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The Reasons for Making an Investment in Hong Kong

Monday, December 28th, 2009

Free and Open Economy

In the 2009 Index of Economic Freedom, Hong Kong has once again been placed first, the fifteenth consecutive year it has held this position. The index is an annual survey conducted by The Heritage Foundation and The Wall Street Journal that compares 183 countries in relation to 10 ‘freedom’ variables including business freedom, investment freedom, property rights, freedom from corruption and more. Economic freedom is still largely regarded as an important key to growth and prosperity. As free trade is the life-blood of Hong Kong, Hong Kong embraces globalisation of trade and services. There are no barriers to trade – such as tariffs and quotas – being put in place, and there is no foreign exchange controls or restrictions on both inward and outward investments. Additionally, the Hong Kong Government also does not place any nationality restrictions on corporate or sectoral ownership. This makes company formation in Hong Kong an attractive and relatively fuss-free option.

Gateway to Mainland China

Situated at the mouth of the Pearl River Delta (PRD), Hong Kong is strategically located for trade with Mainland China. China’s rapid economic development of increasingly competitive industries has created more opportunities for even greater economic expansion. With the Closer Economic Partnership Arrangement (CEPA) that took effect in 2004, Hong Kong can now benefit from additional and exclusive Mainland market access. Company incorporation in Hong Kong would mean that the vast market of Mainland China is readily accessible. Mainland China is now Hong Kong’s largest trading partner and they are both key to one another’s economic success. Hong Kong is the largest source of overseas direct investment in Mainland China.

Low Taxes

At 16.5%, Hong Kong’s corporate tax rate is among the lowest in the world. Hong Kong adopts a territorial basis principle of taxation, where only profits which have been sourced in Hong Kong are taxable. The effective tax rate is even lower after taking into consideration tax exemptions and deductions such as Industrial Buildings Allowances on Industrial Buildings and Structure, Commercial Buildings Allowances on Commercial Buildings and Structures, Plant and Machinery Allowances, approved Donations and other allowable Deductible Expenses in accordance to Hong Kong’s Inland Revenue Ordinance.

In addition, there is no capital gains tax in Hong Kong and no with holding tax on dividends and interest or collection of social security benefits. There is no Value-Added Tax (VAT) in Hong Kong. The limited tax base, coupled with very low tax rates, makes Hong Kong’s tax incidence one of the lowest, if not the lowest, among developed economies, and therefore, Hong Kong company formation makes for a very tax efficient business entity. In short, with its free and open economy, low taxes, and strategic position as a gateway to Mainland China, Hong Kong is abundant with vast opportunities for investment and growth. Investing in Hong Kong to get the best conditions for your business abroad.