Hong Kong offshore company -> EU gray list -> new foreign-sourced income exemption regime

[gnud]

Hong Kong was put on an EU gray list in 2021 and now in response to that they have changed their tax exemption regime.

Hong Kong’s new foreign-sourced income exemption regime: are you ready?

John Timpany of KPMG China provides an overview of the foreign-sourced income exemption regime scheduled to become effective from January 1 2023 and discusses what actions businesses should take to prepare for it.

www.internationaltaxreview.com

Looks like it concerns only passive income remitted to Hong Kong.

Can anyone confirm that offshore Hong Kong companies with an active income and no presence in Hong Kong will remain tax exempt?
Does anyone know of if there exists any reporting between Hong Kong and the EU (ownership, dividends, ... )?

 

[Sols]

It's difficult to comment on Hong Kong. So much is changing. This uncertainty is one reason I'm seeing people avoid starting anything new in Hong Kong right now, even if many old businesses are still functioning fine.

The general trend by the IRD has been to reduce the scope of income which qualifies as exempt. It's more difficult than ever to get your income qualified as exempt. However, if you have no presence, activity, or business counterparties in Hong Kong, a good accountant should be able to get the exemption for you.

 

[DarkRevoMan]

If that is a problem seems easily solved by another operating company that pays a royalty to HK corp.

 

[MiddleEuroAsia]

I have a couple in HK, but it's a f headache. I might close them soon and move them to SG or Labuan with my other companies.
Qualifying for tax exemptions is not an easy task, it requires Audits upon audits and banks are more reluctant to work with you if you don't have any presence in HK, and if you do have presence, well, you are not an "offshore" HK company any more.

all my meetings has to be accompanied by meeting notes and it should specify that these meetings and key management decisions are done abroad, you also have to prove that there are proper substance and team abroad, you have to prove that your suppliers are located abroad, bank transfers are done while you're abroad, invoices are generated abroad, contracts, agreements, any sort of proper work for your company has to be done - abroad.
They require you to audit the tinies of the tiniest work that your company do (and it can get VERY expensive, depending on the amount of work that you do with your company), and you have to wait for a long time to qualify for the tax exemption.
overall, I don't recommend HK any more, and for pure holding companies, Labuan or SG are far better and you still get access to top notch international banks with decent FX rates and transactional accounts. the days of HK are already gone. Look elsewhere.

 

[clemens]

Sounds too complicated to setup a HK company at the moment. If it change to something like what @MiddleEuroAsia describe and worse I would seriously not setup a company there.

 

[Mike Forman]

Sounds too complicated to setup a HK company at the moment. If it change to something like what @MiddleEuroAsia describe and worse I would seriously not setup a company there.

It's not that hard to setup, only if you apply for offshore status be prepared to provide a lot of info before the status is granted. A good tax lawyer or auditor will do all the work, you just make sure you keep all the proof you operate from outside Hong Kong.

Opening a business bank account is a headache, even for native Hong Kong people.

You can just opt to be onshore and pay the 8.5pct tax on the first 2 million hkd income. You can easily reduce your profit base by royally deducting all your expenses such as rent abroad, travel expenses, restaurant etc.

Dividend tax is 0 pct and allows you to take out all the profits at any time without additional tax.

 

[Fred]

I have a couple in HK, but it's a f headache. I might close them soon and move them to SG or Labuan with my other companies.
Qualifying for tax exemptions is not an easy task, it requires Audits upon audits and banks are more reluctant to work with you if you don't have any presence in HK, and if you do have presence, well, you are not an "offshore" HK company any more.

That's 100% true and the reason we do compare the HK tax exempt Setup with a disregarded passthrough single member US LLC Setup as both only run on EMI's.

While you have for the US LLC only Wise, Mercury, RelayFi etc. you have for the HK LTD only Neat, Airwallex, Straty etc.

Still the US LLC has much less ongoing paperwork but can't be used tax free with a strong US client base.

We can confirm that if you require real Banking with reliable retails Banks that Labuan is the better choice - but 30-40k USD yearly running costs due to local employee and office requirement .

Dubai FZCO makes the race all the time but if Asia then the smallest death you have to die with a Labuan + expensive substance then you get at least OCBC Malaysia Business Banking done.

 

[shizui04421]

I made an LLC in Hong Kong, as payment gateway i will use airwallex,but which bank is the most vouched one ?