Many foreign investors decide to set up a company in Hong Kong due to various reasons. For one, the strategic location of Hong Kong have made it a popular destination for elite and emerging markets. It is a major business hub as it paves the way for entrepreneurs and investors to optimize their potential.
The free economy prevailing in Hong Kong offers investors a wide range of benefits. Its free trade policy, unrestricted onshore and offshore investments, free movement of capital, no tariff on imports and exports, and no foreign exchange controls make it an appealing jurisdiction for investors all over the globe.
Incorporate a Hong Kong company
Hong Kong prides itself for its hassle-free company formation process. When it comes to ease of doing business, it ranks third next to Singapore. For standard company structures, one can set up a company in Hong Kong within 24 hours. Lastly, Hong Kong’s tax regime is extremely attractive to foreign investors. By rule, only incomes generated within and from the country will be taxable. As Hong Kong benefits from the two-tier profits tax regime, the first HK$2 million of profits for corporation and unincorporated companies will be taxed at 50% of its current tax rate.
While it is easy to set up a wholly foreign owned enterprise (WFOE) in China, Hong Kong offers international investors the opportunity to utilize a Hong Kong Limited Company for a China wholly foreign owned enterprise (WFOE), thus obtaining benefits from Hong Kong’s existing rule of law, expansive banking network, and safety net for the parent company.
Overall, the prevailing system that exist in Hong Kong allows international investors to save operational costs while maximizing profits.
Setting Up a Company in Hong Kong for International Investors
If you are a foreigner looking to start a business in Hong Kong, it is imperative to gain basic understanding of the company formation process:
Choose the Type of Company Structure
It is crucial for foreign investors to decide on what type of Hong Kong company structure suits their purpose the most. A well-informed decision is crucial since your choice of Hong Kong company structure will greatly impact your benefits, liabilities, and administrative tasks as prescribed by the existing provisions prevailing in Hong Kong.
Listed below are the most common types of company structures available to foreign investors, with private limited liability company the most popular choice.
Limited Liability Company (LLC)
Members of an LLC will not be liable for the company’s debt and liabilities. Hong Kong LLCs are categorized into three types, including Private Limited by Shares, Public Limited by Shares, and Company Limited by Guarantee.
The simplest corporate structure for foreign investors. A sole proprietorship company only has a single owner in the company. The sole proprietor will be the sole beneficiary, making him or her solely responsible for debts and liabilities of the company.
A company formed by at least two members through a mutual agreement, it is considered a partnership company structure in Hong Kong. The two types of Hong Kong partnerships are General Partnership and Limited Partnership.
Hong Kong Registration Options
For international entrepreneurs wishing to expand their operations in Hong Kong, they may opt to register as one of the following structures:
A branch will function as an extension of the parent company. It is considered a legal entity but not a separate entity. The parent company operating overseas will take full responsibility of any debt or liability incurred by the branch office in Hong Kong.
The purpose of setting up a representative company is to provide investors to test the waters before actual penetration. A representative office in Hong Kong does not possess any legal standing; hence it is not allowed to engage in any profit-making initiatives in Hong Kong.
Choose a Company Name
Naming a Hong Kong company must comply to a pre-determined criteria as per Hong Kong law. A company name in Hong Kong must be identical, but not similar to any existing company that has already been registered under The Companies Registry Index of Company Names.
Additionally, the company name must gain a high rate of approval and should not contain restricted terms or expressions as prescribed in the Companies Order (Cap 622A).
Determine the Company Structure
Foreign investors must then decide the company structure of their intended Hong Kong company. A company set up in Hong Kong by international investors must meet several requirements to be allowed to operate in the country:
- One natural person to act as director
- One natural person or corporate entity to act as a member
- It is a must for a Hong Kong company to have a secretary, who can be a local Hong Kong resident or corporate secretary
- Must have a registered address for company registration purposes
- Must have an issued share capital of the company
Filing of Documents of Incorporation
Submission of application including all required documents will be the final step in the Hong Kong incorporation process. Additionally, company initiators must submit copies of company specifics, including information of identification and other company-related documents. Prior to submission, it is crucial to ensure that investors have provided all the pertinent information for approval of the company name before the Companies Registry.
Other Company Formation Requirements in Hong Kong
Once you have successfully registered your Hong Kong company, there are other activities that foreigners must fulfill to successfully do business in the country.
As Hong Kong allows offshore tax exemptions for all income realized outside its jurisdiction, a company must apply for an offshore claim as per Hong Kong government provisions. The offshore status of a Hong Kong company comes in the form of a tax exemption letter issued by the Hong Kong Inland Revenue Department.
Opening a Business Account
While foreign-owned companies are allowed to choose offshore banks to open their business account, it is ideal to set up a bank account in Hong Kong.
Trademark Registration Process
While companies are not required to conduct trademark registration in Hong Kong, it is highly recommended by experts. A registered trademark protects your brand and gives your company exlusive rights to use it for commercial reasons.
Business License and Permit
Any business activity in Hong Kong is deemed to have a license or permit from a specific government agency. All businesses in Hong Kong, even those built by foreign investors must meet its existing licensing and permit requirements.
Annual Hong Kong Compliance Requirements
Foreign investors who own Hong Kong companies are deemed to adhere to annual compliance requisites, including:
- Renewing company secretary, registered office, and business registration changes
- It must meet an annual general meeting
- Submit annual return and profits tax return
- Submission and filing of employer’s return
- Financial audit reporting
- Documentation of internal records
Significant controller registration is a requirement effective 1 March 20178 for all incorporated companies, other than entities that have shares listed on the Stock Exchange. Affected companies must identify significant controllers over their respective companies to maintain the register as requested by Hong Kong authorities.
Transfer Pricing Documentation
Foreign investors must follow transfer pricing compliance provisions if their company engages in transactions with related entities. Income gained outside the Hong Kong jurisdiction will be under this regime.
Doing business in Hong Kong requires foreign investors to complete all steps to successfully operate in Hong Kong. To ensure that your incorporation process moves smoothly, we at Damalion offers our consulting services every step of the way. We will ensure that you comply with all requisites and considerations after incorporation. We will be your trusted partner in successful company formation and company management in Hong Kong. Apart from our expert incorporation services in Hong Kong, Damalion also offers our company formation services in other countries. If you need more details about the Hong Kong company formation process, contact our Damalion experts today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.