Hong Kong

Basic information

Type of offshore companyPrivate Company Limited by Shares
Amount of share capital1 HKD, may not be repaid
possibility nominee serviceyes
Business Registerpublic
Bearer Sharesno
Tax identification numberyes
Obligation to keep accountsin the event of offshore status being granted, zero income taxation applies to companies
Tax obligationsin the event of offshore status being granted, zero income taxation applies to companies
Difficulty in administration and administrationmoderately difficult
Time establishedwithin 3 weeks

Hong Kong as a tax heaven

Hong Kong is one of the most dynamic and open economies in the world today, and has been ranked as the freest economy in the world by global statistics for many years. With its low levels of bureaucracy, minimal government intervention and low taxation, Hong Kong can confidently be described as a modern, world-class financial centre. The official currency is the Hong Kong dollar (HKD), which is more or less pegged to the US dollar (approx. US$1 = HK$7.75).

The very low level of corruption (compared to other Asian countries), the low tax burden, combined with a quality legal system based on British “common law”, make Hong Kong a very popular settlement destination for many foreign companies. The jurisdiction is mostly used by companies carrying out intermediary activities or companies trading with mainland China.

Despite being a special administrative region of the People’s Republic of China, Hong Kong has extensive autonomy with wide legislative and executive powers (its own laws apply) and is thus almost independent of China’s political machinations. On the other hand, Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) with the People’s Republic of China in 2004. CEPA is a free trade agreement that guarantees Hong Kong companies duty-free access to the Chinese market. This gives China a unique position as a gateway for Hong Kong to trade with mainland China. For this reason, many companies that do business with partners from the People’s Republic of China have their headquarters or headquarters in Hong Kong.

Another important Hong Kong specificity is foreign investment. Foreigners can own up to 100% of the share capital of a company (except for state-owned enterprises and broadcasting companies, where foreign participation cannot exceed 49%). Hong Kong laws ensure freedom of movement of goods, intangible assets and capital. No specific approval procedures are imposed on foreign investment. All companies, regardless of ownership, must comply with the same registration requirements. Hong Kong’s large inflows and outflows of direct investment make it an important international financial centre and trading hub.

Types of companies in Hong Kong

There are three basic types of business entities in Hong Kong, namely Limited Liability Company, Sole Proprietorship and Partnership.

Private Limited Company

The most widely used company and the most important company for offshore purposes in Hong Kong is the Private Limited Company. Due to its many advantages, it is often preferred over other types of legal entities and most small and medium-sized enterprises choose this form.

The share capital is not limited to a minimum amount, but its recommended value is HK$10,000, which is divided into 10,000 shares of HK$1 each. If the share capital exceeds HKD 10,000, it is subject to 0.1% capital duty. The shares are held by the shareholders who are entitled to participate in the profits and the right to receive dividends in proportion to their shareholdings. The shareholders are not liable for the Company’s obligations with their assets.

The company must have at least one director or manager, who need not be a Hong Kong citizen. The number of shareholders may range from one to fifty. It is also an obligation to have a secretary who is resident in Hong Kong. (The secretary cannot be a person who is both a director and the sole shareholder.) The secretary is responsible for overseeing compliance with the requirements and regulations. He is also responsible for managing the company’s accounts. The company’s accounts are subject to a statutory audit. This audit must be carried out by a certified Hong Kong auditor, see the section on Hong Kong and accounting.

The advantages of a Private Limited Company include the fact that shares can be easily transferred to new shareholders without necessarily affecting the running or existence of the company, with uncomplicated bureaucracy. It is also much easier for this type of legal entity to get a loan from a bank than for other types of companies.

Public Limited Company

A Public Limited Company is a type of company more suited to medium and large private companies that have already achieved sufficient growth in the industry to be able to take advantage of the benefits that this type of company brings.

A key feature of Public Limited Companies is that most of them are already publicly traded on the Hong Kong Stock Exchange. This brings with it a number of advantages, in particular the relative ease of raising capital, strong public awareness and the ease with which mergers and acquisitions can be carried out. The downsides, on the other hand, include stricter oversight and regulation in raising capital and underwriting new shares, as well as an overall greater financial and time cost for company formation and management.

Sole Proprietorship

This type of company is considered the simplest and easiest form of business. The entrepreneur, as in the Czech Republic, does business on his own and does not have his own legal entity behind the “company”, and therefore its owner acts on his own behalf and is liable with all his assets. Although this form of business is considered the simplest, it is also considered the riskiest due to the owner’s liability for the “company’s” obligations. It is also difficult to sell or transfer due to the fact that practically only the assets of the ‘company’ can be sold. Despite the fact that the entire profit of the company belongs to the sole owner, this form of business is financially dangerous and is strongly discouraged for new entrepreneurs.

Partnership

Partnerships are divided into a) General Partnership and b) Limited Partnership, with General Partnership being an alternative to a Czech public partnership and Limited Partnership being a variant of a Czech limited partnership. The rules are very similar to the Czech legislation, so we do not consider it important to elaborate on them here.

Hong Kong and its tax regimes

With regard to corporate income tax, Hong Kong applies the territorial principle of taxation, which means that only income derived from Hong Kong is subject to tax. If a company carries on business outside Hong Kong, it will be exempt from tax and can become an offshore company, where it will not have to pay any tax, see the section Offshore status.  If the company has earned income in Hong Kong, it will be subject to taxation at a rate of 8.25 to 16.5 per cent depending on the amount of its income.

Determining where the income was actually earned can sometimes be a problem. There has been much disagreement between taxpayers and the Inland Revenue Department on this subject. The Inland Revenue Department has therefore issued and subsequently revised guidance on how to determine the source of profits for different types of gain. In general terms, however, the criteria under which tax liability arises can be summarised as follows.

A company is only liable to Hong Kong tax if:

  • it has a place of business and employees in Hong Kong
  • the company is at least partly controlled from here
  • it has a customer base here
  • it has suppliers here
  • it stores material for sale here

As for other types of taxes such as value added tax, dividends, interest and inheritance tax, they are all abolished and non-existent in Hong Kong. Hong Kong is also known for the absence of customs duties, which are only imposed on imports of tobacco, alcoholic beverages, methanol and fuel.

Offshore status

The local tax authorities send the “Income Tax Return” form 18 months after the company is registered. At this point, it is necessary to apply for offshore status or tax exemption if applicable = the company will make it clear to the tax authorities that it will only conduct business outside Hong Kong.  Parker & Hill, on the client’s instructions, will apply to the Hong Kong authorities for offshore status. Once the Treasury approves, the offshore status is valid for three to four years. There is a fee for applying for offshore status.

Hong Kong and accounting

The Hong Kong tax authorities send a form entitled “Income Tax Return” eighteen months after the company is registered. This is the point at which “offshore” status should be applied for, if applicable. Therefore, at the time of your company’s anniversary, Parker & Hill will contact you to request the company’s bank statements and all supporting documents for the preparation of accounts and audit for the purpose of tax declarations and filing of Income Tax Returns (PTR) and Employer’s Returns (ER) with the Hong Kong authorities.

Income tax returns must generally be filed within one month from the date on which they are prepared. Failure to file the return within the proper time limit is an offence and is subject to a fine imposed by the authorities. If the company does not carry out any transaction, a “nil” income tax return will be filed.

International contracts

International Conventions Against Money Laundering and the Financing of Terrorismyes
Agreement on the avoidance of double taxation with the Czech Republicyes
Agreement on the exchange of tax information with the Czech Republicno
Multilateral Convention of the Council of Europe on Mutual Administrative Assistance in Tax Mattersyes
OECD White Paperno

Incorporation of a company in Hong Kong

If you are thinking of setting up a company in Hong Kong and are not sure whether you can do it on your own, please do not hesitate to contact us. We can help you set up your ideal corporate structure, explain the tax benefits of doing business in Hong Kong and make sure your company meets all the legal requirements that Hong Kong law requires.

Setting up a company (including apostille and registered office for 1 year) with us costs EUR 2,900 and takes up to 2-3 weeks from the binding confirmation of your order. The annual cost thereafter is €2,300. (Full price list here.)

 

Interested in more?

Complexity

Establishment of the company, its settlement, delivery of apostilled documentation, bookkeeping. All under one agency.

Support

Do you have a foreign company and don’t know if you have fulfilled all your legal obligations? We can help you to check and comply with all government requirements.

Management

Are you dissatisfied with the performance of your directors? Are they not meeting deadlines? Try us.

Fair price

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