One of the many benefits to incorporating a business in Hong Kong is the simple and transparent tax system with relatively low rates of taxation. For corporations, there is a beneficial tax regime, with low tax rates and where capital gains, shareholder dividends and foreign-sourced income are not taxed.

Given Hong Kong’s role as a financial hub and as the main entry point into China, the Hong Kong government has structured its tax system with the aim of encouraging sustainable growth and free enterprise. In addition, Hong Kong’s territorial tax system ensures that profits tax is only levied on profits ‘derived’ in Hong Kong, a narrower scope than exists in most other countries. Moreover, Hong Kong has signed over 30 Double Taxation Agreements (DTA) with a broad range of countries to alleviate any foreign tax payable on income that also happens to be subject to Hong Kong tax.

Since the end of 2009, Hong Kong has signed new DTAs with 17 jurisdictions, with several more currently “in the pipeline” such as DTAs with Indonesia and Spain, according to Financial Secretary John Tsang in comments to the Asia Private Equity Forum, held in Hong Kong earlier this year.

DTAs leave channels to cross-border trade completely open and encourage the free exchange of capital and ideas. They enable companies doing business across borders to anticipate tax liabilities in advance and reduce the possibility of paying taxes twice on the same income.

Companies incorporated or managed and controlled in Hong Kong are eligible for relief from foreign tax under the terms of these treaties. Using a Hong Kong holding company can result in the following benefits:

·Avoidance of double taxation with any country in Hong Kong’s tax treaty network

·Lower withholding tax rates on dividends, interest and royalties

·Higher after-tax income as a result of the lower withholding rate

Establishing a holding company in Hong Kong in order to take advantage of its beneficial “onshore and offshore” tax system and its growing network of DTAs are two major benefits, but there are countless others. Hong Kong has the unique advantage of being both a Chinese city and a global trading centre. As such, it attracts a free flow of capital, information and labour, and it is without a doubt the preferred gateway into China.

With this in mind, a related benefit exists for Hong Kong-situated holding companies. In 2003, the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)—the first free trade agreement between the two parties—was signed. CEPA accentuates Hong Kong’s role as the gateway to China by liberalising access to the mainland market via the elimination of tariffs and other barriers on all trade in goods and services. At the same time, CEPA makes it easier for mainla  nd enterprises to utilise Hong Kong as an access point through which they can raise capital and subsequently access the global market.

These numerous benefits continue to make Hong Kong the Gateway to Doing Business in China. ICS TRUST offers a Virtual CFO service that assists companies registered in Hong Kong with an array of financial services, including accounting, tax advice and filing, audits, commercial banking, financial reporting and personnel issues. ICS TRUST’s Virtual CFO service is a vital service for international companies doing business through Hong Kong and into China as it ensures compliance a with the PRC’s complex set of requirements.