- Hong Kong taxes company profits at 8.25% up to HK$2 million and 16.5% above; the mainland’s standard rate is 25%.
- Hong Kong has no VAT, capital gains tax or withholding tax on dividends; the mainland’s main VAT rates are 6%, 9% and 13%.
- Mainland dividends paid to a Hong Kong company that owns at least 25% are taxed at 5%, not 10%.
- Selling at scale, hiring staff or holding licences on the mainland still needs a mainland entity.
Doing business in Hong Kong vs China usually gets framed as low tax against a huge market. For your business, the better question is which company does which job: who invoices, who hires, and where the profits end up.
Hong Kong taxes company profits at 8.25% on the first HK$2 million and 16.5% after that, runs on common law and has no foreign exchange controls. The mainland charges a standard 25% corporate income tax plus VAT, uses a civil law system and controls capital flows.
A Hong Kong company you set up from overseas can also own a mainland business, with its dividends taxed at 5% under the Mainland-Hong Kong tax arrangement.
In this guide, you’ll learn:
- How tax, law, currency and hiring rules compare
- When a Hong Kong company can hold your mainland business
- When you need a mainland entity instead
- What doing business in Hong Kong asks of you each year
Hong Kong or mainland China: which is better for your business?
It depends on where your customers are and where your team works. Neither suits every business, and many cross-border businesses use both.
Choose Hong Kong if you:
- Trade regionally or internationally: you invoice clients in several markets and want contracts under common law.
- Want a simple tax system: low profits tax, no VAT, and tax only on profits sourced in Hong Kong.
- Need to move money freely: no foreign exchange controls on payments, dividends or capital.
Choose a mainland entity if you:
- Sell at scale inside the mainland: you need to invoice customers in RMB and issue mainland VAT invoices.
- Need local licences: many regulated activities require a licence held by a mainland entity.
- Have people or premises there: staff, offices, factories or shops usually need a local entity.
Use both if you:
- Sell into the mainland but work internationally: you also trade, invoice or raise money outside the mainland.
- Want the Hong Kong company on top: it holds the mainland entity, and dividends paid up to it can qualify for 5% mainland withholding tax instead of 10%.
For foreign and Hong Kong investors, the mainland entity is usually a wholly foreign-owned enterprise (WFOE).
How do Hong Kong and mainland China compare at a glance?
Hong Kong has fewer taxes, lower rates and no currency controls. The mainland adds VAT, a 25% standard rate of corporate income tax and controls on capital flows. Rates are as at October 2026.
| Hong Kong | Mainland China | |
|---|---|---|
| Business tax | ||
| Corporate tax | 8.25% on the first HK$2 million of profits, 16.5% above | 25% standard; 15% for qualifying high-tech enterprises; an effective 5% for small low-profit enterprises until 2027 |
| What’s taxed | Only profits sourced in Hong Kong | A resident enterprise’s worldwide income |
| VAT or sales tax | None | 13%, 9% or 6% for general taxpayers |
| Customs duties | Free port: no tariffs; excise duty on four types of goods only | Duties under the Tariff Law, plus import VAT |
| Capital gains | Not taxed | Taxed as company income |
| Dividends paid abroad | No withholding tax | 10% withholding tax for non-resident enterprises |
| Dividends to a Hong Kong parent | Not applicable | 5% if it owns at least 25%; otherwise 10% |
| People | ||
| Personal income tax | 2% to 17% progressive, capped at a 15% standard rate (16% above HK$5 million of net income) | 3% to 45% progressive |
| Employer pension contributions | MPF: 5% of relevant income, up to HK$1,500 a month | Five social insurance schemes plus the housing fund, at locally set rates |
| Law and money | ||
| Legal system | Common law, kept under the Basic Law | Civil law, based on written codes |
| Currency | Hong Kong dollar, linked to the US dollar; no foreign exchange controls | Renminbi; current-account payments unrestricted, capital flows registered and controlled |
| Setting up | ||
| Company registration | Online with the Companies Registry; certificate normally within one hour | With the local market regulator; subscribed capital paid in within five years |
In short: Hong Kong is simpler for tax, moving money and setting up. The mainland gives you direct access to its own market. For many cross-border businesses, the answer is a Hong Kong company holding a mainland one.
How do taxes compare?
Hong Kong has fewer taxes, at lower rates, and taxes only profits sourced in Hong Kong. The mainland’s system is broader, with VAT on most sales, a higher standard rate of corporate income tax, and tax on worldwide income.
Corporate tax
- Hong Kong: two-tiered profits tax rates for corporations, 8.25% on the first HK$2 million of assessable profits and 16.5% on the rest.
- Mainland: the Enterprise Income Tax Law sets a 25% standard rate, and 15% for high-tech enterprises the state supports. Small low-profit enterprises, with annual taxable income up to RMB 3 million, pay an effective 5% until the end of 2027, according to a State Taxation Administration notice.
Where profits are taxed
- Hong Kong: only “profits/income arising in or derived from Hong Kong”, according to the Financial Services and the Treasury Bureau. Profits earned outside Hong Kong may qualify for the offshore profits exemption, if you can show where they were earned.
- Mainland: a resident enterprise pays tax on its income from both inside and outside China.
VAT, capital gains and withholding tax
- Hong Kong: no VAT or sales tax, no capital gains tax, and no withholding tax on dividends or interest. Royalties paid to non-residents are the main exception, and are taxed.
- Mainland: VAT at 13%, 9% or 6% for general taxpayers, under the VAT Law in force from 1 January 2026, according to the State Taxation Administration. Company gains from selling property count as taxable income. Dividends paid to non-resident enterprises are taxed at 10%, a reduced rate under the Enterprise Income Tax Law’s implementing regulations.
Customs duties
- Hong Kong: a free port with no customs tariff on imports or exports. The Customs and Excise Department charges excise duty on four types of goods only: certain liquors, tobacco, hydrocarbon oil and methyl alcohol.
- Mainland: customs duties under the Tariff Law, in force since 1 December 2024, plus import VAT, which customs collects under the VAT Law.
Personal tax
- Hong Kong: under Hong Kong’s tax system, salaries tax runs from 2% to 17% on net chargeable income, but no one pays more than the standard rate: 15% on the first HK$5 million of net income and 16% on the rest, according to GovHK.
- Mainland: individual income tax on salaries and other comprehensive income runs from 3% to 45%.
Owning more than one Hong Kong company doesn't multiply the lower rate. Among connected entities, only the one company you nominate gets the 8.25% rate on its first HK$2 million of profits. The others pay the standard 16.5%.
How do the legal systems and currencies differ?
Hong Kong keeps its own legal system and currency under One Country, Two Systems. The Basic Law keeps Hong Kong’s capitalist system unchanged for 50 years and maintains its previous laws, including the common law.
Law and disputes
- Legal system: Hong Kong is “the only common law jurisdiction in China”, according to the Department of Justice. The mainland uses a civil law system based on written codes and statutes.
- Contracts: contracts with a Hong Kong company can be governed by Hong Kong law, which many international partners already know.
- Arbitration: arbitral awards made in Hong Kong can be enforced on the mainland, and the other way round, under an arrangement in force since 2000.
- Court judgments: since 29 January 2024, a wider arrangement lets judgments in most civil and commercial cases be registered and enforced across the border.
Money
- Hong Kong dollar: linked to the US dollar since 17 October 1983, within a band of HK$7.75 to HK$7.85 to one US dollar, according to the Hong Kong Monetary Authority. Article 112 of the Basic Law rules out foreign exchange controls.
- Renminbi: the mainland’s foreign exchange regulations don’t restrict current-account payments such as trade, but capital flows such as investment stay controlled. Since 2015, banks have handled foreign direct investment registration under State Administration of Foreign Exchange (SAFE) rules.
- What it means for you: plan for paperwork and time whenever you move capital into or out of the mainland.
How do hiring and employment rules differ?
Hong Kong caps your pension contribution at HK$1,500 a month per employee. Mainland employers pay into five social insurance schemes and a housing fund, at rates set locally, and face strict rules on written contracts.
| Hong Kong | Mainland China | |
|---|---|---|
| Pension and social insurance | MPF: you and the employee each pay 5% of relevant income; your share is capped at HK$1,500 a month | Five schemes: pension, medical, unemployment, work injury and maternity. Employers pay work injury and maternity alone |
| Housing fund | None | Employer and employee each pay at least 5% of salary |
| Enrolment deadline | Enrol staff in MPF within their first 60 days | Register staff for social insurance under local rules |
| Minimum wage | HK$43.1 an hour from 1 May 2026 | Set by each province or city |
| Written contract | Not legally required, as contracts can be oral or written, but putting terms in writing avoids disputes | Required within one month of the start date |
Sources: MPFA; Labour Department; the mainland’s Social Insurance Law and Labour Contract Law.
The mainland contract rule bites: miss the one-month deadline and you owe double wages for each month after that, for up to a year. After a year without a written contract, the employee is treated as being on an open-ended contract.
Hiring in Hong Kong? Payroll and MPF come first when you’re hiring your first employee. Non-local staff need a Hong Kong employment visa before they start work.
Can you use a Hong Kong company for mainland business?
Yes, and it’s a common structure. A Hong Kong company owns the mainland subsidiary, and the subsidiary pays its dividends up to Hong Kong.
What the structure gets you
- Lower withholding on dividends: under the Mainland-Hong Kong double taxation arrangement, mainland withholding tax on dividends to a Hong Kong company that owns at least 25% is 5%, instead of 10%.
- Lower withholding on interest and royalties: capped at 7%, or 5% for aircraft and ship leasing royalties.
- Little or no Hong Kong tax on the dividends: dividends from a mainland subsidiary are generally outside Hong Kong profits tax, and Hong Kong has no withholding tax when you pay them on. If your company is part of a multinational group, check the foreign-sourced income exemption rules first.
What it doesn’t change
- Mainland investment rules still apply: the Foreign Investment Law’s implementing regulations treat Hong Kong investors by reference to foreign investors. The 2024 Negative List of restricted and prohibited sectors applies, with some extra access under CEPA.
- You have to qualify for the lower rates: mainland tax authorities check that the Hong Kong company really owns the income. You’ll usually need a Certificate of Resident Status from the IRD to claim the treaty rates. Get tax advice before you rely on them.
Next steps
- Setting up the subsidiary: the steps to set up a mainland company from Hong Kong, from the Negative List to the business licence.
- Deciding if it’s worth it: whether a Hong Kong holding company suits your mainland operations.
- Avoiding tax twice: if both sides tax the same profit, claim double tax relief under the same arrangement.
The 5% rate isn't automatic. You'll generally claim it with a Certificate of Resident Status from the IRD (form IR1313A, no fee), and the Hong Kong company must be the beneficial owner of the dividends. Benefits can be refused where getting them was one of the principal purposes of the set-up.
When is a mainland entity the better choice?
When most of your business happens on the mainland. A Hong Kong company can own a mainland business, but it can’t replace one for everything. You’ll likely need a mainland entity if you’re:
- Selling at scale inside the mainland: a local entity can invoice customers in RMB and issue mainland VAT invoices (fapiao), which business customers usually need to claim their own VAT and expenses.
- Running a regulated activity: many licences and permits can only be held by a mainland entity.
- Putting people or premises on the ground: hiring employees, renting offices or running factories and shops on the mainland usually needs a local entity.
Which mainland vehicle?
| Vehicle | Can it trade and invoice? | Typical use |
|---|---|---|
| Wholly foreign-owned enterprise (WFOE) | Yes | The usual choice when you want full control of a mainland business |
| Joint venture with a mainland partner | Yes | Sectors where the Negative List requires a mainland partner, or where a partner brings licences or market access |
| Representative office | No: liaison and market research only | Testing the market before committing to a full entity |
Any of these can sit under a Hong Kong company, or you can hold the mainland entity directly.
What are the challenges of doing business in Hong Kong?
Mostly running costs and yearly compliance. Simple taxes and open capital flows come with duties you can’t skip, and most are easier to handle if you plan for them from day one.
| Challenge | What it means | How to handle it |
|---|---|---|
| Operating costs | Office rent and salaries are high | Start with a registered office address and a small team, and add space as you grow |
| Yearly compliance | Every limited company needs a company secretary, an annual return, audited accounts, a profits tax return and a significant controllers register | Budget for accounting and tax filing from the start, not at the first deadline |
| Proving where profits come from | If you claim profits are earned outside Hong Kong, the IRD expects evidence | Keep contracts, invoices and records of where the work was done, from the first transaction |
| Opening a bank account | Banks ask detailed questions about your business, clients and owners | Prepare your documents before you open an account as a non-resident |
| A smaller home market | Hong Kong is a gateway, not a large domestic market | Plan to sell regionally or internationally from the start |
How can Sleek help you set up in Hong Kong?
Sleek sets up and runs Hong Kong companies for founders in Hong Kong, on the mainland and overseas. Once you’ve worked out which company does which job, the Hong Kong side shouldn’t slow you down.
With Sleek, you can:
- Incorporate remotely: set up your Hong Kong company from overseas or the mainland, with documents signed online.
- Cover the statutory roles: Sleek acts as your company secretary and provides a registered office address in Hong Kong.
- Keep the books and tax filings on time: accounting, audit and profits tax returns, with reminders for IRD, MPF and annual return deadlines.
- Get a business account introduction: to Airwallex or Aspire, so you can start taking payments.
If you’re still deciding whether a Hong Kong company should own your mainland business, talk it through with us before you incorporate.
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FAQs about doing business in Hong Kong vs China
Do you need to live in Hong Kong to run a Hong Kong company?
No. Non-residents can be directors, according to the Companies Registry, and InvestHK confirms shareholders don’t need to be Hong Kong residents. The company still needs a company secretary who lives in Hong Kong (or a corporate secretary with an office there) and a registered office address in Hong Kong.
Can you run a Hong Kong company in English?
Yes. Article 9 of the Basic Law allows English to be used as an official language alongside Chinese, and English is widely used in Hong Kong business and contracts. On the mainland, business and government work is mainly in Putonghua and simplified Chinese.
Does a Hong Kong trade mark protect your brand on the mainland?
No. Trade mark registration in Hong Kong gives territorial protection only, according to the Intellectual Property Department. To cover the mainland too, apply there as well, with the China National Intellectual Property Administration (CNIPA). The Hong Kong trade mark process runs through the IPD’s Trade Marks Registry.
