<p>It is commonly believed that Hong Kong is offshore, but this is not quite true, or rather far from it.</p><p>First, companies in Hong Kong must keep accounts, audit, and submit tax returns.</p><p>Secondly, the register of companies in Hong Kong is open.</p><p>Thirdly, Hong Kong is a region with a territorial principle of taxation, which implies the possibility of obtaining a zero tax rate on the company's net profit in the event that it is proved that the activity is conducted outside Hong Kong. However, if you have operations in Hong Kong, you have to pay a tax on net profit, which is defined as the difference between all the income and expenses of the company.</p><p>If you think logically, then, if you conduct activities outside Hong Kong using a local company, then why do you need to decide in general whether to pay or not to pay taxes in Hong Kong, the answer seems to be obvious. You can exempt the company from taxes.</p><p>However, it turns out that in the conduct of international business in recent times, reality forces us to choose not between the presence and absence of a tax as such, but between territories where it is more profitable to pay the tax.</p><p>In connection with the entry into force of the agreement on the automatic exchange of banking information between most countries of the world, banks are forced and will now refer the client to a tax residence. Further, they transmit data to the tax service of their country, and the tax service transmits data to the country that is designated as the tax residence of the company.</p><p><b>Determination of tax residence of a Hong Kong company</b></p><p>The definition of tax residence is based on several basic parameters, namely:</p><ul><li>The presence of a tax number in the country and the fact of the payment of taxes.</li><li>Geographical location of the company's active office.</li><li>In some cases, if the first two parameters cannot be clearly defined, then the country where the director and/or beneficiary has a permanent residence and tax residence will belong to the tax residence of the company.</li></ul><p>Sometimes it can still take into account the fact where the company carries out its core business.</p><p>More specifically, if you show the bank that your company has a tax number, tax payment, leased or own office in any country, then further questions simply do not arise, and the data on the account balance will fall into the country where your company has it all. In this case, we are talking about Hong Kong, since the owner of the account is the company and not you personally.</p><p>If you show the bank that you have a tax number, but you do not pay taxes in Hong Kong, and your actual office from which the business is managed located in some other country, then a bank, at its discretion, can designate your company as a tax resident of several countries, which means that information about the state of a bank account can go both to Hong Kong and to a country which, in the bank’s opinion, can also be the territory where the company operates must pay taxes.</p><p>On the other hand, in the last year, people who apply for tax-free status in Hong Kong receive letters from the Hong Kong Tax Service with a number of standard questions to confirm that the company does not operate in Hong Kong. However, among these questions began to appear those that are aimed at confirming the presence of the actual office of the company with the requirement to indicate the exact address of such an office, as well as questions regarding whether the company should pay tax in the country where it operates and where is the actual office of the company.</p><p>As you can see, now in the world it all comes down to determining the entire active business to a particular tax residence.</p><p>What do you gain and lose if you agree to pay taxes in Hong Kong? The question is quite practical, taking into account the above.</p><p>Now, the tax rate of companies in Hong Kong, starting from April 1, 2018, has a two-stage structure:</p><p>The first 2,000,000 HKD (approximately 260,000 USD) of the company's net profit (net profit = income minus expenses) are taxed at the rate of 8.25%.</p><p>The remaining net profit in excess of 2,000,000 HKD (or 260,000 USD) is taxed at a rate of 16.5%.</p><p><b>Hong Kong tax deductions </b></p><p>It is popular to denote additional tax deductions as a percentage of the taxable base or in the form of a fixed tax credit. This is usually done in order to support small and medium businesses. As a result, the total percentage of tax payment can be significantly reduced.</p><p><b>The net profit of a Hong Kong company</b></p><p>It should be noted that the net profit is defined as the difference between the sum of sales of goods/services and the sum of all expenses for the reporting period. The expenses are understood as:</p><p>1). Expenses directed to the purchase of goods/services.</p><p>2). Costs aimed at the delivery of goods/services to customers.</p><p>3). Costs aimed at business development:</p><p>a. Marketing.</p><p>b. All types of advertising and various types of promotion, for example, participation in exhibitions and conferences, meetings with clients and partners.</p><p>c. Travel expenses of directors and other employees of the company (air tickets, taxi, hotel accommodation, meals, and transportation costs).</p><p>4). Costs aimed at maintaining the business:</p><p>a. Office and warehouse rental.</p><p>b. Salary and other payments to employees.</p><p>5). Costs aimed at compulsory company support:</p><p>a. Payment for secretarial services.</p><p>b. Payment for accountants and auditors.</p><p>c. State annual fees.</p><p>When reporting in Hong Kong, accounting is based on actually issued and received documents, also on actually delivered goods and services rendered, and not on the fact of payment. If, say, you received an invoice from a supplier with a date in this reporting period, and you need to pay for it later, then you put such a document on expenses. Because of this, if you plan your activities competently, you can optimize the company's total profit in a given reporting period.</p><p><b>The question of a bank account in Hong Kong </b></p><p>It is also worth paying attention to the fact that Hong Kong banks have recently begun to track where the company has an office, passes whether the company is audited, whether the company pays taxes. If you plan to actively use a Hong Kong company for your business and open an account in Hong Kong, then the right decision will be to provide the bank with confirmation of all three parameters above.</p><p><b>Additional business opportunities for resident</b></p><p>The presence of local residents from the directors and beneficiaries of the company opens up additional opportunities for business development with the support of the government of Hong Kong. If you, as a director and/or business owner, obtain a work permit in Hong Kong in the form of a work or investment work visa, then the company and you personally can get loans at a low percentage for up to 5 years or more. Your company can get loans up to HKD 12,000,000 (approximately, 1,500,000 USD) under the guarantee of the Hong Kong government. In the coming years, it is planned to increase this amount to 15,000,000 HKD.</p><p></p><p></p><p><a href="https://offshorewealth.info">Source</a></p>