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

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US economist Stephen Roach just can’t help himself. He continues to condemn Hong Kong by syndicating his one-sided opinions to regional newspapers, but changing his tactic by referring to the “old Hong Kong.”

He sits among the few remaining doomsday armchair critics who declare Hong Kong is over, dead since the handover in 1997. But he should know better. In his younger days he was chairman of US investment bank, Morgan Stanley Asia, based in Hong Kong. And now at 80 he is a senior fellow at Yale University’s Jackson Institute for Global Affairs and senior lecturer at Yale School of Management.

His latest outburst has appeared in the Bangkok Post, Manila Times, Mumbai Financial Express and Singapore’s Think China (part of the Singapore Press Holdings' flagship Chinese daily Lianhe Zaobao) to name just a few, all with the same theme “Hong Kong of old is over.”

As a former Hong Kong taipan, Roach is still living in the past. After a considerable backlash from his previous comments about the death of Hong Kong, he is now inferring that all of his previous comments were referring to an unknown past. He doesn’t mention a new Hong Kong, just an old one.

His change in tactic has come about as a result of a barrage of criticism late last year from indignant Hong Kongers and others more knowledgeable in Hong Kong matters, who drew attention to the city’s runaway success as a leading financial center.

While acknowledging Hong Kong’s success, he wrote that beneath the surface, the story is very different. He noted that Hong Kong is just another big Chinese city and that “the Mandarin name Xiānggǎng celebrates the city’s precolonial heritage seems more apt than Hong Kong, a phonetic translation from Cantonese, the city’s long dominant dialect. This dramatic transformation into Xiānggǎng is the real story. Hong Kong’s defenders are in denial about this new chameleon-like identity, instead viewing it as another example of the city’s inherent resilience. Nice try,” he writes.

This shows just how much Roach is out of touch with reality. Hong Kong has been Xiānggǎng ever since China switched to Hanyu pinyin in 1958 to standardize the pronunciation of Mandarin sounds throughout the country. Xiānggǎng is the official Mandarin name for Hong Kong. But for all intents and purposes, Hong Kong is still Hong Kong.

Yes, Hong Kong is another Chinese city, but with very important different characteristics – the rule of law being one of them. Hong Kong inherited Britain’s Common Law system as its legal base, which is different but more recognizable in the West than the Chinese Civil Law system.
But Roach won’t let it go. “The rule of law,” he said,” long regarded as one of Hong Kong’s greatest institutional advantages, has been severely compromised.” He cited the introduction of the national security laws “which stifled open debate.” However, he failed to acknowledge that the law was introduced immediately after Hong Kong was rocked by deadly riots by activists, and external forces. And, ironically, the new national security law for the UK virtually mirrors the Hong Kong law.

He also cites the resignation of six foreign judges from the Court of Final Appeal “calling the independence of the city’s highest judicial authority into serious question.” In this he found an ally in Lord Jonathan Sumption, a China hawk who wrote in the Financial Times that a Mainland strain of judicial patriotism was poisoning the city’s legal system. He did not mention that many resigned simply because of old age and as Canadian judge Beverley McLachlin, who resigned citing her wish to spend more time with her family told the BBC: "I continue to have confidence in the members of the Court, their independence, and their determination to uphold the rule of law.”

Gazing into his dusty crystal ball, Roach believes that the Hong Kong government seems to think that the Chinese-style central planning offers new hope for its economy and recently launched its first five-year plan. “But, as China is painfully learning, such plans can often over-promise and under-deliver. This suggests that until there is a meaningful test of the downside — for the economy or the equity market — any conclusions drawn about Hong Kong’s resilience are premature,” he wrote. He is apparently oblivious of Hong Kong’s ambitious billion-dollar Northern Metropolis project which will transform land, one third of Hong Kong’s total, into a futuristic science hub with universities, hospitals and new town facilities to meet a new population of 2.5 million.

Hong Kong’s Deputy Financial Secretary Michael Wong Wai-lun, without referring directly to Roach, rebutted: “Some critics appear to be driven by bias against China rather than objective analysis. Their criticism is neither backed by evidence nor aligned with facts. On the contrary, investors and talent have full confidence in Hong Kong, drawn by our global connectivity and international character.”

Just the other day, Roach wrote, a leading reporter messaged me: “Hong Kong is over’ seems over. What would you say about it?” Well, let me be clear: the Hong Kong of old is, indeed, over. Go to Xiānggǎng and see for yourself.”

Much of Roach’s ramblings is old news and repeats of what he has said before. There is nothing new in his latest outbursts. He appears to be an old man living in the past without acknowledging the present or future.