With the gradual deepening of the CRS agreement, the mainland's tax collection for overseas assets has become increasingly strict. Hong Kong not only has a lower tax rate, but also signed a double taxation avoidance agreement with the mainland, giving companies an opportunity to choose a region with a lower tax rate to pay taxes and reduce their tax burden. One of the most common scenarios is to set up a Hong Kong company and become a Hong Kong tax resident to enjoy the lower business tax rate in Hong Kong.
Conditions for an individual to become a Hong Kong tax resident
For individuals, if they want to become a Hong Kong tax resident, the conditions are relatively strict, but as long as they meet any of the following conditions, they can be regarded as Hong Kong tax residents:
(1) Individuals ordinarily residing in Hong Kong;
(2) Individuals who stay in Hong Kong for more than 180 days in a tax year, or stay in Hong Kong for more than 300 days in two consecutive tax years (one of which is the tax year when the declaration is made).
Among them, "ordinarily residing in Hong Kong" is clearly stipulated, which generally refers to the permanent residence where oneself or his/her family members live. In principle, the individual will be regarded as "ordinarily residing in Hong Kong, China". Of course, the concept of "ordinary residence" excludes occasional or temporary departure, but it still requires habitual and usual residence in Hong Kong, China. (Usually residency is defined as voluntarily and habitually residing in the location for the purpose of settlement, with a certain continuance, regardless of the length of time. ).
Conditions for a business entity to become a Hong Kong tax resident
For commercial entities, the conditions for becoming a tax resident in Hong Kong are much more relaxed:
(1) For entity that is a company, as long as it is a company incorporated in Hong Kong, China; or a company registered outside Hong Kong, but its main management or control activities are carried out in Hong Kong, then it can be regarded as a Hong Kong tax resident;
(2) For entity that is not a company, as long as the entity is established under the laws of Hong Kong, China; or under the laws of other countries or regions, but its main management or control activities are carried out in Hong Kong, then it can also be regarded as an entity for Hong Kong taxation resident.
Usually "management" refers to the day-to-day business and operational management, or the implementation of decisions made by top management, etc.; while "control" refers to the top management's control over the overall business (how to develop new business strategies, make strategic decisions, financing decisions, and performance evaluation, etc.). However, "main management or control" in the legal sense does not mandate that both management and control must be carried out in Hong Kong, China.
In short, if one wants to become a Hong Kong tax resident, one must meet the conditions of becoming a Hong Kong tax resident. In usual circumstances, the Hong Kong Inland Revenue Department will conduct a comprehensive and detailed analysis according to the actual situation of the applicant to determine whether the applicant is eligible to become a Hong Kong tax resident. .
