US LLC from Hong Kong: Offshore Doesn't Mean Tax-Free

0:00Are a US company's profits tax-free in Hong Kong?

It's nearly midnight in Kowloon, and Kelvin's American clients are just starting their day. Cheyenne, in Wyoming, is fourteen hours behind him in summer. He types a question into search. Are a US company's profits tax-free in Hong Kong? The guide's answer fits on one line. Only if they arise outside Hong Kong. We're BaseAcross. We set up US companies for founders outside America, so we'll be straight with you.

Getting the company is the easy bit. No social security number, and no trip to the US. The hard bit is that one line.

0:38Do I need a US company for Stripe in Hong Kong?

Start with a question most videos skip. Do you need one at all? The big card processor already takes Hong Kong businesses. And a Hong Kong company is simple to run. A US company adds US filings, so it needs a reason. US marketplaces and buyers often want a US company to deal with. US investors usually want a Delaware C-Corp, sometimes above a Hong Kong company. Kelvin's clients want to buy from a US company.

That's his reason.

1:09How does the tax office decide where a profit arises?

Here's the rule the rest of this turns on. Hong Kong taxes only profits that arise in Hong Kong, or are derived from it. Profits that arise abroad aren't taxed, even if they're brought into Hong Kong. So where does a profit arise? The tax office, the Inland Revenue Department, uses the operations test. It looks at what was done to earn the profit, and where it was done. If you run the business and serve its clients from Hong Kong, those are Hong Kong profits, whichever company invoices.

A US company doesn't move them offshore.

1:46Wyoming LLC or Delaware C-Corp from Hong Kong?

Setting it up takes less thought than the tax does. A Wyoming LLC usually suits a business you run yourself, selling to US customers. A Delaware C-Corp suits raising from US investors. One of the first things we ask is where the work will be done, because the tax office's test asks it too. The company needs a registered agent, an address in that state for legal papers, not where you work.

Then the EIN. Without a social security number, it's a paper form to the IRS. You'll pay in US dollars, so check your card's exchange rate and fees.

2:25Can I open a US bank account from Hong Kong?

Banking from Hong Kong is the calm part. One of the US fintech banks takes applications from founders who live here, and a multi-currency account can give the company US account details. Each provider reviews you and decides for itself, and any of them can say no. Use the same names, addresses and business description on every form.

2:49Is a US company exempt as an offshore company?

You'll see the word offshore on a lot of websites, often next to the words no tax. The tax office's own FAQ says otherwise. A company formed outside Hong Kong gets no exemption. It needn't do much here to be carrying on business here, and what its agents do here counts. Here's the guide's own illustration. His Wyoming LLC sells software to US clients, and he builds it, sells it and supports it from Hong Kong.

So the profit is likely a Hong Kong profit. On one and a half million Hong Kong dollars of profit, the lower corporate rate comes to a hundred and twenty-three thousand, seven hundred and fifty. That's only if the corporate rate applies, and the tax office may treat an LLC differently. It's an illustration, not advice.

3:39Registering in Hong Kong, no treaty, and the IRS report

If the company does carry on business here, there's paperwork on both sides of the Pacific. In Hong Kong, it registers the business and files profits tax returns. If no return arrives, it tells the tax office itself, within a set time. And it keeps its records for years. There's no income tax treaty between Hong Kong and the United States, so US dividends, interest and royalties are withheld at the full rate.

Work done in Hong Kong generally isn't US income, so nothing is withheld on it. The company still files a report with the IRS every year, even without sales, and missing it is expensive. It's usually due in the spring, and there's a form to ask for more time, filed before the deadline.

4:27Can a Hong Kong resident own a US LLC? The order

If you're where Kelvin is, settle the tax question before the paperwork. Work out with your adviser where the work is done, and whether the company would be doing business in Hong Kong. Then form it, then bank. Put the IRS report and any Hong Kong registration and return on one calendar. The full guide, with every source and a checklist for your adviser in English and Traditional Chinese, is linked below.

And Kelvin? He took his midnight question to an adviser before he formed anything.