There are many reasons to invest, and many expats residing in Hong Kong right now are probably in saving mode because when comparing the taxes imposed on salaries, Hong Kong’s income tax is generally lower than those in Europe or Australia.
Inflation and the current low-interest rates are two of the main reasons that people invest, to experience growth in real terms and have a greater return than the interest rates offered at some banks. Of course, investments can increase or reduce in value, but they can be managed appropriately by a financial planner.
The surplus income sitting in your bank account is probably gaining interest of 0.05%, with a more favourable 1% found in far fewer places, if at all. Inflation on the other hand is a trending topic right now on the news, many are suggesting that an inflation bubble is ready to burst to high levels not seen since the ’70s, whilst others are suggesting that inflation will continue to rise at rather modest levels, which we have become accustomed to in the last 30 plus years.
Whatever the outcome, our savings have these two-fold risks that we need to consider over the long-term, and investing cash savings to get a return is one way to combat these risks. As an expat, the same tax legislation that provided you with extra savings in your bank account could also provide you with favourable tax legislation when it comes to your investments.
Every case is different, so please consider speaking to a tax adviser if you need relevant tax advice. However, I have decided to list some of the main tax advantages that apply to investments whilst you are here in Hong Kong.
1. No Dividend Tax
Dividends are the payments that a company makes to their shareholders from their profits, whether you hold these as shares directly with a company or through a mutual fund. Whilst countries such as Australia, France, Italy, Spain, and the U.K. all have a tax on dividends paid out from investments ranging from 7.5% to a possible 30%, Hong Kong does not have this and any dividend income received is tax-free.
2. No Capital Gains Tax
A capital gain is an increase in the value of an asset from the point of purchase to the point of sale, which can be in property, shares, mutual funds, or personal assets. Investors with experience of investments are used to paying up to sometimes 50% of tax on the realised gains that their investments have made whilst in their home nations. However, Hong Kong has no such tax when it comes to withdrawing your investments, you will receive 100% of the growth that your investments have hopefully made.
3. No Estate Tax
This is usually a tax levied on the value of the estate upon a person’s death, usually to be paid by the administrators of said estate. Some expatriates may be levied a tax on their estate based on their worldwide assets (e.g. U.K. domiciled). However, if you do not fall into this category, Hong Kong does not impose a tax liability on the value of the estate upon death. This means that your beneficiaries do not have to go through the sometimes-painful aspect of paying upfront taxes before the estate is distributed.
To conclude these are some of the reasons, not exhaustive, as to why expats can take advantage of investing whilst residing in Hong Kong. There are different investment vehicles in the market to help you, but you should consider your long-term goals, investment risk, asset allocation, and potential tax implications if you move back to your home nation, as products are taxed differently upon return.
If you wish to book a meeting or just sit down for a coffee to discuss your current savings, you can contact me at Luis.Jimenez@infinitysolutions.com