I’ve been knee-deep in studying how I could register a business in Hongkong and what the pros and cons are. I’ve heard that it was a really wise way to go if you want to make your cashflow a lot more efficient than having to pay crazy amount of taxes like everyone else.
So here’s what I’ve learned so far:
Disclaimer: Not everything I’ve written here is to be taken officially. This is to my most current understanding. I have not consulted a lawyer or an accountant for this knowledge, much less for this artcle itself.
1) Hongkong doesn’t tax you for sales outside of the country
Yep, you read it right. Hongkong doesn’t tax your business if your profits are made outside of Hongkong. That’s a huge win especially if you have a company that operates and generates revenue entirely on the internet.
2) It’s legal to own 100% of the business even if you are not a Hongkong citizen
One major reason why Hongkong is the destination of multiple business registrations is that you can virtually own 100% of the company. Except from Singapore, all other countries in the southeast Asia region allow only 40-49% of the company to be owned by a foreigner.
3) You can setup a regional headquarters (RHQ) here in the Philippines through SEC.
Of course, RHQs are exempt from any sort of tax since it is naturally an organization that does not generate revenue in the Philippines. It is more of an expense hub of the company to pay for the people who are working in the Philippines.
What is an RHQ or ROHQ?
Definition of Terms
(a) Regional or Area Headquarters (RHQ) shall mean an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines; and
(b) Regional Operating Headquarters (ROHQ) shall mean a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets.
2. Types of Activities or Services
a. Regional or Area Headquarters (RHQ) The activities of the regional or area headquarters shall be limited to acting as a supervisory, communications and coordinating center for its subsidiaries, affiliates and branches in the region;
(b) Regional Operating Headquarters (ROHQ) The regional operating headquarters may engage in any of the following qualifying services: – General administration and planning; – Business planning and coordination; – Sourcing/procurement of raw materials and components; – Corporate finance advisory services; – Marketing control and sales promotion; – Training and personnel management; – Logistics services; – Research and development services, and product development; – Technical support and maintenance; – Data processing and communication; and – Business development. “ROHQs are prohibited from offering qualifying services to entities other than their affiliates, branches or subsidiaries, as declared in their registration with the Securities and Exchange Commission nor shall they be allowed to directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.
3. Funding Requirements
a. Regional or Area Headquarters (RHQ) An undertaking that the multinational company will remit into the country such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than Fifty thousand United States dollars ($50,000) or its equivalent in other foreign currencies annually.
(b) Regional Operating Headquarters (ROHQ) An undertaking that the multinational company will initially remit into the country such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than Two hundred thousand United States dollars ($200,000) or its equivalent in other foreign currencies.
4. Incentives to Expatriates a. Multiple Entry Visa. b. Withholding Tax of 15% on Compensation Income. Applied to both alien and Filipino executives holding managerial or technical positions. c. Tax and Duty Free Importation of Personal and Household Effects. d. Travel Tax Exemption
5. “INCENTIVES TO REGIONAL OR AREA HEADQUARTERS AND REGIONAL OPERATING HEADQUARTERS
a. Corporate Income Tax Incentive Regional or area headquarters established in the Philippines which headquarters do not earn or derive income from the Philippines shall not be subject to income tax. Regional operating headquarters shall be subject to a tax rate often percent (10%) of their taxable income. Provided, That any income derived from Philippine sources by the ROHQ when remitted to the parent company shall be subject to the tax on branch profit remittances.
b. Value Added Tax The regional or area headquarters established in the Philippines by multinational companies shall be exempted from the value-added tax. “Regional operating headquarters shall be subject to the ten percent (10%) value-added tax.
c. Exemption From All Kinds of Local Taxes, Fees, or Charges. The regional or area headquarters and regional operating headquarters of multinational companies shall be exempt from all kinds of local taxes, fees, or charges .
d. Tax and Duty Free Importation of Training Materials and Equipment; Importation of Motor Vehicles. Source: RA No. 8756
Tax Incentives for Philippines RHQ
– Exemption from corporate income tax
– Exemption from branch office remittance tax
– Exemption from value-added tax (0%VAT)
– Sale or lease of goods and property, and services to the RHQ are zero rated
– Exemption from all kinds of local taxes, fees or charges imposed by a local government unit, except real property tax on land improvement and equipment
– Tax and duty free importation of equipment and materials for training and conferences needed and solely used for the RHQ functions, and which are not locally available, subject to prior BOI approval.
– Importation of brand new motor vehicle but subject to payment of taxes and duties.
Source: http://www.dayananconsulting.com/philippines-rhq-rohq-tax-incentives/
Although the company is exempted from operating taxes as an RHQ, the technical and managerial employees of the RHQ is subject to a special 15% income tax. Provided that their income has to be P975,000 or more per year.
Source: http://www.punongbayan-araullo.com/pnawebsite/pnahome.nsf/section_docs/GO646I_9-11-10
I find this to be a small loophole since you can technically operate as a freelance company here in the Philippines (especially with a team size of 5 – 10 people) working on a project that generates revenue completely online. The money goes to a floating account (usually Paypal) until withdrawn.
4) You need an awesome accountant in HK.
I’ve read posts wherein the entrepreneur writing it had problems with the accounting personnel in HK. They submit documents late (which is no surprise seeing as there are A LOT of businesses registered in HK). You’ll need an accountant who makes sure to submit things on time to avoid heavy fines.
And your documents have to be prim and proper – staying current for at least 7 years.
Why am I writing all this? Because I’m looking into trying this out for my 2nd start-up. I’ll need a lot more information and consultation before I go through this but I hope this would help other start-up entrepreneurs in the Philippines out there about registering a company in HongKong.