Hong Kong Fact-File Part 4:
Individual Business Tax-Efficient Structures

4.3 Hong Kong Individual Business Use Of Offshore

Tax-efficient structures involving offshore jurisdictions

There are no real tax-efficient structures involving offshore jurisdictions likely to benefit small business owners in Hong Kong.
This is due to the fact that Hong Kong tax law does not differentiate between offshore and Hong Kong companies when it comes to profits tax, due to the territorial tax regime. If a company incorporated offshore is judged to be carrying out business in Hong Kong, it will be liable to profits tax; if it is doing business elsewhere, then it won’t be.

Using offshore jurisdictions

Due to the territorial nature of the Hong Kong tax system, the use of offshore jurisdictions for tax minimisation purposes is not likely to be terribly effective; if an entity located or incorporated offshore is judged to be carrying out business in Hong Kong, it will be liable to tax; if it is doing business elsewhere, then it won’t be.

In terms of asset protection, although Hong Kong has a trust regime in place, it is arguably lagging one of the regional (although admittedly not offshore) leaders of the pack, Singapore.

Singapore has significantly reformed its trust laws in the past decade to make it a more attractive location for such business, and in March 2010, 40 trust licences had been granted, up from around 15 before the reforms were made.

The island country imposes fairly strict client confidentiality rules, and the tax treatment of distributions to trust beneficiaries can be attractive.