A:

Hong Kong is considered a leading tax haven due to its laws that limit taxation of the island’s wealthy foreign residents and corporations. The People’s Republic of China, of which Hong Kong is a part, permits Hong Kong’s autonomy and allows for even greater secrecy than the island had under its former British rulers.

Low and No Taxation Attracts Foreigners

Hong Kong, a Special Administrative Region (SAR) of China, is one of the leading financial capitals in the world. As such, many of the world’s leading banks have operations there. The island also has the second-largest stock exchange in Asia. It even has its own currency, the Hong Kong dollar, so foreigners need not worry about transacting in the lesser-valued Chinese yuan.

Wealthy foreigners have every reason to bank their money in Hong Kong. For one, the island does not tax income earned beyond its borders. Those who earn salaries in the region pay approximately 15% in taxes, which is significantly lower than taxes levied on salaries in the West. Additionally, corporations pay approximately 17% in taxes on profits generated in Hong Kong. However, the autonomous region does not charge tax on capital gains, interest and dividends. Foreigners who keep their money in Hong Kong pay no net-worth taxes and no public benefits taxes, which are similar to Social Security taxes in the United States. High-net-worth individuals who do not keep their financial assets in Hong Kong can still benefit from going on Hong Kong shopping sprees, as shoppers pay no sales tax on their purchases.

Secrecy Persists

Few were surprised that the so-called Panama Papers came peppered with mentions of Hong Kong as a place where some wealthy individuals, corporations and world leaders hide their money. As of 2015, foreigners had approximately $2.1 trillion in assets managed and $350 billion banked inside Hong Kong’s borders. Renowned tax haven Switzerland bowed to pressure from the United States and the European Union to share information about foreign bank accounts and asset owners seeking shelter from taxation. However, Hong Kong refused to do so and was named to the EU’s blacklist of noncooperating tax havens around the world. For this reason, the Financial Secrecy Index gave Hong Kong a score of 72, considered a high score and a reflection of the region’s commitment to the privacy of those who keep their money there.

Laissez Faire in Practice

Laissez faire is at the root of Hong Kong’s dealings with its financial services industry, as well as the reason behind the region’s commitment to “keeping intervention into the way in which the market operates to a minimum,” according to the government of Hong Kong on its official website. Its refusal to cave to Western pressure to open its financial services sector to scrutiny could be the reason why it is one of the fastest-growing international business hubs in 2016.

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