Hong Kong is popular with foreign entrepreneurs who have business interests in the Asia-Pacific region. They register companies in the jurisdiction thus maximizing their profits.
Even though Hong Kong is not an independent country (its official name is Hong Kong special administrative district of the People’s Republic of China), its legislation differs greatly from the legislation in mainland China, as it is based on British law.
Besides, Hong Kong has its own currency: it is not the yuan but the Hong Kong dollar (HKD). The official languages in the jurisdiction are English and Chinese.
Hong Kong is a widely recognized trade and business center in the Asia-Pacific region. Its main trade partners are China, the USA, Japan, Great Britain, and Taiwan.
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Advantages that Hong Kong Offers to International Entrepreneurs
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Many international business people choose to set up companies in Hong Kong because it is one of the most prestigious business jurisdictions.
- For many years, Hong Kong has been at the top of various business ratings including the ease of doing business and economic freedom;
- Companies doing business outside Hong Kong do not have to pay any taxes in the jurisdiction;
- Even if a company performs business operations in Hong Kong, the highest income tax that it may have to pay is 16.5%;
- Hong Kong is NOT an offshore jurisdiction in the bad sense of the word. Namely, it is not blacklisted in most of the counties.
Forms of Company Ownership in Hong Kong
In accordance with the Companies Ordinance, a company registered in Hong Kong can have one of the following forms of ownership:
- A Private Company Limited by Shares: The capital of the company is divided into ownership shares. The company cannot have more than 50 shareholders. The company cannot be listed on stock exchanges. Transfer of shares from one person (company) to another is regulated by the company By-laws, as a rule.
- A Public Company Limited by Shares: This is also a limited liability company whose capital is divided into shares. However, there are no restrictions as to the number of shareholders and such a company can be listed on stock exchanges.
- A Company Limited by Guarantee: The liabilities of the company members are limited by their guarantees. The company capital is not divided into ownership shares.
- An Unlimited Company: As the name suggests, the company owners have unlimited liabilities.
- A Limited Partnership: The company can have not more than 20 Partners. The Partners can be natural persons of any nationality or legal entities registered in any country of the world. Liabilities of Limited Partners are limited by their contributions to the company capital.
Registering a Company in Hong Kong: Key Requirements to Meet
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A foreign entrepreneur wishing to establish a company in Hong Kong has to bear the following factors in mind:
Company Directors and Shareholders in Hong Kong
- Company directors and shareholders: all Hong Kong-registered companies shall have at least 1 director and 1 member. A sole director cannot simultaneously act as a company secretary. At least one company director has to be a natural person and other directors can be legal entities. This does not apply to public companies and companies limited by guarantee, however.
- Accessibility for all nationalities: Company members and directors can be of any nationality. They can also be residents of any country.
- Public information: Personal information about company members and directors is publicly available through the Company Register in Hong Kong.
- ‘Shadow director’ concept: The law allows companies registered in Hong Kong to have ‘shadow directors’. A shadow director is a person who directs the activities of registered company directors.
Shareholders’ Liabilities and Company Capital
With most forms of company ownership, liabilities of company shareholders are limited regardless of the fact if the registered capital is deposited or not. Because the amount of the annual company registration fee depends on the amount of the declared registered capital, most companies in Hong Kong register 10,000 HKD. If the company issues shares, it has to issue at least two shares with the nominal value of 1 HKD each.
Register of Controlling Parties
A controlling party is a person or a company that owns more than 25% of the company shares directly or indirectly. Unlike the company director and shareholder register, the register of controlling parties is not public. In accordance with the law, the information that the latter register contains can be shared only with some Government officials in Hong Kong on their request.
Registered Company Office
Any company registered in Hong Kong shall have a registered office in the jurisdiction. In addition to that, each company shall have a local Secretary. A person or a company can act as a company Secretary but it has to be a resident of Hong Kong in any case. The company Registration Certificate, the shareholder register, the director register, and the register of controlling parties shall be kept at the company office in Hong Kong.
Company Name in Hong Kong
Some restrictions apply to the names of the companies that can be registered in Hong Kong.
- Restricted words and phrases: the name of the company cannot suggest that the company is somehow connected with the state authorities. Such words as Royal or Federal, for example, are prohibited. If the company name suggests that it is involved in some sort of financial services, the company has to apply for a license in Hong Kong.
- Language options: The company name can be only in English, only in Chinese or in English and Chinese simultaneously. No other language options are available.
- Company name uniqueness: A company cannot be registered in Hong Kong under the name of an already existing company.
Corporate Taxes in Hong Kong
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It is important to understand the tax regulations applied in Hong Kong when registering a company there. The territorial tax system is applied in Hong Kong, which is one of the most attractive factors for international businesspeople establishing companies in the jurisdiction.
Territorial Taxation Principle
The following general rule applies in Hong Kong: only the profit made inside the jurisdiction is taxed there. If a company derives profits from abroad, it can be tax-exempt in Hong Kong. However, the company owners/directors have to be able to supply conclusive evidence that the company profit has come from a foreign country.
Taxes on Profits Made in Hong Kong
Company income less costs is taxed in Hong Kong if the income has been made in the jurisdiction. Dividends and interests paid by Hong Kong-based companies to non-residents of the jurisdiction are exempted from withholding tax.
Tax Rates in Hong Kong
- If the company profit obtained in Hong Kong does not exceed 2 million HKD (approximately 255,000 USD), the tax rate is 8.25%.
- When the profit exceeds this threshold, the tax rate is 16.5%.
Even though Hong Kong is not an offshore zone, it can be referred to as a low-tax jurisdiction.
