A vibrant city and low taxes attract foreigners to Hong Kong

The continued success of Hong Kong over the years can be attributed to one fact: it’s low and simple tax system. It has always been a major selling point to woo expatriate experts to Hong Kong to drive its financial and other services to be competitive with world markets.

US doomsday prophet Stephen Roach was quick to point out that thousands left Hong Kong during the COVID pandemic in 2020. But he has failed to mention the thousands that have returned since that dark period, which, according to US financial media giant Bloomberg, are responding to a booming initial public offering market, planned tax breaks for private equity and hedge funds, and a more vibrant city.

Bloomberg provided its financial clients worldwide with an in-depth feature on Hong Kong as it is today. Titled “Finance Expats Flock Back to Hong Kong Seeking Low Taxes, Better Jobs”, the 2,500-word article cited expatriates who had left and returned saying that although the cost of living in Hong Kong was relatively high, the tax relief outweighed these costs.

Hong Kong’s tax is simple. It is divided into three categories – individual, business and property owners. For individuals the standard tax rate is 15 per cent, for businesses, a two-tiered profits tax applies – 8.25 per cent of the first HK$2 million and 16.5 per cent thereafter – and property tax is 15 per cent of net assessable value. There is also an ad valorem stamp duty on property transactions ranging from $100 on property under $4 million to 4.25 per cent on property exceeding $27.39 million. Transactions exceeding $100 million hit a rate of 6.5 per cent duty.

There is no sales tax (save for tobacco and alcohol), VAT, withholding tax, capital gains tax, estate tax or dividend tax. The global average for sales tax is 13.7 per cent and the Asian average is 9.6 per cent.

Bloomberg noted that there were 31,278 employment visa approvals last year, more than double the number five years ago, with many going to nationals from Japan, South Korea and the UK. In financial services, some 2,343 visas issued to foreigners rose by 17 per cent last year to the highest since 2022.

While the sustainability of the influx may hinge on the strength of the IPO market, global financial firms including Bank of America and HSBC Holdings are among those signalling confidence in Hong Kong. Many new high-rise office blocks which saw low occupancy rates a few years ago are now reporting almost full capacity, another indicator of confidence in the business sector. Bloomberg said Hong Kong is aggressively promoting the city’s low taxes and comparative lack of red tape to the world’s ultra-rich business owners and money managers.

Hong Kong and Singapore rank third and fourth behind New York and London in the latest Global Financial Centres Index. Singapore’s tax rate is similar to Hong Kong (15 per cent for eexpatriates,4 per cent for director’s fees, and 17 per cent flat rate for corporations). A number of individuals and corporations fled to Singapore during the pandemic, but with Hong Kong fast becoming the financial hub of Asia, many are now returning, causing the Singapore Monetary Authority to entice investment firms to stay by cutting their taxes.

With neighbouring countries upping their incentives to woo the investment firms and experts, Hong Kong is keeping ahead of its competitors by eliminating the tax on hedge fund profits and plans to promote the development of Corporate Treasury Centres (CTCs). The tiered tax regime proposed is precisely designed to address the main points of the industry in a targeted manner, providing eligible corporations with more comprehensive tax benefits, greater tax certainty, and enhanced compliance flexibility. The government will also revamp the existing tax concession regime applicable to corporate treasury activities and introduce a more competitive tiered system. These measures include refining the existing concession regime and introducing a pre-approval mechanism. Pre-approved CTCs and their pre-approved associated companies will enjoy more favourable tax benefits, greater tax certainty and enhanced compliance flexibility.

These innovative, pragmatic, and competitive measures are expected to attract more multinational corporations from different regions and sectors to make full use of Hong Kong's role as a platform with the new catch phrase of 'bringing in and going global', and to bring their funds and core business to Hong Kong for centralized management, thereby strengthening Hong Kong's position as a major base for CTCs.

In June the government announced that with immediate effect, tax on the profits of hedge funds would be eliminated. By removing taxes on performance income, which are typically levied on profits generated from investment strategies, the city aims to create a more attractive environment for hedge fund operations. By eliminating the tax burden on performance income, Hong Kong is positioning itself as a favourable jurisdiction for hedge funds seeking to maximize their profitability. Industry experts predict that this policy change could lead to an influx of hedge funds relocating to Hong Kong, as fund managers look for jurisdictions that offer more favourable tax regimes.

Hong Kong’s long-standing policy of a low tax regime has been the magnet to draw the best of the best to its shores and invest in its future as a leading global financial centre.

Mark Pinkstone

** 博客文章文責自負,不代表本公司立場 **

Hong Kong's dynamic economic landscape has long been fueled by its Small and Medium-sized Enterprises (SMEs), an area not overlooked by the Chief Executive, John Lee in his policy address last week.

At the end of his three-hour speech, which included Hong Kong’s first five-year plan, his vision was hailed by the international business community in Hong Kong for bringing more certainty and direction for the city’s future development in the coming year.

From a sampling of some 50 chambers of commerce in Hong Kong, Mary Simpson, Chief Executive of the Australian Chamber of Commerce said Lee used Hong Kong as a launchpad super connector and a super enabler: “For Australian firms we feel that the synergies are quite obvious.”
Johannas Hack Chairman of the European Chamber said Hong Kong was a very good place otherwise, there wouldn’t be so many (foreign) companies here.

And Paul McComb, Executive Director of the British Chamber said the five-year plan gives direction.

These agile SME businesses, forming the backbone of the city's economy, face a complex but promising future, shaped by both local policy shifts and regional integration efforts. The government's latest policy address highlights several key initiatives poised to bolster the prospects of Hong Kong's SMEs, particularly through digitalization, market expansion, and enhanced financial and logistical support.

A significant theme emerging from policy discussions is the drive towards digitalization and technological adoption. Recognizing that technology is critical for competitiveness, the government is actively encouraging SMEs to embrace artificial intelligence (AI) and cybersecurity solutions. The expansion of the Digital Transformation Support Pilot Program (DTSPP) is specifically designed to provide financial assistance for SMEs adopting AI. Furthermore, the Hong Kong Productivity Council (HKPC) is expanding its digital DIY portal to offer AI-assisted advisory services and help businesses address cybersecurity risks. These measures aim to equip SMEs with the tools to innovate, streamline operations, and enhance their resilience in an increasingly digital world. The emphasis on AI training for all, with over 200 courses, indicates a concerted effort to upskill the workforce, benefiting SMEs by creating a more technologically adept talent pool.

Beyond local technological upgrades, the government is committed to expanding market access and fostering cross-border trade, particularly within the Greater Bay Area (GBA) and emerging markets. The "Go Global" task force, established last year, aims to help SMEs tap into new territories, with specific mentions of Uzbekistan and Qatar. Initiatives like strengthening the e-Commerce Express and organizing brand development seminars are geared towards supporting SMEs in their export endeavors and brand building. Crucially, the policy address signals deeper integration with mainland China through enhanced data interchange systems, such as the Commercial Data Interchange (CDI) connecting with the Trade Single Window, now in stage three, and ASEAN's electronic port systems. This promises to simplify cross-border logistics and reduce costs for Hong Kong traders.

Financial and logistical support are also critical components of the government's strategy for SMEs. The Hong Kong Export Credit Insurance Corporation is extending buyer credit checks, mitigating risks for SMEs engaging in international trade. Moreover, the focus on enhancing the Port Community System, utilizing blockchain for cargo tracking, and providing funding for logistics solutions aims to improve the efficiency and cost-effectiveness of supply chains, directly benefiting SMEs involved in trade and manufacturing.

While opportunities abound, SMEs in Hong Kong must also navigate challenges such as a tightening labor market and the need for continuous upskilling. The government's initiatives to address manpower shortages through talent attraction schemes and vocational training, coupled with efforts to empower women and minority groups in the workforce, are positive steps. However, SMEs will need to proactively engage with these programs to leverage their benefits fully.

The prospects for SMEs in Hong Kong, as outlined in the latest policy address, are largely positive and growth-oriented. Through strategic investments in digitalization, facilitated market expansion, and robust financial and logistical support, the government is creating an ecosystem conducive to their success. The emphasis on integration with the GBA and a global outlook further positions Hong Kong's SMEs to capitalize on regional and international opportunities, ensuring their continued vitality in the city's economic future.