Why set-up Business in Hong Kong
Year after year Hong Kong is constantly ranked by many publications as one of the best cities in the world to do business.
Hong Kong is one of the premier business and financial centers in the world. It's stability, mature rule of law, and stable political arena, a renowned banking center, free trade, no restriction on currency transfers, openness and established financial and capital markets makes it the premier location to carry on business, either in Hong Kong or as the base for operation in Asia, the Asia Pacific Rim and as stepping stone into China.
The low tax rates and territorial based tax together with it being a free economy makes it a very favourable location for conducting business and as a regional headquarters for Asia. Hong Kong companies are also well established as companies trusted by many other jurisdictions and the openness of its corporate structure makes people want to do business with Hong Kong companies.
How to set up a business in Hong Kong
There are a number of ways in which a business may be established in Hong Kong, whether, for example, as an incorporated business, partnership or sole proprietorship.
1. The partnership or sole proprietorship business
As you may already be aware, such businesses are unincorporated and have unlimited liability.
Such a mode of commencing business can be commenced almost immediately with little formality. You need only to apply to the Business Registration Office of the Inland Revenue Department for a Business Registration Certificate, within one month of commencement of the partnership or sole proprietorship business.
Such a manner of conducting business is very simple and lacks much of the strict formalities of an incorporated business, such as calling board meetings, passing of board resolutions, seeking shareholder approvals, etc., and thus making it very flexible and very personal. Much of the compliance and annual filings associated with a limited liability company is also dispensed with.
From a taxation perspective, you will be taxed at the rate of 15% per annum, as to 165% for an incorporated entity, or you can elect to pay individual taxation and take the benefit of personal allowances and deductions.
The only disadvantage of such a method of conducting is business is that the liability of the business would be personal and unlimited.
2. The incorporated business
The incorporated business is often referred to as the “limited liability company”. The advantage of the limited liability company, is as the name goes, limited. The shareholders are not liable for the debts of the company. They are only liable to the extent that the amount that they agreed to pay the company for their shares are paid up in full.
Incorporated businesses in Hong Kong can be either Hong Kong incorporated companies or foreign companies.
Foreign companies must be registered as an “overseas company” under the Companies Ordinance and apply for a Business Registration Certificate.
Hong Kong Company
A Hong Kong Company, is only required to have at one shareholder, one director, one company secretary and a designated representative, any of which may be individuals or corporations.
An incorporated business in Hong Kong must file an annual return every 12 months from the date of its incorporation and register itself as a business by obtaining a Business Registration Certificate, renewable annually.
In addition, a corporation is subject to Profits Tax at a rate of 8.25% for the first HK$2 million and the thereafter at 16.5% of the balance of the profits, with no tax free threshold. However Profits Tax is only chargeable in respect of profits originating in Hong Kong and if the management was based in Hong Kong. Therefore if your revenue was generated offshore and the management is based offshore, then revenue generated outside of Hong Kong will generally not be subject to Hong Kong taxation.
Overseas Company
An overseas company is basically a company incorporated in another jurisdiction and trading in Hong Kong.
An overseas company need only apply for registration as such with the Companies Registry for such a status.
In addition an overseas company is also required to:
Registration as an overseas company may be beneficial where the name of business is well known so as to keep its identity.
Hong Kong is one of the premier business and financial centers in the world. It's stability, mature rule of law, and stable political arena, a renowned banking center, free trade, no restriction on currency transfers, openness and established financial and capital markets makes it the premier location to carry on business, either in Hong Kong or as the base for operation in Asia, the Asia Pacific Rim and as stepping stone into China.
The low tax rates and territorial based tax together with it being a free economy makes it a very favourable location for conducting business and as a regional headquarters for Asia. Hong Kong companies are also well established as companies trusted by many other jurisdictions and the openness of its corporate structure makes people want to do business with Hong Kong companies.
How to set up a business in Hong Kong
There are a number of ways in which a business may be established in Hong Kong, whether, for example, as an incorporated business, partnership or sole proprietorship.
1. The partnership or sole proprietorship business
As you may already be aware, such businesses are unincorporated and have unlimited liability.
Such a mode of commencing business can be commenced almost immediately with little formality. You need only to apply to the Business Registration Office of the Inland Revenue Department for a Business Registration Certificate, within one month of commencement of the partnership or sole proprietorship business.
Such a manner of conducting business is very simple and lacks much of the strict formalities of an incorporated business, such as calling board meetings, passing of board resolutions, seeking shareholder approvals, etc., and thus making it very flexible and very personal. Much of the compliance and annual filings associated with a limited liability company is also dispensed with.
From a taxation perspective, you will be taxed at the rate of 15% per annum, as to 165% for an incorporated entity, or you can elect to pay individual taxation and take the benefit of personal allowances and deductions.
The only disadvantage of such a method of conducting is business is that the liability of the business would be personal and unlimited.
2. The incorporated business
The incorporated business is often referred to as the “limited liability company”. The advantage of the limited liability company, is as the name goes, limited. The shareholders are not liable for the debts of the company. They are only liable to the extent that the amount that they agreed to pay the company for their shares are paid up in full.
Incorporated businesses in Hong Kong can be either Hong Kong incorporated companies or foreign companies.
Foreign companies must be registered as an “overseas company” under the Companies Ordinance and apply for a Business Registration Certificate.
Hong Kong Company
A Hong Kong Company, is only required to have at one shareholder, one director, one company secretary and a designated representative, any of which may be individuals or corporations.
- The shareholder need not be Hong Kong residents and can be corporations incorporated in Hong Kong or elsewhere.
- A director may be either an individual or a corporation, however, a company must have at least one individual director, although that director need not be based in Hong Kong.
- The company secretary, however, must be either a Hong Kong corporation or an individual based in Hong Kong. However, if the company has only one shareholder and that shareholder is also the director of the company, then, the company secretary cannot be the same person.
- A designated representative is required to maintain the register of significant controllers. The designated representative must be either (i) a director of the company, (ii) a shareholder of the company, (iii) a legal professional (iv) an accounting professional or (v) a Trust and Company Services Licensee.
An incorporated business in Hong Kong must file an annual return every 12 months from the date of its incorporation and register itself as a business by obtaining a Business Registration Certificate, renewable annually.
In addition, a corporation is subject to Profits Tax at a rate of 8.25% for the first HK$2 million and the thereafter at 16.5% of the balance of the profits, with no tax free threshold. However Profits Tax is only chargeable in respect of profits originating in Hong Kong and if the management was based in Hong Kong. Therefore if your revenue was generated offshore and the management is based offshore, then revenue generated outside of Hong Kong will generally not be subject to Hong Kong taxation.
Overseas Company
An overseas company is basically a company incorporated in another jurisdiction and trading in Hong Kong.
An overseas company need only apply for registration as such with the Companies Registry for such a status.
In addition an overseas company is also required to:
- obtain a Business Registration Certificate in order to carry on trade in Hong Kong;
- file an annual return with the Companies Registry as well as other documents generally required in respect of Hong Kong companies; and
- file tax returns.
Registration as an overseas company may be beneficial where the name of business is well known so as to keep its identity.