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Hong Kong

Hong Kong

Hong Kong company formation, types of companies and taxes

Hong Kong is a vibrant and densely populated international financial centre with a simple tax system. With a skyline dotted with skyscrapers, it is a major global free trade port and a global financial centre.

This jurisdiction has one of the most liberal and competitive economies in the world. Hong Kong is also one of the safest and most convenient places to do banking. It is home to some of the world’s soundest banks, with the highest levels of solvency and liquidity.

Capital: Hong Kong
Official language: Cantonese, Mandarin, English
Currency: Hong Kong Dollar (HK$)
Population: 7.552.810 (2021)
Tax system: Base rate 6% (max 17%)
VAT: None
Average salary:  3.353 € (2019)

Opening a company in Hong Kong

Hong Kong is a famous jurisdiction for opening companies, a powerful vehicle for international trade, start-ups, Internet entrepreneurs, investment activities, intellectual property holdings and as a holding company. It is also the gateway to one of the world’s largest and fastest growing markets, China.

The reasons why this Asian region is recognised as a successful business centre include location, a reliable political environment and economy, a business-friendly tax and trade approach, a world-class infrastructure and a productive legal system.

Hong Kong is one of the world’s most dynamic economies and an international financial centre. Railways, logistics, airports, telecommunications are the sectors that boost the economy’s rapid and evolving growth:

  • Information and technology
  • E-commerce
  • Hardware
  • Financial technology
  • Professional services
  • Data analysis

Why Hong Kong?

Hong Kong’s strategic location is one of the reasons why you should choose to set up a company right in the heart of Asia. A flight of just a few hours will connect you to most markets in the Asia-Pacific region, Beijing, Shanghai and other major Chinese cities.

Principles of free enterprise, free trade and free markets open to all have accelerated a robust economy that has contributed to GDP growth at an average annual rate of 5% in real terms over the past two decades.

There are no restrictions on inward or outward investment, no foreign exchange controls and no restrictions on foreign ownership. Intellectual property is protected with strict regulations in place.

There are various dispute resolution channels available to companies. Foreigners wishing to set up a business in Hong Kong can easily relocate by applying for an appropriate work visa.

These factors, which continue to contribute to its success, have propelled Hong Kong to the top of the most prestigious surveys and the most popular offshore destination as shown below:

Classification category Hong Kong ranking  Source
The best financial system in the world 1 World Economic Forum: Global Competitiveness Report 2019
The world’s best global financial centre 3 (1 in Asia) The 2019 Global Financial Centres Index
The world’s leading investment centre for FDI (Foreign Direct Investment) flows in Asia 3 UNCTAD (United Nations Conference on Trade and Development): World Investment Report 2020
Best location for IPO (Initial Public Offering) and M&A (Mergers & Acquisitions) activity in Asia Pacific 1 Baker Mckenzie and Oxford Economics: Global transaction forecast 2019
The fastest place in the world to start a business 5 World Economic Forum: Global Competitiveness Report
Best countries for business 3 Forbes list, 2019

Advantages

Hong Kong’s dynamic economy is the main reason why you should start a business in Hong Kong. The economic freedom of this country ranks first both regionally and internationally. The following advantages contribute to this freedom

  • Business-friendly tax system that allows profits to be maximised
  • Tax exemption at source
  • No VAT on imports, no property tax and no tax on dividends and interest
  • Easy company set-up and transparent ongoing compliance
  • World-class infrastructure and good supply of high-quality manpower
  • Protection of private customer data through a secure system
  • Effective legal system
  • Reduced business risk
  • International business hub

Incorporation of companies

The incorporation of a company in Hong Kong is done by filing an application with the Hong Kong Companies Registry and the company’s articles of association and memorandum of association.

The law requires that the place of the registered office of the company be indicated within 14 days from the date of incorporation. The time for registration varies between one and 7 days from receipt of the necessary documents.

Documents required

In order to set up a Hong Kong limited liability company, the following documents are normally required:

  • Name of the company
  • Copy of the company’s articles of association
  • Registered address
  • Details of shareholders, directors and company secretary
  • Responsibilities of members
  • Share capital registered on incorporation
  • Number of shares subscribed by the subscribers
  • The Annual General Meeting (AGM) should be held every year during the same calendar year.

For non-resident shareholders and directors is required:

  • Copy of passport, proof of address of residence abroad

For resident shareholders and directors:

  • Copy of Hong Kong identity card
    Copy of proof of residence address

For shareholders and company directors:

  • Copy of the registration documents of the parent company such as certificate of incorporation and articles of association

Note: officially certified translated versions must be provided for all non-English language documents.

How to open a bank account

Once you have completed the steps to register your company in Hong Kong, you can start to consider how to open a bank account in one of the banks in Hong Kong. Initially there will be some sort of interview with the banks asking for personal and non-personal information, such as what kind of work you have done, what you do in China and other professional information.

The Chinese bank may also ask for bank references, which can be avoided by demonstrating the parameters of average deposits from your Italian bank. Hong Kong, an administrative region in the south of China, is also one of the safest and most convenient places to do banking.

Below are the main documents required to open a bank account:

  • Director’s passport (original)
  • Proof of residence address
  • A detailed business plan
  • The annual return (original)
  • Business incorporation documents: company registration, certificate of incorporation, mergers and acquisitions, and register books.
  • Commercial evidence, such as contracts, quotations, suppliers’ invoices or customers’ payments.

Banks will take it as favourable if the company demonstrates stable cash flow, a verified bank account and frequent business activity.

Taxes in Hong Kong

Hong Kong boasts of being one of the lowest tax jurisdictions in the world. The tax regime offered by the Hong Kong government is one of the main reasons why companies are expanding their business to Hong Kong. Only profits derived from Hong Kong are subject to taxation.

Personal income tax, or payroll tax, starts at 2% and goes up to 17% for incomes above HKD 200,000. Companies have two options for tax rates on profits:

  • Corporate tax (or profits tax as it is called), is set at 16.5% of taxable profits for companies established in Hong Kong
  • 15% for companies without legal personality.

On the first HKD 2 million of assessable profits the rate drops to 8.25% for corporations and 7.5% for unincorporated enterprises. There is no tax on capital gains, no withholding tax on dividends and interest or collection of social security benefits.

Types of companies

There are several types of commercial companies that can be incorporated in the Hong Kong Special Administrative Region. They are the Private Limited Company, the Sole Proprietorship, the Partnership, the General Partnership and the Foreign Companies Office.

Limited liability company

A limited liability company has its own legal identity, distinct from its members. This allows the company to acquire assets, incur debt, enter into contracts, sue or be sued in its own name. It has a share capital divided into a number of shares of a certain value each.

These shares are held by shareholders (investors) who are entitled to a share in the company’s profits and receive a dividend corresponding to their percentage of ownership in the company.

The shareholders’ liability is limited to the amount of their respective shareholdings or investments. In the event of a loss, the shareholders will see their investment in the company’s shares evaporate.

Sole proprietorship

Suitable for small, low-risk businesses with a single owner, the sole proprietorship is very easy to create. However, this is not a recommended business structure for entrepreneurs as it does not constitute a separate legal entity and does not protect the owner’s personal assets from business liabilities.

Partnership

A partnership is a business structure that allows two or more people to share ownership of a single company, sharing responsibilities which increases the ability to raise funds to carry on the business in a profit-sharing manner.

However, partners are jointly and individually liable for the actions of the other partners. Partnerships in Hong Kong are governed by the Partnerships Ordinance and are of two types: general partnerships and limited partnerships.

General partnership

Like sole proprietorships, general partnerships make each partner of the firm personally liable for the debts and liabilities of the firm. In addition, each partner can be held liable for the acts of another partner (provided that such acts were carried out in the course of the partnership).

Limited partnership

Limited partnerships have both general and limited partners. A general partner has unlimited liability for the debts of the business and is responsible for the day-to-day management of the business, while the liability of limited partners is limited to the amount of their unpaid share capital. Limited partners may not participate in the management of the company.

Foreign Companies Office

Foreign companies interested in establishing an office in Hong Kong can register a branch or representative office.
Foreign companies wishing to establish a commercial presence in Hong Kong can do so by setting up a branch or representative office in Hong Kong.

VAT in Hong Kong

There is no VAT number in Hong Kong, you do not need to have any VAT number or business registration on your invoices.

Why rely on Ukincorporation.co.uk?

Ukincorporation.co.uk is a GR Morgan Formations company for entrepreneurs who wish to take their business abroad or develop a new business.

With over 10 years in the market, the GR Morgan Formations team offers its expertise in international taxation. In addition to setting up companies in the UK and other jurisdictions, it offers a range of services, from a virtual office in London to administration and accounting services, to opening a bank account.

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