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Erschienen in:
2017 | OriginalPaper | Buchkapitel
8. Transparency and Simplicity Support Investment in Hong Kong
verfasst von : Andrew Halkyard
Erschienen in: Taxation and Development - A Comparative Study
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Abstract
Hong Kong has a territorial tax system in which, with very few exceptions, business profits from foreign sources are not subject to tax. Accordingly, the regime may be viewed as friendly to foreign investment, even though it was not designed with this intention. In order to attract investment into its own borders, Hong Kong features a regime that minimizes red tape for business and a common law legal system that provides transparency and simplicity.
Synopsis
Hong Kong has a territorial tax system. Business profits derived from Hong Kong sources are subject to tax. With very few exceptions, those derived from sources outside Hong Kong are not. Consequently, residence has virtually no role in determining tax liability.
Common law rules determine the source of income. In general, a dividend paid to a Hong Kong company by an offshore company is treated as derived from sources outside Hong Kong and is not subject to tax in Hong Kong.
Although not designed to encourage investment abroad, Hong Kong’s territorial regime may be viewed as friendly to taxpayers seeking to do so.
Concerning international matters, Hong Kong’s tax policy is consistent with mainstream OECD practice. Exchange of information by Hong Kong can only occur through a treaty or other binding agreement. Accordingly, by the beginning of 2016, Hong Kong had concluded 34 comprehensive double taxation agreements. Recent changes in domestic law allow Hong Kong to exchange information relating to all taxes with a treaty partner and to enter into stand-alone TIEAs. By the beginning of 2016, Hong Kong had concluded seven TIEAs.
Currently, information exchanged must meet the “necessary” or “foreseeably relevant” standard and sharing for non-tax purposes is limited to very high level matters, involving serious crime, drug trafficking, or terrorism financing.
While Hong Kong exchange of information is currently limited to exchange upon request, it has moved to meet the standard for automatic exchange of information extolled by the OECD. With a simple tax regime based upon territorial source of income, Hong Kong anticipated the need for fundamental changes in policy in order to implement automatic exchange of information. In order to avoid being viewed as an uncooperative regime, it passed legislation to meet the standard in June 2016.
In order to attract investment within its own borders, Hong Kong has adopted a regime that ensures minimal red tape for business and supports a common law legal system that is transparent and simple. With limited exceptions, such as for offshore funds and offshore treasury centres investing in Hong Kong, it does not provide investment incentives through the tax system.
The corporate tax rate on Hong Kong source profits is 16.5 %.
Hong Kong has concluded a number of bilateral and multilateral trade and investment agreements.