Tax havens are countries with low tax rates, particularly for foreign investors, that make them attractive places for people to park their money. Hong Kong is considered a leading tax haven due to its laws that limit taxation on the island’s wealthy foreign residents and corporations.
In fact, in 2020, accounting firm PwC and the World Bank ranked Hong Kong as the country with the most friendly tax system, second only to Bahrain. The People’s Republic of China, of which Hong Kong is a part, permits Hong Kong’s autonomy and arguably allows for even greater secrecy than the island had under its former British rulers.
Key Takeaways
- Hong Kong is one of the leading tax havens in the world, due to a variety of laws that protect the assets of foreignresidents and corporations.
- Residents who earn income in the region pay taxes of between 2% and 17%, depending on salary, while residents who earn income beyond the island's borders pay no tax on those earnings.
- The corporate tax for companies based on the island is either 8.25% or 16.5%, depending on how much was earned in Hong Kong.
- There are no taxes charged on capital gains, interest, or dividends; there are also no net-worth or public benefit taxes.
- Shoppers in Hong Kong can enjoy higher purchasing power since the island does not impose a sales tax.
Attractive Tax Structure
Hong Kong, a Special Administrative Region (SAR) of China, is one of the leading financial capitals in the world. As such, many of the world’s leading banks have operations there. The island also has one of the largest stock exchanges in the world. It even has its own currency, the Hong Kong dollar, so foreigners need not worry about transacting in the lesser-valued Chinese yuan.
Wealthy foreigners have every reason to bank their money in Hong Kong. For one, the island does not tax income earned beyond its borders. Those who earn salaries in the region pay an income tax between 2% to 17%, depending on their salary, which is significantly lower than taxes levied on salaries in the West. Additionally, corporations pay a tax of 8.25% or 16.5%, depending on the profit levels generated in Hong Kong.
Even more beneficial is that the autonomous region does not charge tax on capital gains, interest, or dividends. Foreigners who keep their money in Hong Kong pay no net-worth taxes and no public benefits taxes, which are similar to Social Security taxes in the United States. High-net-worth individuals who do not keep their financial assets in Hong Kong can still benefit from going on Hong Kong shopping sprees, as shoppers pay no sales tax on their purchases.
Commitment to Secrecy
Few were surprised that the so-called Panama Papers came peppered with mentions of Hong Kong as a place where some wealthy individuals, corporations, and world leaders hide their money. From the latest figures available, from 2019, private wealth assets under management in Hong Kong were approximately HKD 9.1 trillion (US$1.2 trillion).
Renowned tax haven, Switzerland, bowed to pressure from the United States and the European Union to share information about foreign bank accounts and asset owners seeking shelter from taxation.
However, Hong Kong refused to do so and was named to the EU’s blacklist of non-cooperating tax havens around the world. Hong Kong is still behind Switzerland in secrecy rankings but has become a strong competitor. In 2020, Hong Kong ranked fourth on the Financial Secrecy Index, behind Switzerland, the United States, and the Cayman Islands. Hong Kong was given a score of 66, considered a high score and a reflection of the region’s commitment to the privacy of those who keep their money there.
The Bottom Line
Hong Kong's favorable tax structure makes it an attractive place for foreigners to deposit their money as well as a place for corporations to do business. The tax structure and Hong Kong's ongoing dedication to preserving secrecy for investors have contributed to it becoming a popular tax haven that has helped establish it as one of the world's premier financial hubs.
However, the G7 and the US are currently working on new laws to alleviate tax evasion for individuals and corporations. These laws include the wealth tax and the global minimum corporate tax, respectively. If they are instituted, they might be enforced in tax havens as well, such as Hong Kong.
FAQs
Why Is Hong Kong a Tax Haven? While there are many benefits of doing business in Hong Kong, Hong Kong stands out as a tax haven because of its low corporate tax rate of 16.5%. Corporate tax is also restricted to income derived from Hong Kong.
What are the tax advantages of Hong Kong? ›
Hong Kong has a simple tax system with low tax rates for businesses and individuals. There are only three types of taxes in Hong Kong: profits tax, salaries tax and property tax.
How does Hong Kong have such low taxes? ›
Hong Kong is considered a leading tax haven due to its laws that limit taxation on the island's wealthy foreign residents and corporations. In fact, in 2020, accounting firm PwC and the World Bank ranked Hong Kong as the country with the most friendly tax system, second only to Bahrain.
What is Hong Kong tax system? ›
Businesses and individuals in Hong Kong enjoy one of the most tax-friendly systems in the world. Only three direct taxes are imposed and there are generous allowances and deductions which can reduce your taxable amount.
What is the tax avoidance in Hong Kong? ›
The maximum penalty for evading tax in Hong Kong is a fine of HKD 50,000, three years imprisonment, and an additional fine of three times the amount of tax evaded.
Is Hong Kong a good tax haven? ›
Hong Kong is known as a tax haven that provides low or no corporate tax rates to overseas investors. Such a nation is a great spot to incorporate a corporation because of this benefit alone. This is one of the best places to keep the majority of your money.
Does Hong Kong pay taxes to China? ›
In relation to the economy and tax system, the Basic Law provides that the Hong Kong (SAR) shall have independent finances and shall use its financial revenues exclusively for its own purposes. Further, the Basic Law provides that the PRC government shall not levy taxes in the Hong Kong (SAR).
What country has the lowest taxes for the rich? ›
United Arab Emirates
The UAE doesn't tax personal income, capital gains, inheritance, gifts or properties. And it has one of the lowest corporate tax rates in the world, at 9% for companies generating more than 375,000 dirhams ($102,000) in annual profits.
Is Hong Kong tax free for tourists? ›
Hong Kong is considered as the ultimate shopping heaven, where you can easily find all of the major international brands of products. Due to the fact that Hong Kong has no sales tax (tax-free), prices here are rather competitive.
What country has the worst income tax? ›
The long-troubled West African country, Ivory Coast, has the highest income tax rate in the world. People living there are giving away a whopping 60% of their income to the government.
Median Salary in Hong Kong
According to Salary Explorer, the middle salary, or the median salary as it is called in Hong Kong, is approximately 33,300 HKD. This is roughly 4253.53 USD. So, if you would place all the salaries from the lowest to the highest one, the median salary would be around that much.
What is Hong Kong's total tax revenue? ›
Total government revenue for 2022-23 is estimated to be HKD 715.9 billion (2021-22: HKD 682.7 billion) within which tax revenues (i.e., Profits Tax, Stamp Duty, Salaries Tax) account for 49.4%, followed by land premiums at 16.7% and investment income at 15.2%.
Is Hong Kong a good place to live? ›
According to Numbeo's crime index ranking of 142 countries and territories for 2023, Hong Kong ranks as the sixth safest place in the world, putting it above countries like Switzerland, Japan, and Denmark.
Is Hong Kong part of China for US tax purposes? ›
There is not a treaty on taxes between Hong Kong and the United States. There is a US - China tax treaty, but it is not applicable to Hong Kong.
What is Hong Kong's comparative advantage? ›
Hong Kong has a strong legal infrastructure and financial system, which offer a business-friendly environment and a level playing field to international business community. Hong Kong's solid legal foundation includes the well-tested common law system and an open, transparent and independent judiciary.
Which country has the best tax benefits? ›
Tax-Free Countries In The World 2023
- United Arab Emirates. The United Arab Emirates, with a robust, oil-backed economy, exempts its residents from income tax. ...
- Bahamas. ...
- Qatar. ...
- Vanuatu. ...
- Bahrain. ...
- Maldives. ...
- Somalia.
Tax-advantaged investments shelter some or all of an investor's income from taxation, allowing them to minimize their tax burden. Municipal bond investors, for example, receive interest on their bonds for the duration of the bond's life.
