A Hong Kong Holding Company will benefit from the territorial tax system,
- The dividends received from a local company subject to profits tax, so resulting from an investment by the Hong Kong Holding company into another Hong Kong company are specifically exempt from profits tax.
- Dividends received from companies that are managed and controlled outside Hong Kong and carry on no business in Hong Kong are in practice exempt on the basis that they are not derived from Hong Kong.
- Any profits derived from the subsequent exit by sale or disposal of the local holding company should generally be treated as exempt from profits tax because Hong Kong does not tax profits derived from the sale of capital assets.
- The disposal of any foreign subsidiaries held by a Hong Kong holding company is not taxed in Hong Kong unless the acquisition of these subsidiaries is considered as speculative or as part of a trade carried out in Hong Kong.
- Disposal of a Hong Kong subsidiary is subject to 0.02 % stamp duty on the value of the shares transferred.
Additionally, there is no dividends tax in Hong Kong so no withholding taxes on payments of dividends and interest.
Hong Kong signed Double Treaty Agreements with numerous countries
IRD (Hong Kong Inland Revenue Department) is making it more difficult to obtain Tax Residence Certificates for HK companies to claim tax benefits and foreign tax authorities are also expecting the Hong Kong Holding Companies to demonstrate their place of control and management in the city in order to enjoy the tax benefits. This means that the Hong Kong holding company would not be considered as having an offshore status.
In order to obtain the Tax Residence Certificate, the Hong Kong Holding Company will have to demonstrate the below;
- Local resident Director with the abilities to 1. Formulate strategic policies 2. Determinate business directions 3. Organize the work plan 4. Decide on the mode of business financing 5. Implement management policies, work plan etc. 6. Evaluate the business performance
- The Director will organize the meetings in Hong Kong for the directors/partners to make resolutions with a description of the subject matters discussed.
- The company should hire employees besides administrative officers; this could be “solved” with an employment contract for the local resident Director.
- The fix place of business should be in Hong Kong, an office lease (sublet) would suffice
- The main banker should be in Hong Kong.