Tax Substance and Company Growth beyond Hong Kong

What is the one most important thing that you would want to achieve for your company? Most entrepreneurs would say growing their businesses to multinational levels. To achieve this international status requires one to be smart, and part of this is using offshore jurisdictions as a springboard. One of the best jurisdictions is Hong Kong, a globally revered business and financial hub. 

Registering a company in Hong Kong is like setting it on the runway and starting to race. You are sure of achieving so much because of Hong Kong’s supportive administration. The jurisdiction also features state-of-the-art infrastructure, a low tax regime, and an educated workforce. It has everything you want to see in a high-profile business hub. To quickly grow regionally and globally, Hong Kong requires one more thing from your business: tax substance. 

In this post, we take a closer look at tax substance to demonstrate the best strategies that you can use to demonstrate it. Why restrict your operations to Hong Kong when the rest of Asia-Pacific has so much to offer? 

A Brief Look at Tax Substance in Hong Kong

When you register a company in Hong Kong, it is assumed that you immediately get tax residency. However, this is not the case. Your company is required to apply for a tax resident certificate separately and is only issued after the Inland Revenue Department (IRD) is certified the enterprise is delivering economic substance. 

The main benefit of demonstrating tax substance is to be able to take advantage of different bilateral trade agreements (BTA) between Hong Kong and other countries. For example, you are sure of avoiding double taxation when trading in a country that has signed an agreement on Double Tax Arrangements (DTAs) with Hong Kong. Your products will also enjoy tax-free treatment in the case of free trade agreements between Hong Kong and another country, such as the Closer Economic Partnership Arrangement (CEPA). 

How to Demonstrate Tax Substance 

Although not clearly defined in law, tax resident status is so important, and you should do everything possible to achieve it. Here are some useful steps that you should follow: 

  • Make sure your company is registered in Hong Kong. 
  • Ensure your company is compliant with all laws in Hong Kong.
  • Have some senior managers and directors hold some of their roles in Hong Kong. 
  • Hold some of the meetings, especially the major ones, in Hong Kong. 
  • Ensure there is a physical office for your company. 
  • Have a functional corporate bank account maintained in Hong Kong. 
  • Interact with other companies in Hong Kong to help promote their growth.
  • Consider listing in the Hong Kong stock market. 

 Use an Agency of Experts for Help with Tax Substance 

The best way to demonstrate tax substance faster and enjoy a lot more that Hong Kong has to offer is by working with experts. With professional help, you will be able to understand the whole concept of tax substance more effectively. Having been in the Hong Kong market for years, the experts understand all the components that IRD looks for to grant a corporate tax resident status. 

The first area where the experts will help you is filing tax returns. This is a statutory requirement that must be done correctly. They can also help you with payroll management, accounting, and strategy formulation. When Hong Kong changes different policies or laws, the agency will also be there to help with compliance. 

To grow your company beyond Hong Kong, it is important to be smart, and the first step is taking advantage of the benefits that come with tax resident status. Reach out to the best firm of experts for assistance with different executive functions, from filing tax returns to payroll management, which are critical when seeking tax residency.

Leave a Comment