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Advantages of Offshore Companies in Hong Kong for Investors
27/08/2024
Hong Kong has long been renowned as a leading global destination for setting up offshore companies. Its strategic location, favourable business environment, and attractive tax regime have made it a top choice for entrepreneurs and multinational corporations seeking to expand their business globally.
Thai businesses who also have an offshore company in Hong Kong can take advantage of Hong Kong’s low corporate tax rates, which are among the lowest in the world. Hong Kong operates on a territorial tax system, meaning that only income derived from Hong Kong is subject to taxation, allowing Thai businesses to optimise their tax liabilities for foreign sourced income.
In this blog post, we will explore the process of establishing an offshore company in Hong Kong, as well as the benefits it offers Thai companies.
Key points
- Hong Kong offers very low corporate tax rates, with a maximum of 16.5% (8.25% for the first HKD 2 million (approximately 257,000 USD/9 million THB)), and no capital gains tax, withholding tax on dividends and interest, or indirect taxes like VAT/GST. This is much lower than Thailand’s 20% CIT rate.
- Hong Kong’s company incorporation process can be completed online with just one foreign shareholder and director. This contrasts with Thailand, which requires at least two shareholders for company formation.
- Hong Kong allows online bank account opening for new companies, Thai banks typically require a local director to appear in person, making Hong Kong a more accessible option for both international and Thai entrepreneurs.
- Possibility to qualify for offshore status and the 0% profit Hong Kong tax (rate) if certain conditions are met e.g. the company must demonstrate its operations and income are entirely located outside of Hong Kong. It cannot conduct any trade or business within Hong Kong.
What is an Offshore Company in Hong Kong?
An offshore company in Hong Kong, refers to a business entity incorporated in the region but primarily conducting operations and deriving its profits from outside of the territory. These companies are granted a special “offshore” status by the Inland Revenue Department, which allows them to enjoy a 0% profit tax rate, provided they meet the necessary criteria.
An offshore company in Hong Kong is defined as a company that conducts its business activities outside of Hong Kong. To be considered an offshore company and qualify for the 0% corporate income tax rate in Hong Kong, certain criteria must be met. The company must:
- Company Operations: Ensure that day-to-day business decisions and service agreements are made and signed outside of Hong Kong.
- Business Activities: Ensure that services or products provided are not available or undertaken in Hong Kong. For companies dealing in goods, these goods must not transit through Hong Kong during delivery.
- Suppliers and Customers: Have no customers or suppliers in Hong Kong, and its products must not enter Hong Kong.
- Company Directors: Justify any travel to Hong Kong by directors as non-business related.
- Owners and Employees: Operate solely outside of Hong Kong.
- Passive Income: Ensure certain foreign-sourced income such as dividends, interest income, and income from the use of intellectual properties received in Hong Kong meet specific economic substance requirements.
For instance, an e-commerce company incorporated in Hong Kong that services clients in Thailand and sources products from China may be considered an offshore company. Such a company could qualify for Hong Kong’s 0% offshore tax rate.
Key Advantages of Setting Up Offshore Companies in Hong Kong
1. Low Tax Rates
Hong Kong tax rate for Corporate Income Tax (CIT) rate is among the lowest in the world, currently capped at a maximum of 16.5% (8.25% for the first HKD 2 million (approximately 257,000 USD/9 million THB)) for profits generated within Hong Kong.
Additionally, Hong Kong does not impose capital gains taxes, withholding taxes on dividends and interest, or indirect taxes such as VAT or GST, making it a tax-friendly jurisdiction for offshore enterprises.
These CIT rates are a lot lower than that of Thailand. The Thai CIT rate is currently 20%. However, Thailand does offer reduced rates of CIT for SMEs if certain conditions are met.
Companies who have a registered capital not exceeding 5 million THB and income from the sale of goods and/or the provision of services that is not greater than 30 million THB are subject to tax at the following rates:
| Net profit (THB) | Tax rate (%) |
| 0 to 300,000 | 0 |
| 300,001 to 3 million | 15 |
| Over 3 million | 20 |
By taking advantage of an offshore company in Hong Kong, Thai businesses can optimise their take and potentially save a lot of their income.
2. Flexible Incorporation Requirements
Hong Kong’s company formation process is very straightforward, with no mandatory requirements for local resident directors or shareholders. Entrepreneurs can establish a new company remotely, without the need for physical presence during the incorporation stage.
Hong Kong companies can be 100% foreign owned and only require one shareholder and one director. Both shareholders and directors can be any nationality and there are no residency requirements i.e. they do not need to live or be in Hong Kong.
This is a significant advantage as Thai companies require at least two shareholders and restrictions on business activities when foreign shareholders are involved.
For more information about the setting up a company in Thailand and the advantages of a BOI promotion, please check the following blog posts:
Benefits of Setting up a Limited Company in Thailand
Understanding the Foreign Business Act in Thailand
3. Established Regulatory Environment
The Hong Kong government’s Companies Registry and Inland Revenue Department have streamlined the incorporation and tax registration processes, ensuring quick application processing and efficiency.
It is also important to note that despite recent political developments, Hong Kong has maintained its position as a leading business hub. The city’s corporate and tax regime remains largely unaffected, allowing it to continue functioning as a major economic centre under the “One Country, Two Systems” framework. Hong Kong’s business-friendly environment and unique status within China continue to attract international companies and investors.
4. International Trade Connectivity
Hong Kong’s strategic location and extensive network of free trade agreements, including the Closer Economic Partnership Arrangement (CEPA) with mainland China, make it an ideal hub for international trade and business expansion.
5. Affordability and Cost-Effectiveness
The competitive market for company secretarial, accounting, and audit services in Hong Kong helps keep the ongoing administrative costs of an offshore company relatively low compared to other jurisdictions. For more information on how we can help you with this, please feel free to talk to one of our experts here.
How Does An offshore companies in Hong Kong Benefit Businesses in Thailand?
Hong Kong has a territorial tax system where, so for example, only income earned from within Hong Kong is taxed in Hong Kong. Income generated by a Hong Kong Offshore company, outside of Hong Kong is exempt from taxation. This allows the following tax advantages:
- No Hong Kong tax rates on profits derived from foreign sources
- No capital gains tax
- No withholding tax on dividends, interest and royalties paid to overseas corporate shareholders
Another significant tax optimization advantage of an Offshore Registered Company in Hong Kong relates to paying for services abroad and subscriptions to international software services. This is important because paying for such services rendered abroad in Thailand would likely mean that the payment would be subject to a Withholding Tax of 15%, while subscriptions to software services abroad would be subject to Thai VAT at a rate of 7%. Offshore companies registered in Hong Kong are not subject to these additional taxes, which could result in significant savings.
Also, using a Hong Kong company to hold shares in a Thai company can also offer potential advantages, particularly in relation to future business sales. For instance, if you establish a fully foreign-owned company in Thailand under a BOI promotion, having the foreign shares held by a Hong Kong entity could be beneficial. If you decide to sell the company in the future, the transaction would involve selling shares of the Hong Kong company rather than directly selling shares in Thailand. These kinds of transactions in Hong Kong generally aren’t subject to capital gains tax. company, you might be subject to personal or corporate income tax in Thailand.
How can Belaws help?
For more information about establishing an offshore companies in Hong Kong, how to incorporate a company in Hong Long or information about Hong Kong tax (rate) why not talk to one of our experts now?
Please note that this article is for information purposes only and does not constitute legal advice.
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Frequently asked questions
What are the main tax advantages of setting up an offshore company in Hong Kong?
Hong Kong offers several tax benefits, including a low corporate tax rate of 16.5% (8.25% for the first HKD 2 million), no capital gains tax, and no withholding tax on dividends and interest. Additionally, companies may qualify for a 0% profit tax rate if they meet specific offshore criteria
How does the incorporation process in Hong Kong compare to Thailand?
Hong Kong’s incorporation process is more flexible than Thailand’s. In Hong Kong, you only need one foreign shareholder and director, and there are no residency requirements. The process can be completed online. In contrast, Thailand requires at least two shareholders for company formation
Can a Hong Kong offshore company be 100% foreign-owned?
Yes, Hong Kong allows 100% foreign ownership of companies. There are no restrictions on the nationality of shareholders or directors.
What criteria must be met for a company to qualify as an offshore company in Hong Kong?
To qualify as an offshore company, the business must conduct all operations outside of Hong Kong. This includes making business decisions, signing agreements, and providing services or products outside Hong Kong. The company should have no customers or suppliers in Hong Kong, and its products must not enter Hong Kong
How can a Hong Kong offshore company benefit Thai businesses?
Thai businesses can use Hong Kong offshore companies to optimize their tax liabilities, especially for foreign-sourced income. They can also take advantage of Hong Kong’s strategic location for international trade and business expansion. Additionally, the competitive market for company services in Hong Kong helps keep administrative costs relatively low
Are there any specific advantages for e-commerce businesses?
Yes, an e-commerce company incorporated in Hong Kong that services clients in Thailand and sources products from China may be considered an offshore company. Such a company could potentially qualify for Hong Kong’s 0% offshore tax rate
How does Hong Kong‘s tax system differ from Thailand’s?
Hong Kong operates on a territorial tax system, meaning only income derived from Hong Kong is subject to taxation. This allows Thai businesses to optimize their tax liabilities for foreign-sourced income. In contrast, Thailand has a higher standard corporate income tax rate of 20%, although it does offer reduced rates for SMEs under certain conditions
What are the main challenges Thai businesses face when setting up an offshore company in Hong Kong?
The article doesn’t explicitly mention challenges for Thai businesses. However, we can infer that the main challenge would be ensuring compliance with Hong Kong’s offshore criteria. Companies must conduct all operations outside of Hong Kong, have no customers or suppliers in Hong Kong, and ensure their products don’t enter Hong Kong to qualify for the 0% profit tax rate
How does Hong Kong’s regulatory environment support offshore companies?
Hong Kong’s regulatory environment is highly supportive of offshore companies. The Companies Registry and Inland Revenue Department have streamlined incorporation and tax registration processes, ensuring quick and efficient application processing. The government maintains a business-friendly environment, and Hong Kong’s corporate and tax regime remains largely unaffected by recent political developments
What are the key differences in bank account opening requirements between Hong Kong and Thailand?
Hong Kong allows online bank account opening for new companies, which is a significant advantage. In contrast, Thai banks typically require a local director to appear in person, making Hong Kong a more accessible option for both international and Thai entrepreneurs
How does Hong Kong’s strategic location benefit offshore companies?
Hong Kong’s strategic location and extensive network of free trade agreements, including the Closer Economic Partnership Arrangement (CEPA) with mainland China, make it an ideal hub for international trade and business expansion. This positioning allows offshore companies to easily access markets in China and throughout Asia
What are the cost implications of maintaining an offshore company in Hong Kong?
The competitive market for company secretarial, accounting, and audit services in Hong Kong helps keep the ongoing administrative costs of an offshore company relatively low compared to other jurisdictions. This cost-effectiveness is one of the advantages of setting up an offshore company in Hong Kong
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