Why choose Hong Kong to invest in?

By: YL Toh
Submitted: 2009-08-14 16:28:57
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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.

It has been proven that investing in Hong Kong is a very attractive and popular proposition for investors. According to the latest World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD) in 2008, Hong Kong was the world's seventh and Asia's second largest Foreign Direct Investment (FDI) recipient, attracting US$54.4 billion worth of inward investment in 2007. Taking into consideration the small size of Hong Kong, it comes as no surprise that it was also ranked first globally in the report's Inward FDI Performance Index – which measures the amount of FDI relative to the size of the economy.

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. Mainland China’s direct investment in Hong Kong is also a very significant – accounting for 40.7% of the total stock of inward direct investment in 2007. This shows that there is great interdependence between Hong Kong and Mainland China’s economies, and that by incorporating a company in Hong Kong, it serves as a great springboard for expansion into 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 withholding 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.

A Hong Kong company is also not perceived to be an offshore company in an international tax haven because Hong Kong is a reputable, regulated international trading jurisdiction. Annual audited financial statements must be submitted to the Hong Kong Inland Revenue Department. Also, Hong Kong company incorporation requires the appointment of a Hong Kong-resident company secretary.

In conclusion, with proper planning, company formation in Hong Kong serves as a highly effective and efficient tool for investors and entrepreneurs alike. 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.

Healy Consultants is a corporate services firm providing international clients with a range of offshore company formation and corporate advisory services. Headquartered in Singapore, the firm has an exceptional knowledge of business set up procedures and a comprehensive understanding of legitimate, tax efficient financial structures. Visit our business website for detailed information on the firm's services.

Article source: Expert Articles

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