Netherlands vs Hong Kong for your international structure

Where Hong Kong leads

Hong Kong has one tax on profits, with two rates. There is zero value added tax, zero capital gains tax and zero withholding tax on dividends. Only profits that arise in or come from Hong Kong are taxed. You can form a company in a few days and transfer capital freely. The courts use common law, in English. Hong Kong has a large banking sector, and much of Asia’s trade finance is arranged there. Hong Kong is a strong choice for buying from mainland China and for distribution across Asia. It also suits a group whose business partners are in Shenzhen, Taipei or Singapore. In June 2026, Hong Kong was second in the IMD World Competitiveness Ranking.

What you need for the offshore exemption

The offshore exemption must be claimed and defended. A Hong Kong company pays the low rate on Hong Kong profits. It gets the offshore exemption only when the facts support it. The IRD treats profits as taxable until the company shows otherwise. It uses the operations test from its Departmental Interpretation and Practice Notes. The IRD checks where the activities that earn the profit take place, and where contracts are negotiated and signed. In 2026 the IRD checks claims more closely. Keep your records in order from the first invoice.

Holding companies must meet the substance test or the participation test. Hong Kong has a foreign-sourced income exemption regime (FSIE). Under this regime, offshore dividends, interest and gains on disposals of a company in an international group are exempt if it has enough economic substance in Hong Kong. For dividends and gains on shares, a stake of at least 5% held for at least 12 months is another way to keep them exempt, if that income, or the profit it was paid from, was taxed abroad at a rate of at least 15%. This is the typical income of a regional holding company. In a group, one connected company can choose the two-tier rate each year. The first tier of 8.25% therefore applies once per group. Royalties paid to non-residents have a withholding tax of roughly 4.95%. Between associated parties it can be 16.5% in certain cases.

For the European roles, you need an EU company. Under every European rule made since 2021, a party established in the EU is responsible. Examples are the authorised CBAM declarant, the EUDR operator and the GPSR responsible person. Others are the importer of record and the licensed payment institution. A Hong Kong company is outside these roles. Groups that sell in Europe therefore need a European company, wherever their other companies are. Also check the Dutch conditional withholding tax. It applies to dividends, interest and royalties paid to affiliated companies in listed jurisdictions. The Dutch government publishes this list every year. Check the list and the Dutch tax treaties before you fix the ownership structure. The Netherlands has roughly one hundred tax treaties.

The structure most groups choose

Most groups put purchasing in Asia, regional trade and Asian holding functions in the Hong Kong company. They put European imports, licences, contracts and staff in the Dutch BV. Plan the link between the two companies once, for withholding tax, transfer pricing and substance. With a shareholding of 5% or more, the participation exemption applies. For a later sale of the group, the Dutch company is therefore a good base. You can read more about the European side on EU market entry. You can compare all points in the master table.

Frequently asked questions

Does Hong Kong tax profits earned outside Hong Kong?

Hong Kong taxes only profits that arise in or come from Hong Kong. Profits from outside Hong Kong are exempt. You have to claim this exemption. The Inland Revenue Department then reviews the claim under the operations test. It checks where the activities that earn the profit take place. Your records are therefore as important as the structure.

What is the two-tiered profits tax rate?

Companies pay 8.25% on the first HK$2 million of assessable profits and 16.5% on the rest. In a group of connected companies, only one company can use the lower rate each year. The group can choose a different company each year, for example when profits change.

Can a Hong Kong company sell into the European Union?

It can invoice European customers. The European roles need a company established in the EU. These roles are import registration, the carbon border levy declarant (CBAM), the deforestation regulation operator (EUDR), product safety responsibility and payment licensing. A Dutch BV can take on these roles.

Which entity should come first?

Start with the company that your next contract needs. If you sell in Europe, import goods or apply for a European licence, set up the Dutch BV first. Add the Hong Kong company when you need it for trade and purchasing in Asia.