Establishing a Hong Kong company
Private, limited by shares
Workaholic is a licensed trust and company service provider, and can manage the establishment and administration of private limited companies for customers' companies globally. We recommend use of a company service provider or professional services firm to assist with the management of legal and governmental obligations, because although Hong Kong laws are comparatively simple, regulation is light touch, and authorities are generally courteous and responsive, some government procedures and systems are unclear and cumbersome.
One-time requirements at time of setup
2. Submission of consent(s) to act as a director, either on paper or online (to be done online, you must already have a certified online account with CR Companies Registry). A fillable form can be found here, and a sample of a filled form can be found here.
3. Articles of association. Model articles of association are available here, though alternate or customised articles are normally recommended for greater ease, clarity, and control of a company's administration.
4. Government incorporation fee of HK$ 1,720, as at 1 Jun 2020.
Other one-time requirements, but not necessarily at time of setup
1. Business registration & levy renewal to the IRD Inland Revenue Department, including payment of fee for both, from the time of incorporation. The Business Registration fee is HK $ 0.00 + a HK$ 250.00 levy to the "Protection of Wages on Insolvency Fund", as at 1 Jun 2020. The business registration certificate is effectively a business license.
2. Annual return submission to the CR Companies Registry. A sample of inputs is shown here. In most cases the annual return is not the accepted method for reporting changes, and an appropriate form must be used to report changes in advance of submitting an annual return with details that differ from the company's NNC1 or a prior annual return (whichever is the more recent). CR Companies Registry forms can be found here.
3. Annual accounts, including an audit by a CPA Certified Public Accountant. Audits can cost as little as HK$ 3,000 for a financial year, in some limited circumstances.
1. At least 1 director, who must be a person (natural individual), but can be a foreigner and can be non-resident. For a small business, this will normally be an owner (member) of the business, and for a larger business this will normally be an officer of the company or its group who might not be an owner (member/shareholder). As there are substantial responsibilities required of a director, many professional service firms will not provide a director service, and those who do may charge substantial fees and the employment of a director may be costly.
2. At least 1 company secretary resident in Hong Kong. The company secretary can be a company or person (natural individual).
3. A Hong Kong address for use as the company's registered address.
4. Notifications of changes of particulars, to CR Companies Registry, and possibly to the IRD Inland Revenue Department where changes do not fall under "One-stop Notification of Change of Company Particulars" services, for changes including but not exclusive to company, director, company secretary, and member details.
1. A company can have an English name or Chinese name or both.
2. A limited company must normally include Ltd or Limited at the end of its name.
Information that is published publicly, or kept private by government
Most standard company forms submitted to Companies Registry will be published online, viewable and downloadable globally and publicly (a nominal fee normally applies to obtain the data). Addresses, phone numbers, email addresses, full names, and sometimes unique tax identification numbers of directors, secretaries, and members, may also be publicly available. Annual accounts of a company must be submitted to the IRD Inland Revenue Department but are not ordinarily published by Companies Registry, and so the timing of filing of accounts, and details of accounts, are normally private.
In many cases, firms offering company services will need to receive identification and declaration documents from directors, secretaries, and members, and those who are being provided nominee director or nominee member services.
Hong Kong is a participant of the OECD's CRS Common Reporting Standards and MCAA Multilateral Competent Authority Agreement, and has a US Department of the Treasury model 2 intergovernmental agreement with the US as a result of FATCA, the Foreign Account Tax Compliance Act of 2010, which was made US law as part of the Hiring Incentives to Restore Employment Act of 2010. Non US residents, non US green card holders, and non US citizens may wish to proactively (though some financial service providers will ask for the submissions of such forms on account setups and routinely thereafter) submit a W-8BEN to financial service providers for, amongst other purposes, being allowed particular accounts and being recognised as exempt from certain US witholding taxes.
Starting and administering a company remotely, including online, and whether it is necessary to visit Hong Kong
A company can be incorporated in Hong Kong without its establishers ever visiting, and often incorporating prior to a visit is recommended, for those who plan to visit or move to Hong Kong.
However, at least the following require consideration:
1. An original physical signature on paper may be required and need to be posted to Hong Kong for some documents, such as an individual's consent to act as a director.
2. The above may be avoidable where an individual consenting to be a director, already has a certified online account with CR Companies Registry. This can be achieved by gaining notarisation from a Hong Kong professional, or for free by visiting the CR Companies Registry in Hong Kong in person.
3. Opening a bank account will likely not be possible without the visit to Hong Kong of all company directors and all members who hold at least 25% of the shares in a company. It may in any case be in the best interests of the company, including for ease, to open a bank account for the company in an alternate jurisdiction.
Main constitution(s), statute(s), laws, and languages governing Hong Kong
Case law and rules of equity
Chinese customary law
Article 9 of the Basic Law states that "In addition to the Chinese language, English may also be used as an official language by the executive authorities, legislature and judiciary of the Hong Kong Special Administrative Region." The majority of government communications and publications are available in both languages. Government staff will normally be competent in both languages, though some lawyers might be capable of practice in only one language, and cases at court may be heard in a language appropriate to a case or court, and typically at the discretion of its magistrate or judge(s). Naturally, some case law is Cantonese and some is English. Translations of judgements are available to a large degree but are not guaranteed to be available in all cases, particularly from cases in lower courts.
Operate in other jurisdictions with a Hong Kong company
Many substantial markets in the world allow the sale of goods and services into their jurisdiction, but foreign sellers may still be subject to, especially, product and service regulations and licenses, sales and value added taxes, reporting, and more. Such requirements are often applicable equally to local companies, and foreign companies from a range of jurisdictions, this is a factor that businesses would likely have to consider and make provision for, regardless of their place of business.
Headline advantages of establishing a business in Hong Kong
Hong Kong has a large body of highly skilled and naturally multi-lingual people. The legal system and changes to it are relatively transparent, planned, and predictable. The jurisdiction also has substantial corridors to and ties with a large number of other jurisdictions, that share double taxation treaties and other methods of recognition to ease business. The city's infrastructure is one of the best in the world, including low cost and high quality options for people and freight, helped by its substantial road and subway system, natural deep water port, and convenient and significant aviation operations. The location of Hong Kong is convenient for serving multiple time zones, and direct high quality flights are available to all major cities of the world, including the west and east coasts of the USA, all of Europe, Africa, Australasia, and Asia. And for those who may need to bring additional skills to operate their business in Hong Kong, the visa and residency regime is typically fast, simple, and low cost.
Other jurisdictions with such capacity will have much greater social or regulatory restrictions or higher tax burdens, and jurisdictions with low tax rates or regulation will not have substantial operating capacity or redundancy or security. Hong Kong, in many cases, allows companies to not have to make such substantial trade offs.
Tax liabilities, tax reporting obligations, and tax residency
If Hong Kong limited companies prepare their tax returns on the basis of being tax resident in Hong Kong, the IRD (Inland Revenue Department) will likely accept this at face value without challenge. However, if claiming that a company is operating locally, it may be necessary for members, directors, and other staff of the company to take visa precautions if visiting Hong Kong to avoid breaches of immigration laws. For years of assessment ending after 2018 onwards, the corporation tax rate is 8.25% on assessable profits up to HK$ 2 million and 16.5% on any further profits.
Even where a Hong Kong company is subject to Hong Kong Profits Tax, the company's foreign income may be separated and exempt from Hong Kong Profits Tax, meaning an effective rate on foreign proportions of profit amounting to 0%.
Capital gains tax, for both companies and natural individuals in Hong Kong, including from dividends, is typically 0%.
Hong Kong does not have a general sales tax, or goods and services tax, or value added tax system. For most businesses, reports to government bodies, including financial accounts, are only necessary annually. In some cases where a business has reported losses, it might automatically receive an IRD Inland Revenue Department notice of exemption from needing to file annual accounts until further notice, and the IRD Inland Revenue Department might not send a profits tax reporting and payment demand notice to a company for multiple years. Whilst this can give a company more time and ease its burden for preparing financial accounts, it is normally recommended that a firm continues to process its financial accounts as normal, including the preparation of audits, as the IRD Inland Revenue Department will likely require financial accounts for all periods at some point, and it may require them at short notice. Furthermore, a company may have an obligation to notify the IRD Inland Revenue Department of a change in circumstances where a company's subsequent activities or accounting adjustments have resulted in a profit, rather than loss.
An application can be made to the IRD Inland Revenue Department for a Certificate of Residence Status, available here.
Main private limited company administration regulators in Hong Kong
For company registrations, CR Companies Registry, similar to CH Companies House in the United Kingdom, or ASIC Australian Securities and Investments Commission in Australia.
For tax, IRD Inland Revenue Department, similar to HMRC Her Majesty's Revenue and Customs in the United Kingdom, or the ATO Australian Tax Office in Australia.
Recognition of expenses before commencement of business
Expenses for a date prior to commencement of business, and expenses for a date prior to a company's incorporation date, generally cannot be included as tax deductible expenses in a company's financial accounts.
Option to remain dormant before operations begin
An incorporated company in Hong Kong that is not operating may choose to submit a notice of dormancy to the IRD Inland Revenue Department instead of financial accounts, which can potentially save some accounting and audit costs.
Cost-benefit of establishing a business in Hong Kong
Generally, the larger the business, the greater the benefit it is likely to realise, though some business owners can realise a net benefit from operating a Hong Kong company even where revenues or profits are as little as US$ 50,000.
Personnel, including employment and migration
Employees pay their own taxes from employment as part of their own tax returns, though companies must register employments and run standard payroll processes for employees. Minimum pension payment requirements normally apply and often need to be paid directly to pension funds by employers.
For companies that need to bring staff to Hong Kong to work in long term positions, the company and individual has to satisfy some relatively simple objective and subjective requirements. As part of this it will be necessary for an employer to show sufficient evidence that the skills being employed cannot be found locally, the employee must be able to contribute positively to the economy of Hong Kong, and generally a contracted salary will need to be sufficiently high to help evidence the prior point.
Alternate ways to conduct business in Hong Kong
To conduct business or liaison activities in Hong Kong, business visitors are allowed, sometimes without the need for a visa application, depending on the nationality of a visitor. A branch office of a foreign company can be registered, a representative office can be registered, and sole proprietorships, partnerships, and limited liability partnerships may be established. Private companies can also be established and limited by guarantee, but in such cases, profit distribution to members may be limited or not possible.