Mainland China’s Tax Policies for Foreign-Invested Enterprises: 2024 Updates
📋 Key Facts at a Glance
- Hong Kong’s Tax Edge: Hong Kong maintains a simple, low-tax regime with no capital gains, dividend, or inheritance taxes, contrasting with Mainland China’s complex system.
- Profits Tax: Corporations pay 8.25% on the first HK$2 million of profits and 16.5% on the remainder, on a territorial basis.
- Stamp Duty Update: As of 28 February 2024, all Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), and New Residential Stamp Duty (NRSD) have been abolished.
- Global Compliance: Hong Kong has enacted the Global Minimum Tax (Pillar Two) effective 1 January 2025 and expanded its Foreign-Sourced Income Exemption (FSIE) regime in 2024.
For foreign investors navigating Greater China, the tax landscape presents a stark choice: the complex, policy-driven system of Mainland China, or the straightforward, low-rate certainty of Hong Kong. While the mainland uses tax as a tool for industrial policy, Hong Kong offers a stable, rules-based environment designed for international business. Understanding this fundamental difference is the first step in structuring a successful regional investment strategy.
Hong Kong vs. Mainland: A Tale of Two Tax Systems
The draft article highlights how Mainland China’s 2024 tax reforms use preferential rates and strict compliance to steer investment into targeted sectors. This stands in direct contrast to Hong Kong’s approach. Hong Kong’s tax system is not a tool for social or industrial engineering; it is a foundational pillar of its status as a global business hub. Its core principles—territorial sourcing, low flat rates, and the absence of cascading taxes—provide a predictable cost base for multinational operations.
The Hong Kong Advantage: Certainty and Simplicity
Hong Kong’s attractiveness is built on clear, legislated advantages that do not require navigating bureaucratic “pre-qualification” or aligning with specific national projects.
| Tax Type | Hong Kong (2024-25) | Typical Mainland China Consideration |
|---|---|---|
| Corporate Tax | Two-tiered: 8.25% / 16.5% | Standard 25% CIT, with conditional preferential rates (e.g., 15% for High-Tech Enterprises) |
| Dividends | No tax | Subject to 10% withholding tax (may be reduced by treaty) |
| Capital Gains | No tax | Generally taxable |
| VAT / GST | No sales tax or VAT | VAT applies, typically at 6% (services) or 13% (goods) |
Modernising for Global Standards: FSIE and Pillar Two
Hong Kong is proactively integrating international tax standards while preserving its competitive edge. Two key developments are critical for foreign-invested enterprises to understand.
1. The Foreign-Sourced Income Exemption (FSIE) Regime
Effective from January 2024 (expanded from the 2023 version), the FSIE regime targets multinational entities using Hong Kong as a passive holding location. Foreign-sourced dividends, interest, disposal gains, and IP income received in Hong Kong are now subject to profits tax unless specific exemption conditions are met, primarily requiring substantial economic activities in Hong Kong. This aligns with OECD guidelines and ensures Hong Kong’s system is robust against profit shifting, without imposing a broad-based worldwide tax.
2. Hong Kong Enacts the Global Minimum Tax
Hong Kong enacted the Global Minimum Tax (Pillar Two) on 6 June 2025, with rules effective from 1 January 2025. This applies to large multinational enterprise (MNE) groups with consolidated global revenue of EUR 750 million or more. It introduces an Income Inclusion Rule (IIR) and a Hong Kong Minimum Top-up Tax (HKMTT) to ensure these groups pay a minimum effective tax rate of 15% on their profits in each jurisdiction where they operate.
Strategic Structuring: Using Hong Kong as Your Regional Hub
The combination of Hong Kong’s inherent advantages and its adoption of global standards creates powerful structuring opportunities for businesses operating in Greater China and Asia.
- Regional Headquarters: Use a Hong Kong entity to hold regional IP, manage treasury functions, and invoice for regional services, benefiting from low profits tax and no withholding taxes on outbound dividends.
- Investment into Mainland China: Hong Kong remains the preferred gateway due to the Closer Economic Partnership Arrangement (CEPA) and the comprehensive China-Hong Kong Double Taxation Agreement (DTA), which can reduce Mainland withholding taxes on dividends, interest, and royalties.
- Family Office Vehicles: The new Family Investment Holding Vehicle (FIHV) regime offers a 0% tax rate on qualifying transactions for family offices with substantial activities and at least HK$240 million in assets under management.
✅ Key Takeaways
- Hong Kong offers tax certainty: Its low, simple, and legislated tax rates contrast with the conditional, policy-driven incentives often found in Mainland China.
- Compliance is evolving but remains business-friendly: The FSIE and Pillar Two rules modernise Hong Kong’s system for the global era but are targeted at large MNEs and passive structures, not operational businesses.
- Substance is non-negotiable: To fully leverage Hong Kong’s treaties and regimes (like FIHV), establishing real economic activity in the city is essential.
- Stamp duty barriers are removed: The February 2024 abolition of all additional stamp duties (SSD, BSD, NRSD) simplifies property investment for all buyers.
For foreign enterprises, the strategic question is no longer just about minimising tax in a single jurisdiction, but about optimising a regional structure. Hong Kong, with its robust legal system, free flow of capital, and modernised tax framework, provides a stable and efficient platform for managing Asian operations. While Mainland China’s market demands engagement, Hong Kong provides the commercial and fiscal architecture to do so effectively and profitably.
📚 Sources & References
This article has been fact-checked against official Hong Kong government sources:
- Inland Revenue Department (IRD) – Official tax authority
- GovHK – Hong Kong Government portal
- IRD Profits Tax Guide
- IRD Stamp Duty
- IRD FSIE Regime
- IRD FIHV Regime
- Hong Kong Budget 2024-25
Last verified: December 2024 | For professional advice, consult a qualified tax practitioner.