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| FAQ FOR OFFSHORE INVESTORS
AND EXPATRIATES |
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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 Kongs 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.
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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.
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