- 12 minutes read
Table of contents
- Set up company in Hong Kong
- What factors should be considered while deciding the name of the company
- Choose a legal form before setting up company in Hong Kong
- Authorized capital requirements
- Location of the company in Hong Kong
- Requirements for a director and shareholder in a Hong Kong company
- Role of company secretary
- Opening a bank account: start paying, get paid
- License in Hong Kong
- Type of taxes in Hong Kong for companies
- Regular annual company maintenance fees, set up in Hong Kong
- Annual filing requirements
- Access resources and funds
- Conclusion
Who hasn’t dreamt, at least once in a lifetime, to launch his own business and become the «master of his destiny». The pictures conjured up in our imagination usually blend in a large bright hi-tech office with a window overlooking an incredible city nightlife (anyway, business requires 24/7 care), modern gadgets in every corner of the offices, the smells of coffee, green tea, and a solid understanding of the fact (it is even in the air) that whatever enterprise you undertake and whichever activity you embark on, it will get back to you with a 1000% return.
This is how your business day might look like (though, what are the business days of the company’s owner!? One work!), if you are correct – with the help of professionals, decide to set up a company in Hong Kong. And whether you are physically present in Hong Kong or carry out all business processes remotely doing business in this country is a positively attractive and competitive endeavor.
But let’s get it right!
To setup hong kong company, the first thing you need to decide on is the business structure that would satisfy yourself and statutory requirements. The business structure should be elected based on:
- business size;
- scheduled investments;
- number of employees;
- services provided by your company
Set up company in Hong Kong
Setting up Hong Kong company requires submission of the following documents:
- A high-quality scanned copy of an unexpired passport (not a photo) of the director and shareholder. These copies must be certified or apostilled;
- Proof of address: a copy of a document confirming the address of the director and shareholder of the company (for example, a utility bill or a bank statement indicating the full name of the person and his/her address of residence);
- Trustworthy and completed application according to the given form;
- Proposed name of your new company in Hong Kong (we suggest having three company name options);
- Description of the type of activity of your company;
- The size of the authorized capital;
- Official website of current business operations;
- Contact details of the director and shareholder/s (telephones, e-mails);
- Other papers depending on the legal form of the company you have chosen.
If the documents are submitted in a language other than English, please provide their English translation.
Quickly select a jurisdiction and register your company anywhere in the world online
What factors should be considered while deciding the name of the company
- You need to check the business name of the company for its uniqueness before it is registered. A Hong Kong company name that is the same as a name appearing in the Index of Company Names kept by the Registrar of Companies (the Registrar) will not be accepted. A business name must also satisfy the relevant requirements of the Companies Ordinance.
- A proposed name of a Hong Kong company that is identical to a name that has been subject to a change of name direction issued by the Registrar will not be registered except with the prior approval of the Registrar. You are reminded to search (free of charge) on the list containing these old company names at the Registry’s Cyber Search Centre. A hyperlink to the list is provided on the screen displaying the company name search result. In examining a proposed name before the company’s incorporation, the question of whether the name is «too similar» to that of a registered name will generally not come within the scope of the Registrar’s consideration. You should entertain carefully whether the proposed name could lead to a complaint for being «too similar» to an existing company name, and the possibility that it may be subject to a change of name direction by the Registrar after incorporation.
- A company may be registered with an English or a Chinese name;
- A business name must contain the abbreviation of the legal form;
- Such words as «Bank «Stock Exchange» in the company name may only be used if there is a license;
- Hong Kong company names containing words or expressions such as «trust», «chamber of commerce» etc. set out in the Companies (Words and Expressions in Company Names) Order will require prior approval of the Registrar before registration.
- Remember that it is for your own good to use a name that does not run counter to a trademark and which reasonably stands out from any other name appearing in the Registrar’s Index of Company Names. You should also search the Trademark Register (http://ipsearch.ipd.gov.hk) maintained by the Intellectual Property Department. This will not only reduce the risk of a direction being issued by the Registrar to change your company name but also the risk of filing an action for passing off or infringement of trademarks.
- Names related to the state or the crown are prohibited (for example, Royal, Federal, etc.)
- Names that are offensive (indecent) from the point of view of the Chinese language or names that are contrary to the interests of the state shall not be registered.
Choose a legal form before setting up company in Hong Kong
Define the structure of your activities, based on the intended targets and requirements of your company. Company structure affects everything from how you run your business to how you file taxes.
Incorporation in Hong Kong under the Companies Ordinance is possible in one of the following organizational and legal forms:
- Private Company Limited by Shares – a limited liability company whose capital is divided into shares. Such a company can have no more than 50 shareholders. The company’s shares cannot be placed on a securities exchange, and any transfer of shares is usually carried out in the order prescribed by the articles;
- Public Company Limited by Shares – a limited liability company whose capital is divided into shares. In such a company, there is no limit on the maximum number of shareholders. The shares may be listed on the stock exchange;
- Company Limited by Guarantee – the liability of the members of such a company is limited by the members’ guarantee. The capital of the company is not divided into shares.
- Unlimited Company – the participants of the company are liable for the obligations of the company, regardless of the size of their contribution to the authorized capital.
- Limited Partnership – partnership with limited liability. It can include no more than 20 partners, who can be both physically and legally persons of any residency. The liability of the partners for the obligations of the partnership itself is limited to their contribution to the capital.
On top of this, you may open a Representation. This choice is perfect for oversea companies who wish to explore the market in Hong Kong for research and business development purposes. There are no registration requirements with the Company Registry, no minimum capital requirements, and no compliances like filing tax returns or maintaining accounts.
Other than the above, as another option for your business, you may open a branch office. A branch office is one of the entities that foreign corporations give preference to when they consider exploring a new market in Asia. A branch office is the extension of a foreign parent entity, and the parent entity takes responsibility for the liabilities and debts of the branch. The branch is not a separate legal entity but must be registered with the Hong Kong Companies Registry as a non-Hong Kong company. The branch is subjected to the same taxes as any other company in Hong Kong. However, it may not benefit from the Hong Kong Double Tax Treaty network.
Authorized capital requirements
The Company Ordinance does not contain any restrictions on the size of the authorized capital and currency and is at the shareholder’s discretion. The minimum issued share capital is two shares of par value. Thus, the minimum authorized capital can be 1 Hong Kong dollar. At the same time, setting up a Hong Kong company with an authorized capital of 1,000.00 to 10,000.00 Hong Kong dollars or a similar amount in another currency is a common practice.
The currency of the authorized capital may be any currency convertible into Hong Kong dollars. The authorized capital is not subject to mandatory payment. Therefore, you don’t incur any expenses for paying the share capital when registering a company in Hong Kong.
Location of the company in Hong Kong
In the process of setting up company in Hong Kong, the registered office address is obligatory. The legal entity must have a visiting address that exists in Hong Kong,
Requirements for a director and shareholder in a Hong Kong company
Given the fact that any company requires the presence of a shareholder/s and a director when registering a company in Hong Kong, it’s also necessary to comply with the requirements for a shareholder and a director.
The director may be:
- A natural person or a company of any nationality (apart from those countries that have been sanctioned by the United Nations) and be at least 18 y.o., not bankrupt or convicted for any gross violation;
- One individual director and an unlimited maximum number of directors are allowed;
- Director and shareholder may be the same person;
- Presence of a nominee and corporate or private directors is permissible.
In addition to the director, the company must have at least one shareholder.
The shareholders of the company are characterized by the following:
- A shareholder may be a natural person (or a company) of any country of residence (except for countries sanctioned by the United Nations) and be at least 18 y.o.;
- A private limited company may have a minimum of 1 and a maximum of 50 shareholders;
- Director and shareholder may act as the same person;
- Appointment of nominee shareholders is allowed;
- The annual mandatory meeting of shareholders can be held anywhere in the world.
Please note, that if you don’t want your details as a shareholder and director to appear on public records, a Hong Kong company has the option of using the services of a nominee director and shareholder. In such a case, you will not be entered into the register of companies. However, under Hong Kong laws, Significant Controllers must be identified and kept with the company secretary. Public disclosure is not possible and this information is available to the responsible government authorities in Hong Kong.
Role of company secretary
During the company setup in Hong Kong process, all limited companies are required to appoint a company secretary based on the Companies Ordinance.
The following requirements are put to the secretary:
- He/she must be only a Chinese national;
- He/she must not be less than 18 y.o.;
- If the secretary is a legal entity – this can be a specialized company that is registered only in the administrative region of Hong Kong.
The work of the secretary is essential to the governance and administration of the company – the company secretary should not only work with directors and shareholders of the company but also deal with different government and regulatory bodies, for example, the Companies Registry. Please note that it is forbidden to combine the functions of the director and secretary.
Opening a bank account: start paying, get paid
You will need a bank account to receive money and pay bills. Hong Kong has one of the highest concentrations of banking institutions in the world with authorized banks and representative offices. Hong Kong payment systems grant the opportunity to open an account remotely as well as set up multi-currency bank accounts.
The services provided in almost every bank in Hong Kong include various financial services: savings and current accounts, term deposits, loans, direct debit, investment advice, etc. Payment processing is carried out both through the leading banks of Hong Kong and international banks.
It’s relatively easy to open a bank account for a company registered in Hong Kong if you correctly and completely prepare and file all the necessary documents. Generally, you will need to present the following documents to the bank: Certificate of Incorporation; Business Registration Certificate; Incorporation form NNC1; Articles of Association. However, Hongkongese banks always exercise due diligence when dealing with their customers, therefore, some extra documents may be required. If the submission is incomplete or non-compliant, banks will decline to cooperate.
License in Hong Kong
Company setup in Hong Kong without taking out the necessary licenses, for one thing, is illegal, and for another may result in penalties and the close-down of your business.
The government requires you to obtain a license when you operate within a very specialized industry or an industry with a high level of liability. In Hong Kong, you will need one or more licenses if you operate in the following business categories: employment agency, tour operator, event management company, money lender, money service operator, education business, certain trading companies, and retailers. Meanwhile, if you plan on starting a restaurant, you will need both a base license (Restaurant License) and an additional one – for the sale of alcohol.
Type of taxes in Hong Kong for companies
A well-regulated but simple low-tax system turns Hong Kong into a tough competitor to other global financial centers.
Hong Kong applies a principle of the territorial source of taxation – only incomes received in Hong Kong are subject to tax. Income earned outside of Hong Kong is not charged an income tax.
There are the following types of taxation:
- Incomes earned from a source in Hong Kong are subject to the income tax rate of 8.25% for the first $2 million Hong Kong dollars (HKD) of assessable incomes
assessable income above $2 million NKD from the source in Hong Kong is taxed at the rate of 16.5%
We don’t advise splitting a business into several companies to qualify for a preferential tax rate. The competent authorities have the right to request information on the interdependence between companies and, if a common beneficiary is identified, levy extra tax at the standard rate. - No dividend withholding tax. There is no withholding tax on dividend distribution from a Hong Kong company to a resident or nonresident;
- Tax on interest payments from a Hong Kong entity to a resident or nonresident – 0;
- Surtax – 0;
- VAT – 0;
- Tax on fees paid for technical services from a Hong Kong company to a resident or nonresident – 0;
- Branch remittance tax – 0;
- Capital gains tax – not applicable.
A separate subject is the question of the origin of income. Do not rush to rejoice when you see the «0%» rate, which stands next to the «income tax» column. In this case, things aren’t as clear-cut as they may seem. Firstly, such a regime is subject to appropriate control. In Hong Kong, all companies are required to file regular returns. Access to reporting data is closed. But based on your reporting, the tax office can find out the source of your income. If during the audit it turns out that your income arises from sources located or activities carried out in Hong Kong, then you must pay income tax depending on the income received. Secondly, note that the procedure for recognizing the source of income is not fixed in any instrument, each case is considered individually. First of all, it is necessary to find out based on what criteria the company is obliged to pay income tax.
Among these, three main obligatory factors can be estimated that must take place for a company to have an obligation to pay income tax:
- The legal entity operates in Hong Kong;
- The taxable income arises from the relevant business in Hong Kong;
- Income (see above) arises from Hong Kong or sources located in Hong Kong.
Regular annual company maintenance fees, set up in Hong Kong
The cost of maintaining a company registered in Hong Kong, as a rule, consists of the following:
- Provision of the company secretary service;
- A registered address and correspondence address for Government notifications;
- Filing the annual return;
- Paying the annual return fee;
- Paying the business registration fee;
- Updating your significant controller register (SCR);
- Accounting;
- Audit;
- Filling in a tax return.
Annual filing requirements
Every company, regardless of its status, is required to file financial statements. It’s necessary to comply with the requirements stipulated by legislation, in particular, the deadlines set by the Companies Registry while doing business after Hong Kong set up company.
The annual requirements to be met are as follows:
- Under the Companies Ordinance, you are required to file an annual return each year;
- Tax returns are filed with the Inland Revenue Department each year along with audited accounts.
The requirements for filing an annual return depend on the type of business structure, whether you are a registered non-Hong Kong company or a local limited company in Hong Kong.
Сompanies are required to maintain and, in some cases, submit the following types of returns:
- Annual Return, which contains the latest update on the shareholders, directors, and registered address of the company, as well as its authorized (share) capital. In case of changes in the structure and/or capital of the company, information about such changes is included in the return. This information is publicly available. The annual return is approved by the director or secretary of the company, and the obligation to submit it to the Register lies, as a rule, with the secretary. The annual report must be submitted to the Register within 42 days after the end of the year from the date of registration of the company;
- Company Financial Statement (Financial Accounts). Companies in Hong Kong are required to maintain financial records. These are also submitted to the tax authorities (Inland Revenue Department, hereinafter referred to as IRD) along with an auditor’s report as an attachment to the tax return in all cases if the company operates. Reporting is carried out on paper or in electronic form and is drawn up in English or Chinese. Accounts for each reporting period must be kept at the registered office for 7 calendar years from the date of the end of such period;
- Audit report. All companies registered in Hong Kong and doing business are required to audit their financial statements. An audit is not required only in cases where the company is not operating and is «dormant»;
- Income tax return. During the period of 12 to 18 months from the date of incorporation, a Hong Kong company receives an Income Tax Return form from the IRD to complete. Within 1 month of receipt, the completed income tax return must be submitted to the IRD. In the course of 12 to 18 months of registration, the company needs to choose the end date of the first financial year, which will remain to be the end date of each financial year. The first financial year may continue up to 18 months, and subsequent ones – only to 12.
If the company did not operate during the reporting period, it is restricted to submitting «a zero» tax return without attaching financial statements. In this case, information about the activities of the company is not requested.
Access resources and funds
Hong Kong company set up suits for small businesses. Below are some resources available in the Hong Kong market which can help you provide funds for your business entity:
- Startup programs such as HKTDC offer various services to startups from operational management to sales promotions;
- For setting up a new business or expanding an existing startup, you can cooperate with InvestHK, a government organization that helps foreign entrepreneurs set up in Hong Kong.
Hong Kong’s government has special programs such as loan funding, market funds, and incubator program which attracts foreign investors.
Conclusion
It’s no secret that Hong Kong is the «gateway to China» that entitles you to «enter» the Asian markets. To set up company Hong Kong has never been easier, however, it is undoubtedly an impressive upside for its owners.
Hong Kong is «an investor’s paradise», but to get there, turn to the professionals.
Start your dream business in Hong Kong with confidence!!!
