Hong Kong is one of the world’s leading financial services and trading hubs. Boasting easy access to the competitive markets of Mainland China and its prevailing free-trade policy, it only makes perfect sense for foreign institutional and private investors to set up a company in Hong Kong. Incorporating a company in Hong Kong is an excellent launchpad of operations in the Asia Pacific Region.
The process of entering a specific business niche in Hong Kong consists of a series of tedious and complex transactions. Incorporating a business in Hong Kong can get complicated due to the many loose ends that need to be secured throughout the process. To forget or skip an essential component can potentially result in a complete disaster to a promising business venture that would otherwise deliver providers for company owners or shareholders alike. It is therefore of utmost importance to be thorough in implementing every step of the Hong Kong company formation process.
Minimum Statutory Requirements to Set-Up a Company in Hong Kong
In Hong Kong, foreign -owned companies must be incorporated using the private limited liability company legal form (limited by shares). The following are the minimum statutory requirements for forming a company Hong Kong:
- Any individual entity or natural person may incorporate a company in Hong Kong.
- There should be one minimum shareholder who can be either a resident or a foreigner.
- The director of a company must be above 18 years of age.
- The director and shareholder can be the same person.
- There is no minimum share capital requirement when incorporating a company in Hong Kong. Despite this, the common practice is to place an automatic share capital of HKD 10,000 represented by about 10,000 ordinary shares of HDK 1.00 each.
- Minimum issued or paid-up capital is 1 share of HKD 1.00.
- There must be a local registered address for the company. Bear in mind that P.O. Box is not allowed.
- The company must have its own secretary. If a natural person, a secretary must be a Hong Kong resident. In case the secretary is a corporation, it must have a registered office or must have a place of business in Hong Kong.
- A sole shareholder and director cannot act as a company secretary.
- A name approval is required before you can register a company.
When naming a company, it must not have the following:
- Same or similar to a name appearing in the Company’s Registry’s Index of Company Names
- Trademark infringements
- Be offensive or otherwise contrary to public interest
- A combination of English letters and Chinese characters
A company must have Designated Representative (DR) that will be primarily responsible for reporting in relation to the authorized controllers register (SCR) to concerned local authorities upon demand.
Information that are required for the role of significant controller are as follows:
- For a person’s name, requirements include name, correspondence, identity card number.
- In the case a person does not have identity card, the number and issuing country of the passport will be required.
- For a legal entity such as in the company, requirements including the name, legal form, registration number, place of incorporation, and address of registered office.
- Date of becoming a controller
- Nature of control over the company.
The Different Types of Business Entities in Hong Kong
For foreign-owned companies, the various types of available legal forms are as follows:
Private Limited Company
A private limited company is the most popular legal form the foreign investors choose when incorporating a company in Hong Kong. This company structure enjoys a host of benefits established by the Closer Economic Partnership Agreement (CEPA), a free trade agreement between Hong Kong and Mainland China.
Branch Office
This is a structure wherein a parent company incorporated and headquartered outside Hong Kong wants to establish a place to carry out business operations in Hong Kong. The parent company will be a registered non-Hong Kong company, with its branch office recognized as a separate legal entity. Such an office can make use of funds by leveraging the credit ratings of the parent company.
Subsidiary Company
A subsidiary company in Hong Kong is a private limited company incorporated with the shareholder being a Hong Kong resident or a private foreign investor or corporate entity. It is considered a separate legal entity; hence its parent company only has limited liability to the amount of share capital it has contributed to the subsidiary company.
Representative Office
A representative company is the most common structure used by investors that want to experience the business scene without placing huge investments. In this case, representative offices are prohibited from engaging in commercial activities and can only perform back office or administrative functions.
Partnership
A partnership company structure is established under the Partnership Ordinance in Hong Kong. A partnership may consist of two or more investors who merge their resources to build a company, agreeing to share risks, profits, and losses.
Sole Proprietorship
Unlike the private limited liability company structure, a sole proprietorship company does not offer personal asset protection or limited liability of its owner.
The Process of Incorporating a Private Limited Liability Company in Hong Kong
Once a name and company structure are finalized, the process of incorporation may begin. The process also involves the application for a business registration certification. The necessary documents that need to be submitted for incorporation and registration are as follows:
- Incorporation form (NNC1 for a company limited by shares)
- Articles of Association
- Business Registration Office notice (IRBR1)
The registration fee charged by the Hong Kong Companies Registry to a private limited liability company are as follows:
- HKD 1,720. In the event of unsuccessful incorporation, application refund of HKD 1,425 will be sent back to the applicant.
- Application fee for business registration certificate in Hong Kong is at HKD 250. If unsuccessful, a full refund will be made.
Applications for Hong Kong company registration and incorporation can be filed online through the 24-hour e-Registry portal, via CR eFiling mobile app, or by personally delivering the documents at Hong Kong’s Companies Registry along with the prescribed fees.
Hong Kong Company Incorporation Process- How Long Does it Take?
In the majority of incorporation applications, it takes between five and seven days to complete company incorporation in Hong Kong. However, if the application is processed while investors are overseas, it may take longer, factoring in logistics, signing of documents, and courier services for the relevant documents for company incorporation.
Hong Kong Company Submission of Annual Accounts
Based on Hong Kong company formation provisions, every company incorporated in Hong Kong are required to file its audited annual reports with the country’s Inland Revenue Department. This includes profits tax return to be filed annually. The auditor must meet specific requirements in order for the annual accounts to be considered valid. In Hong Kong, an auditor must be an active member of the Hong Kong Society of Accountants and must present a valid practicing certificate. On the other hand, there are no laws requiring the filing of accounts with the Hong Kong Companies Registry.
Keeping Up with Taxes and Financial Reporting
At the time of incorporation, the Hong Kong Companies registry will report the existence of your company immediately to the Internal Revenue Department.
Hong Kong is well known for providing foreign investors various tax benefits, including:
- Corporate tax rate at 8.25% on the first HKD 2 million profits, while 16.% corporate tax rate for all profits moving forward. The country is known to have one of the lowest corporate tax rates in the world.
- No capital gains tax
- No Value Added Tax (VAT)
All tax reporting and submissions should be managed and communicated by your company secretary.
Exemptions for Filing Audited Annual Accounts by the Hong Kong Inland Revenue Department
The following company types are exempted from filing audited accounts with their profits tax return:
- Small companies with total gross income not exceeding HKD 500,000.
- As per Companies Ordinance, dormant companies with no relevant accounting transaction during an entire financial year.
- Incorporated companies in a jurisdiction whose laws does not mandate accounts to be audited and submitted.
- Small companies with total gross income not exceeding HKD 500,000.
- As per Companies Ordinance, dormant companies with no relevant accounting transaction during an entire financial year.
- Incorporated companies in a jurisdiction whose laws does not mandate accounts to be audited and submitted.
Hong Kong Comprehensive Double Taxation Agreements
Hong Kong has entered into Comprehensive Double Taxation Agreements / Arrangements (DTAs) with a number of jurisdictions. DTAs are also referred to as tax treaties. They prevent double taxation and fiscal evasion, and foster cooperation between Hong Kong and other international tax administrations by enforcing their respective tax laws. You will only be affected by a DTA if you are a resident of Hong Kong or the other DTA jurisdiction.
To foster the continuous growth of its economy, Hong Kong has entered into various Comprehensive Double Taxation Agreements (DTAs) with different countries. Also known as tax treaties, provisions are made between Hong Kong and another jurisdiction to prevent double taxation and fiscal evasion. Additionally, Hong Kong’s Double Taxation Agreements (DTAs) were designed to uphold adherence to international tax administration, requiring investors to abide by tax laws in their country of origin.
For instance, Luxembourg institutional or private investors who have incorporated companies in Hong Kong follow avoidance of double taxation rules agreed upon by both Hong Kong and the Grand Duchy. The rules are applicable to taxes imposed on capital and income by one of the two contracting parties, regardless of the manner in which they are assessed.
In the case of Hong Kong, the treaty is applicable for the following taxes levied:
- Profits Tax
- Payroll Tax
- Property Tax
In the case of Luxembourg, the double taxation treaty applies for the following taxes levied:
- Personal Income Tax
- Corporate Tax
- Wealth Tax
- Municipal Business Tax
At present, Hong Kong has signed 40 double taxation agreements with other jurisdictions.
Opening a Corporate Bank Account in Hong Kong
Once a company has been fully registered with the Companies Registry, you may now proceed with opening a corporate bank account. The time it takes to successfully open a bank account will vary from bank to bank.
Stamp Duty for Allotment or Transfer of Shares for a Hong Kong Company
Capital duty refers to stamp duty on shared capital. Stamp duty on share capital in Hong Kong is as follows:
- No stamp duty is payable on the transfer of shares
- Stamp duty is only payable on the transfer of shares in the following instances:
- Transfer through sale or purchase of Hong Kong stocks
- Transfer through way of gifting or being gifted a Hong Kong stock
- Transfer of any other kind
The rate of stamp duty in Hong Kong and the time limit for stamping are as follows:
- For contract note for the sale or purchase of any Hong Kong stock
0.1% of Net Asset Value or consideration, whichever is higher, on every sold contract note and every bought contract note. The stamp duty must be paid within two days after the purchase or sale if it took place in Hong Kong. On the other hand, if the sale or purchase was help outside Hong Kong, stamp duty must be paid within 30 days.
- For transfers by way of gift
HKD 5 plus 0.2% of the value of the stock. The stamp duty must be paid within seven days after completion of the instrument of transfer, if executed in Hong Kong. On the other hand, stamp duty must be paid within 30 days after the execution of transfer, if executed outside Hong Kong.
- For transfer of any other kind
HKD 5 plus stamped duty must be paid after the date of execution, if it happened in Hong Kong, and within 30 days after the date of execution, if outside Hong Kong.
Relevant Licenses and Permits after Hong Kong Incorporation
Your company may not need to secure permits or licenses when doing business in Hong Kong. By rule, Hong Kong allows everyone to engage in every type of business.
Exceptions only apply when permits and licenses are required to protect citizens, such as in the case of safety permit, hygiene permit, and people’s savings permit.
As a top-tier business consulting firm, Damalion advocates for a smooth and hassle-free company incorporation process for investors looking to do business in Hong Kong. Our extensive global service network has extensive knowledge about the process of incorporating every type of legal company structure in Hong Kong. Let our Damalion experts help you incorporate your company, so you can focus on more important things. From the incorporation process, opening a bank account, awareness of double tax treaties to understanding the Hong Kong taxation regime, you can rest assured that we will expertly guide you at every turn. Reach out to a Damalion expert today if you wish to learn more.
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.
