Tax havens are countries with low tax rates, especially for foreign investors, making them attractive places for people to park their money. Hong Kong is considered a major 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 favorable tax system, second only to Bahrain. The People’s Republic of China, of which Hong Kong is a part, allows Hong Kong autonomy and arguably even more privacy than the island’s former British rulers had under.
- Hong Kong is one of the leading tax havens in the world due to various laws protecting the assets of foreign residents and corporations.
- Residents earning income in the area pay taxes between 2% and 17% depending on salary, while residents earning income beyond the island’s borders pay no tax on those incomes.
- 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.
- No tax is levied on capital gains, interest or dividends; There are also no net worth or public benefits taxes.
- Buyers in Hong Kong can enjoy high purchasing power as the island does not impose a sales tax.
attractive tax structure
Hong Kong, a Special Administrative Region (SAR) of China, is one of the world’s major financial capitals. As such, many of the world’s major banks operate there. The island has one of the largest stock exchanges in the world. It even has its own currency, the Hong Kong dollar, so foreigners don’t need to worry about transacting in the low-value Chinese yuan.
Wealthy foreigners have every reason to deposit their money in Hong Kong. For one, the island does not tax income earned beyond its borders. Those who earn a salary in this sector pay an income tax of between 2% and 17%, depending on their salary, which is much lower than the taxes levied on salaries in the West. Additionally, corporations pay a tax of 8.25% or 16.5% depending on profit levels generated in Hong Kong.
What is even more beneficial is that the autonomous sector does not tax capital gains, interest or dividends. Foreigners who keep their money in Hong Kong pay no net worth tax and no public benefit taxes, which are similar to Social Security taxes in the United States. High-net-worth individuals who do not own their financial assets in Hong Kong can still benefit from going on a Hong Kong shopping spree, as buyers do not pay any sales tax on their purchases.
commitment to privacy
To some people’s surprise, the so-called Panama Papers mention Hong Kong as a place where wealthy individuals, corporations and world leaders hide their money. From the latest data available, as of 2019, private property assets under management in Hong Kong were approximately $9.1 trillion.
The famed tax haven, Switzerland, succumbed to pressure from the United States and the European Union to share information about foreign bank accounts and property owners seeking shelter from taxation.
However, Hong Kong refused to do so and was named on the European Union’s blacklist of non-cooperative tax havens around the world. Hong Kong still lags behind Switzerland in the privacy rankings but has become a strong competitor. In 2020, Hong Kong currently ranks fourth in the Financial Privacy Index behind Switzerland, the United States and the Cayman Islands. Hong Kong was given a score of 66, which is considered a high score and is a reflection of the region’s commitment to the privacy of those who keep their money there.
Hong Kong’s favorable tax structure makes it an attractive place for foreigners to deposit their money, as well as for corporations to do business. The tax structure and Hong Kong’s ongoing dedication to maintaining privacy for investors have contributed to it becoming a popular tax haven that has helped establish it as one of the world’s leading financial centers.
However, the G7 and the US are currently working on new laws to reduce tax evasion for individuals and corporations. These laws include the wealth tax and the global minimum corporate tax, respectively. If they are installed, they can also be implemented in tax havens, such as Hong Kong.