Companies that derive income from a foreign country in a different currency will repatriate the profits made into the company’s residence country, in that jurisdiction’s currency. Dividend payments and service fee payments or royalty fee payments can be manners in which a company can repatriate funds out of Hong Kong.
The procedure for remitting profits in the form of dividends is the one most commonly used by foreign companies that have established their operations in Hong Kong and derive income from the Special Administrative Region. This is a process that includes several steps, as our team of Hong Kong company formation specialists will outline in this article.
Hong Kong has a territorial principle of taxation, meaning that only Hong Kong-sourced profits are taxable in the jurisdiction. Other profits, those sourced from other jurisdictions, are not subject to the profits tax.
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A foreign company that opens a branch in the city can choose to repatriate profits from Hong Kong. This is done by observing the various laws and bank regulations regarding money repatriation and the taxes associated with it.
Repatriating the Hong Kong company’s profits can be very important for any overseas company that also has business in this important Asian city. The specialists at our Hong Kong law firm can tell you all about the tax rules and regulations in Hong Kong so that you can repatriate profits accordingly.
What are the taxes for profit repatriation from Hong Kong?
A company based in Hong Kong that has its main headquarters overseas will want to bring the profits back to the main offices abroad. Repatriation of profits via dividends is the most common was to do so and in Hong Kong it’s the most convenient.
Hong Kong does not have a dividend witholding tax. This means that dividends are not assessed to profits tax. The double tax treaties signed between Hong Kong and other countries are also important when it comes to profit repatriation. Depending on the country of origin of the company receiving the dividends (profits), there may be other laws and regulations in place that will need to be taken into account by the foreign investor in Hong Kong.
What are the bank procedures for profit repatriation in Hong Kong?
In order for dividends, profits or various bonuses to be remitted out of Hong Kong, the company needs to submit a number of documents that attest the transaction and the fact that the repatriation is legal. A remittance can be made directly through the bank, if all the documents are in order.
The process can be summarized according to the following steps:
- • Preparation of the documents: the tax payment statement, the tax return, the resolution of the Boards of Directors regarding dividend and bonus distribution to/from the company.
- • The remittance procedure: the actual transfer of the profits/dividends; in Hong Kong they are not subject to exchange controls.
- • Final statement: once the bank has completed the remittance procedure, it will include a statement that indicated the fact that the profits, dividends or bonuses were remitted on the transaction document.
- • Additional steps: in some situations, the verification of the transaction documents is no longer required. This can apply for amounts of maximum 50,000 HKD for domestic entities.
The final statement is affixed with the bank’s official seal and photocopies of this document are kept by the bank in its records. In those cases where the maximum amount of 50,000 HKD is exceeded, the verification is performed for the purpose of proving a genuine transaction. The tax filing report is endorsed and stamped by the bank after each profit remittance.
The company’s repatriation strategy needs to be set in place even before that company opens a branch or a subsidiary in Hong Kong.
Profit remittance is not subject to the prior approval of foreign exchange authorities. Hong Kong does not impose a withholding tax on dividends, royalties and interest, there are no exchange controls and the no limitations or restrictions on the repatriation of profits.
One of Hong Kong company formation agents can help foreign investors determine whether the double tax treaties benefits are applicable in their case. The determination is based on a beneficial owner assessment. We can also provide details about specific double tax agreements.
The team of representatives at our Hong Kong law firm can provide you with further information about profit repatriation as well as other issues regarding foreign companies in Hong Kong. Contact us if you have questions.