesses.

Crypto and digital assets: The Securities and Futures Commission (SFC) has developed a comprehensive virtual asset licensing framework. SFC-licensed virtual asset trading platforms (VATPs) include OSL Digital Securities and HashKey Exchange — two of the only fully regulated, bank-cleared crypto exchanges operating in any major financial centre. Hong Kong is also developing frameworks for tokenised securities and real-world asset tokenisation, positioning itself as a regulated crypto hub in direct competition with Singapore and Dubai.

Banking

Hong Kong has one of the most developed banking ecosystems in the world:

Tier-1 international banks with significant HK presence:

• HSBC (Global HQ in London, significant Hong Kong operations)
• Standard Chartered
• Citibank
• JPMorgan
• Deutsche Bank

Hong Kong-headquartered banks:

• Bank of China (Hong Kong)
• Hang Seng Bank (HSBC subsidiary)
• Bank of East Asia
• DBS (Singapore-headquartered but major HK operations)

Private banking: Pictet, Julius Baer, UBS, Credit Suisse (now UBS), HSBC Private Banking, and others operate private banking operations in Hong Kong.

Account opening for Hong Kong companies has become more selective since 2019. HSBC and Standard Chartered in particular apply extensive enhanced due diligence processes. The process typically takes 4–12 weeks for straightforward corporate accounts and longer for complex structures. Banks that have been found to be more accessible for international holding structures include Bank of East Asia, DBS Hong Kong, and some of the smaller virtual banks.

CRS/FATCA Compliance

Hong Kong is a CRS-participating jurisdiction and exchanges financial account information with over 90 jurisdictions. FATCA compliance is in place through an Intergovernmental Agreement with the United States. Hong Kong companies with accounts are reported under the beneficial owner's home country CRS obligations.

Political Risk Assessment

The key question for many clients is whether Hong Kong remains a sound jurisdiction for ongoing structuring post-2019. HPT's current assessment:

Functioning normally for: trading structures, holding companies with international assets, China-access vehicles, registered crypto exchanges, private banking, and any purpose that does not intersect with politically sensitive activities or assets located within mainland China.

Requiring additional diligence for: structures involving mainland Chinese assets, businesses with significant operations in Xinjiang or other politically sensitive areas, and clients with high public profiles who may be concerned about privacy.

Not recommended for: clients whose primary concern is anonymity from Chinese state authorities, or whose commercial activities might attract attention from mainland regulators.

The legal system and commercial courts remain, in HPT's assessment, reliable for standard commercial matters. The judiciary has maintained a strong track record on commercial disputes. Hong Kong common law remains well-developed and respected internationally.

HPT's Assessment

Hong Kong occupies an irreplaceable position in global commerce: it is the only jurisdiction that combines a common law legal system, zero capital gains and dividend withholding taxes, a territorial profits tax system, and genuine direct access to mainland China's USD 18 trillion economy. No other jurisdiction offers this combination.

For clients with real commercial interests in Asia — particularly China-related investment, trading, or business — a Hong Kong company remains among the most practical and tax-efficient structures available. HPT has direct relationships with Hong Kong registered agent firms, corporate service providers, and banking specialists who can facilitate company formation, account opening, and ongoing compliance.