What You Should Know About Hong Kong Company Law When Starting a Company

Contributed by hongkongtaxfree.com

December 7, 2016

Hong Kong business environment is very vibrant. It is supported by laws that make Hong Kong get ranked top on ease of doing business globally. As you set out opening a company, expanding, or taking a startup to Hong Kong, it is very important to know the company law. This will help you optimize on opportunities, avoid getting into conflict with the administration, and many other complications.

Facts about company law Hong Kong

  • Only revenue generated in Hong Kong is subject to taxation.
  • The tax rates are low to encourage businesses to thrive (16% and 17.5% on salaries and corporate tax respectively).
  • Tax laws are simple to understand and implement when compared to other countries.
  • As a free port region, the government of the People's Republic of China does tax businesses their income made the Hong Kong.
  • No taxes on capital gains
  • Huge benefits for taking investments to Mainland China.

"Sources profits" – what are they in Hong Kong company law

Matter of fact: While profit generated outside Hong Kong is not subject to tax, it is the nature of that revenue and transaction that yields the return.

Operational test: This is a principle that involves identifying the operations that resulted in respective profits. The principle also ascertains if the operations were real.

The place of business: This principle underscores the reality that if a company has an office in Hong Kong and makes a profit abroad where it does not have an office for operations, the revenue is most likely seen like it was sourced within Hong Kong.

The place of decision making: The place of decision making is the main factor that defines the source of revenue for any business.

The guiding norm on business profits

  • Business sale transactions: This is a very crucial aspect in defining the source of revenue when trading in products and services. The principle indicates that the profit was acquired where the transaction was effected. Note that the word effected is used loosely and does not indicate the transaction was in reality done. It is expanded to include negotiations, agreements, conclusions, and implementation of terms outlined in contracts.
  • Circumstances to be considered:
    1. When a transaction is completed in Hong Kong, the tax has to be remitted to the Inland Revenue Department.
    2. If the transaction was completed outside, you would not be required to pay tax to Hong Kong.
    3. Even when the transaction is completed in Hong Kong, it is presumed that the profit will be taxed in Hong Kong. It is important to the point that additional factors will have to play to determine the quantity of profits and their source.
    4. When a transaction through a Hong Kong buying office abroad is completed, it is considered to have taken place in Hong Kong.
    5. When a transaction is completed through direct phone calls or via the internet from the Hong Kong office, the transaction is deemed to have taken place in Hong Kong.


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