Dividends from Hong Kong Limited subsidiaries are exempted from taxation in Hong Kong limted under the Inland Revenue Ordinance. Since Hong Kong does not have any Double Taxation Agreement with any country, dividends from other countries may be subject to withholding tax at full rate at the country where the subsidiaries are situated. By using Hong Kong limited as the regional holding company, the major income of this Hong Kong Company, dividend and interest are tax-free if arranged properly. Distributions to shareholders are tax-free, which is a favorable factor in raising capital.
Also a properly structured group can avoid the withholding tax by using an intermediary holding company between Hong Kong Limited and the subsidiaries. The Intermediary holding company should be located in a low tax jurisdiction with extensive network of tax treaties with other countries; one of the best choices is Mauritius (Global Business Company Category I). In Asia, we may also use Singapore or Malaysia Companies. In Europe or America, we may use United Kingdom Companies. Disposal of Subsidiary There is no capital gains tax on disposal of overseas subsidiaries. Disposal of a Hong Kong subsidiary is subject to 0.2% stamp duty on the value of the shares transferred.
Trading Structures Hong Kong Limited Company is frequently used in trading structures as trading company or Agency Company to minimize cross-border tax, in particular investments into China. Taxes will be reduced by 50% or totally tax-free, if properly structured. For details, please refer to other technical notes issued by Manivest. In recent years, the Inland Revenue Department has adopted an Advance Ruling system. The taxpayer may apply to the Commissioner for a ruling on how any provision of the Inland Revenue Ordinance applies to him or the arrangement specified in the application.