Hong Kong vs British Virgin Islands Offshore Incorporation

Offshore Incorporation

A corporate structure is a crucial factor for businesses involved in international trade or investment. For these organizations to properly organize their operations and management, the selection of the appropriate jurisdiction is crucial. The business climate, economic competitiveness, tax structure, and political stability of jurisdiction should all be considered when deciding where to incorporate. Those who must choose amongst the different alternative jurisdictions invariably consult worldwide surveys and country studies released by professional organizations. 

However, these surveys give only a limited amount of advice, which may provide a rudimentary understanding of similar aspects. When making such an important choice, decision-makers must also pay particular attention to the integral nature of their companies, their development stage, target markets, critical issues, stakeholders, and competitors.

The Benefits of a Hong Kong Incorporation

As a major economic, financial, and international trading hub, Hong Kong has historically been a popular location for establishing an offshore holding company.

Hong Kong’s appeal is enhanced by its low tax rate on wages, earnings, and real estate, absence of currency restrictions, and absence of tax on revenue received from outside Hong Kong, particularly for trade enterprises and investors targeting the PRC and East Asia markets.

To create a holding vehicle in Hong Kong, one needs to get a Business Registration certificate from the Inland Revenue Department. This certificate should include the following information:

  • One local secretary; 
  • A physical mailing address in Hong Kong;
  • One local director (though corporate directors are permissible);
  • One local shareholder.

In addition, both yearly financial statements and annual audit reports are required by law.

Creating a company in the British Virgin Islands (BVI)

In contrast, the company registration in BVI has been the world’s premier offshore jurisdiction for many years. There is virtually any tax imposed on foreign-revenue-generating enterprises in this nation (except for negligible annual business license fees).

In addition, there are no disclosure obligations for yearly financial statements, audit reports, or annual meetings. Business Companies must have a registered office and an agent in the British Virgin Islands. Every BC must have at least one director and one shareholder, although neither a local secretary nor a permanent residence is required.

How should one decide between Hong Kong and the British Virgin Islands?

That depends on some variables. Hong Kong provides access to Mainland China and other key Asian markets; its commercial infrastructure in terms of financial services, insurance, professional services, commerce, and logistics is more established than that of other Asian cities. The fact that Hong Kong is administered by the PRC gives the Hong Kong Inland Revenue Department and the PRC Tax Bureau additional resources to monitor and survey transactions between both territories for company registration in Hong Kong. This is anticipated to improve in the future as the two areas merge and align their legal, accounting, and tax regimes.

In recent years, it has been more difficult for businesses and people in the area to engage in tax planning and asset preservation. Hong Kong prohibits the issuing of bearer shares, or shares with no legal ownership record.

Other benefits of a BVI domicile include:

  • No annual meetings, financial statements, or auditing reports are required; bearer instruments are permitted, and asset protection mechanisms are strengthened.
  • EU and OECD have begun to tighten down on offshore tax havens in recent years. 

Consequently, the British Virgin Islands, a so-called “dependent zone” of the United Kingdom, has engaged in new tax information and tax evasion agreements with the majority of industrialized nations. In addition, both EU financial ministers and British lawmakers have pushed to “crack down” on tax havens and relax bank secrecy restrictions.