The prospect of expatriating to Hong Kong is one that intrigues many entrepreneurs and business owners.
Relocating to this dynamic business centre off the coast of Mainland China often brings with it an element of uncertainty, especially concerning personal tax implications.
In this blog, we delve into the positives and negatives of moving your business to Hong Kong, with a special focus on how it could affect your personal earnings.
The positives
Along with its booming local market and myriad of business opportunities Hong Kong offers many personal wealth benefits for small businesses and entrepreneurs.
- Favourable tax regime: Hong Kong operates under a territorial taxation principle, which essentially means that tax is levied only on income sourced within Hong Kong. This can potentially lead to substantial savings, especially for businesses that derive income from various international sources.
- Competitive salaries tax: Entrepreneurs’ earnings are subject to a salaries tax, which is highly competitive – the highest rate being only 17 per cent. This is considerably lower compared to global standards, (the highest rate in the UK being 45 per cent).
- Absence of Capital Gains Tax: Entrepreneurs can breathe easy knowing that capital gains are not taxed in Hong Kong. This is a significant advantage for business owners looking to sell their assets in future.
The negatives
Whilst there are few negatives from a personal wealth perspective, it is important to note that a move to Hong Kong still has some associated downsides.
- Limited tax treaties: Hong Kong has a relatively limited network of comprehensive double taxation agreements meaning you might end up paying tax in your home country and your new one at the same time.
- Rising cost of living: The cost of living in Hong Kong is on the higher end of the spectrum, which could potentially erode the benefits derived from the favourable tax regime. It might also mean a higher wage for local workers, sapping your business’ profits.
- Complex regulatory environment: While it is true that Hong Kong offers a favourable tax environment, it is accompanied by a regulatory landscape that is highly complex, necessitating a well-versed understanding of the law. This is where Reanda’s international tax advisors can help.
The bottom line
The favourable tax regime in Hong Kong, coupled with a competitive salaries tax rate and the absence of capital gains tax, paints a pretty picture for your personal earnings.
However, it is imperative to approach this with a balanced perspective, taking into consideration the complex regulatory environment and the limited network of tax treaties, which could potentially hinder your financial benefits.
Having said this, Hong Kong stands as a beacon of opportunity for entrepreneurs looking to expand their horizons. While the journey may present a few hurdles, with the right guidance and a meticulous approach to tax planning, the city can indeed offer a prosperous home for your business.
If you’re wondering about the market opportunities that come with a move to Hong Kong, read our previous blog called ‘Hong Kong: gateway to China’ where we explain the many benefits of using this booming location as a base for your business.
Using Reanda UK’s expert tax advisors and our close connection with Reanda International we can develop a comprehensive plan for your move to Hong Kong. This includes advising you on how to maximise your tax efficiency in a new regulatory environment.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg & Co Limited. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please contact us.