Hong Kong is one of the premier international banking centres in the world, and although it is considered by some to be an offshore jurisdiction, it is better described as a low tax area, which levies tax according to the territorial principle. Personal income tax is known as Salaries Tax, and individuals, whether resident or not, are taxed only on income 'arising in or derived from a Hong Kong employment'. Thus, non-employment source income such as bank interest and share dividends are not taxable in the territory either for residents or non-residents.

Under the Sino-British Joint Declaration on the Future of Hong Kong, Chinese authorities were committed to enact the Basic Law of the Hong Kong Special Administrative Region. The Basic Law is the legal basis for the "One Country, Two System" guarantee and provides for the continuance of Hong Kong’s system of common law and free market economic system after 1 July 1997.

The Law stipulated that the Hong Kong dollar will remain freely convertible; that markets for foreign exchange, securities, futures, and other financial products will remain open; and that no controls will be placed on the flow of capital into or out of Hong Kong. Hong Kong has no central bank as such, but the HKMA does assume many of the responsibilities typically assigned to a central bank, including ensuring the safety and soundness of the banking system and the stability of the currency. Hong Kong adheres to the Basle principles for bank supervision.

At first sight then there would be no need for a Hong Kong individual to want to use a truly offshore bank account for fiscal or security reasons. But there can be other reasons, such as asset protection, and during the run-up to the return to Chinese rule many Hong Kong-ers did in fact set up offshore arrangements, particularly in the British Virgin Islands and other Caribbean jurisdictions.

Hong Kong banks evidently offer a world-class array of financial services of all types. Deposits can be made in many different currencies, but as might be expected deposit rates may be most attractive in widely-used local or global currencies.

The British Virgin Islands decided not to encourage the growth of offshore banking as part of a determination to exclude money laundering, but allowed in a small number of international banks, with the result that there are now 9 banks in the BVI. During the first quarter of 2006, one new general banking licence was granted and the total assets for the banking industry stood at approximately US$2.44 billion.

Banks are regulated under the Banks and Trust Companies Act, and are supervised by the Inspector of Banks, Trusts and Company Managers. There is a limited range of personal banking and asset management services available, and British Virgin Island IBCs (International Business Companies) are used extensively in financial holding and investment structures. There are no exchange controls.

Individuals considered tax resident in the BVI (physical presence for more than six months of the year is the usual test) are liable for their world-wide income; non-resident individuals pay income tax only on earnings arising from, or remitted to, the islands. There are no withholding taxes in the BVI.

Therefore the best route for a Hong Kong individual wishing to invest in the British Virgin Islands would be to do so through a trust or an IBC, neither of which is subject to taxation, although there are lowish expenses to set them up and maintain them (see www.lowtax.net).

As from July, 2005, the BVI supplies information on the returns on savings paid to citizens of EU Member States, to their home States, under the EU Savings Tax Directive.