Hong Kong, a city of 7 million people in Southeast China, is politically subordinate to Chinese authorities, but maintains free legal and economic systems, independent from Chinese scrutiny. This unique status of Hong Kong, which is an outcome of a fascinating history of Western and Eastern civilizations’ clash, was originated from the 1842 Nanjing Treaty. According to the treaty, signed between China and the European nations, mainly Great Britain, Hong Kong was to be a port-city, a fact that designed its current international importance. Moreover, the complex history has given birth to one of the most unique legal systems, which enable this city to become one of most important and prospering cities in Asia and in the whole world as well.
The Hong Kong economy is based on capitalistic trade, free market and minimal government intervention, including extremely low taxation. Hong Kong is considered to be one of the most economically free cities in the world since 1995. Thus, it shouldn’t come as a surprise that in a city managed by the private sector, the concentration of international companies and corporate headquarters is the highest in all of Asia.
Local and International Tax Law
The Hong Kong corporate tax is very convenient and comfortable to commercial trade and entrepreneurs. Indeed, in Hong Kong, there is a great deal of foreign enterprise, whereas there is no difference in recognition amongst locals and foreigners regarding taxation, and between revenue that is subordinate to foreign tax to that which isn’t. However, the local law defines several conditions in order to apply the local tax laws upon foreigners, which are more complex than can be described here, but of which the gist shall be brought hereforth.
Hong Kong companies are bound to a uniform revenue tax of 17.5%, but other business enterprises are bound only to a 16% revenue tax. However, there are various legal entities that owe different tax rates, often even a lower rate, amongst other reasons, because of a convenient deduction system policy. Hence, the Hong Kong tax is extremely low compared to other countries, especially European.
The Hong Kong policy is very convenient for foreign and local investors. For instance, for certain investments the tax rates can be very low and deductions can be high. There is a policy of taxing revenue made inside Hong Kong but not foreign revenues, there isn’t any capital revenue tax, there are convenient tax deductions at source rates, there is no sales tax and there is no VAT at all.
The corporate tax law is very similar and almost identical to the English law, a fact that enables, together with the fact that English is an official language in Hong Kong (In addition to Chinese), easy accessibility and lucidity of the local law. This, of course, is vital for promotion of foreign trade and investment.
As pointed above, local and foreign investors operating from Hong Kong, but producing revenues from abroad, aren’t subject to revenue tax in Hong Kong at all. Moreover, Hong Kong, one of the leading economies of the world, has signed double tax treaties with many countries, including Israel. This enables foreign investors to avoid tax in their home countries when there is trade that produces profits in Hong Kong and other places.
The Government in Hong Kong aspires to promote Hong Kong’s status as an leading international trade nation. The economic independence, and the modern, free and developed regulation of trade which Hong Kong maintains, although subordinate to China in certain political manners, enables local and foreign investors to promote and develop large-scale entrepreneurs and enterprises in Hong Kong. Indeed, Hong Kong is intensively active in promoting and insuring its respectful status as a worldwide economic power.
In Hong Kong today, adoption of a new commercial law is been considered. This law is based on principles of insuring proper services, claiming that such intervention will secure and endorse the economic stability. The goal of this law, which is supposed to come to force by the end of 2008 or beginning of 2009, is to secure free market trade in order to improve the efficiency of the local economy and foreign investment.