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Foreign companies operating in Hong Kong may want to repatriate their profits back to the company’s country of residence in that jurisdiction’s currency. Fortunately for companies, there are several ways for companies to achieve this.
In this article, we will walk you through the available methods, processes, exchange control restrictions and taxes involved.
Profit repatriation methods
Foreign companies that have operations and generate profit in Hong Kong may want to repatriate their profits to the company’s parent company. Transferring money out of Hong Kong is most commonly done through issuing dividends.
Alternative methods of profit repatriation from Hong Kong are:
- Service fee payments
- Royalty fee payments
Profit repatriation through service and royalty fee payments may be subject to withholding tax, depending on the residency of the individual or corporation.
Tax on profit repatriation from Hong Kong
Hong Kong does not impose a withholding tax on dividends.
Withholding tax in Hong Kong only applies to payments made to non-resident individuals or entities.
Non-resident individuals are foreigners who have stayed or worked in Hong Kong for less than 180 days in a tax year, while a non-resident entity is a company whose central management and control are from outside Hong Kong.
Withholding tax is also imposed on specific payments such as royalties and fees paid to non-resident entertainers or athletes for their performances in Hong Kong.
Find out more about withholding tax in Hong Kong here.
Hong Kong foreign exchange controls
Profit remittance in Hong Kong is not subject to any foreign exchange controls, and there are no limitations or restrictions on profit repatriation. This means that the Hong Kong dollar can be freely exchanged into other currencies.
This is one of the major benefits of profit repatriation from Hong Kong, as some countries have strict foreign exchange controls that must be applied.
For example, in Thailand, income from services equivalent to USD 1 million or more must be repatriated immediately after payment is received and within 360 days from the transaction date. The remittance of an unlimited amount from the payment of dividends or profits to a foreign company’s head office must also be approved by commercial banks authorised by the Bank of Thailand.
Profit repatriation banking process
Before opening a branch or subsidiary in Hong Kong, the company should set out a repatriation strategy and open a foreign currency bank account.
The steps for repatriating profits include the following:
- The first step for businesses to repatriate profits out of Hong Kong is to prepare the following documents:
- Tax payment statement
- Tax return
- Tax filing form
- Resolution of the board of directors on the profit, dividend and bonus distribution
- Audited financial statements
- The required documents must then be submitted to the bank, and the bank will then verify the authenticity of the documents.
- The bank then carries out the transfer of the profits of dividends.
- Once the transfer is complete, the bank will mark profits, dividends or bonuses remitted on the transaction document with the official seal, and the bank will need to keep photocopies of this document for their records.
If the remittance of profits is less than or equal to HKD 50,000 for domestic entities, verification of the transaction documents is not required.
However, if the amount exceeds HKD 50,000, the bank might need to verify the resolution of the board of directors and the tax filing.
Overall, Hong Kong offers several ways to remit income back to foreign headquarters, out of which dividends are the most common method. The Special Administrative Region does not impose any tax on repatriating such profit, nor are there any limitations on foreign currency conversion.
If you need more information about extracting profit from Hong Kong, do not hesitate to contact Acclime. Our experts can help and advise on repatriating profit and beyond – from advice on the applicability of double tax treaties and optimising tax to outsourcing your finance function.
We are a premier provider of professional formation, accounting, tax, HR & advisory services in Hong Kong, focusing on providing high-quality outsourcing and consulting services to our international clients in Hong Kong and throughout the region.