Wealthy Chinese have been applying for Hong Kong passports to take advantage of its low-tax regime.
These include high net-worth individuals (HNWIs) and business owners who see Hong Kong as a stepping stone to an overseas listing, according to international law firm Withers LLP.
A Hong Kong passport would allow HNWIs to pay lower tax, Withers LLP attorney Reaz Jafri told a media briefing in Hong Kong Thursday.
About 90 percent of applicants for Hong Kong’s capital investment entrant scheme are mainland Chinese, according to the Immigration Department.
Applicants need to have net assets of not less than HK$10 million (US$1.29 million) in the the two years preceding the application.
Also, they must have invested in Hong Kong within six months before the application or will invest within six months after in-principle approval of their application.
“Companies don’t have to wait for Beijing’s approval to get listed if the owners carry a second passport,” Jafri said.
However, Hong Kong is not in the top three destinations for Chinese investors due to its small market.
The most preferred countries are the United States and Canada, followed by Australia and the United Kingdom, he said.
Chinese investors took up 85 percent of US EB-5 applications last year, 80 to 90 percent of Canada’s investment visa and 90 percent of the Australian program.
Most of the applicants go to these countries for their children’s education and for business opportunities. Also, they are drawn by the prospect of a public listing, ease of travel, clean environment and food safety.
“Chinese investors go to the US even if taxes there are higher than in Hong Kong. They like the governance and legal system,” Jafri said.
Profits tax in Hong Kong tops out at 16.5 percent compared with 25 percent in China, 40 percent in the US and 26.5 percent in Canada and 30 percent in Australia.
The investors mostly prefer New York, California and the Bahamas.
“Alibaba is abuzz. We expect more and more Chinese companies to list in New York and Hong Kong in the coming years,” Jafri said.
Alibaba founder Jack Ma is expected to obtain approval for Hong Kong permanent residency in 2015.
The US EB-5 program, an immigrant investor visa which offers a fast track to permanent residency, was suspended for Chinese individuals in August and will resume in the 2015 fiscal year after using up the 10,000 yearly quota, according to the Wall Street Journal.
Visa applications for Canada have been halted since February.
Canada’s immigrant investor program allows foreign nationals to gain Canadian residency by lending C$800,000 (US$726,720) interest-free to any of the country’s provinces for five-years.
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