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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 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 applies a
withholding tax of 15% (increased to 20%
in 2008) to the returns on savings paid
to citizens of EU Member States, under
the EU Savings Tax Directive.
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