A former British Colony but now part of the Republic of China, Hong Kong is considered a major international centre for business. Located on the south east coast of China it became part of China on the 1st of July 1997. Hong Kong is classified as a Special Administrative Region (SAR) within the Republic of China and has retained its own legal system. The legal system in Hong Kong is, unsurprisingly, based on the British system with the official languages being English and Chinese.
There is no ‘offshore’ legislation in Hong Kong, all companies are incorporated under the same legislation regardless of whether they do business on or offshore. However companies that do not derive any income from sources in Hong Kong are not subject to tax thereby effectively making it an offshore company in all but name. An excellent infrastructure and strong regulatory frame work are contributors to the success of Hong Kong as a major destination for business.
Hong Kong is one of the world most established and reliable financial centres. The economy in Hong Kong is considered to be one of the freest in the world (as measured by the Index of Economic Freedom) therefore it is an excellent jurisdiction in which to incorporate a company.
Advantages of incorporation in Hong Kong:
- Hong Kong is a major trading entity and therefore the incorporation of a Hong Kong company is likely to be perceived as ‘legitimate’ and therefore less likely to be seen as a tax avoidance/minimisation vehicle.
- English is an official language and is the main business language. All reporting information and documentation can be produced in English.
- The Hong Kong tax system is simple and straight-forward.
- There are no restrictions on the use of foreigners as Shareholders or Directors at a Hong Kong company.
- Corporate Director and Secretary are allowed.
- The incorporation of a Hong Kong company is simple and quick.
- Low cost of incorporation and maintenance.
- No minimum requirements for share capital.
- Only one Director and Shareholder is required to form a limited liability company.
- Due to the system of territorial taxation foreign source trade profit is not subject to Hong Kong income tax.
- There is no capital gains tax in Hong Kong.
- There is no withholding tax on interest, dividends and royalty.
- Foreign dividends are not subject to Hong Kong income tax.
- Tax credits for foreign tax paid are available in Hong Kong, however it is a subject to some conditions.
- There is no net worth tax in Hong Kong.
- Hong Kong has an excellent banking system and communications infrastructure.
Summary of requirements for a Hong Kong company:
|Type of company:||Private limited company|
|Timescale to incorporate:||Approximately 10 working days|
|Double tax treaty access:||Yes|
|Minimum No. required:||1|
|Local Director required:||No|
|Publicly accessible information:||Yes|
|Location of meetings:||Anywhere|
|Minimum no. required:||1|
|Publicly accessible information:||Yes|
|Location of meetings:||Anywhere|
|Local Secretary required:||Yes|
|Registered office required:||Yes|
|Standard authorised:||10,000 split into shares of 1.00 HKD|
|Minimum paid up capital:||Total must be paid up within 3 months|
|Accounting & compliance|
|Requirements to prepare accounts:||Yes|
|Requirement for audit:||Obligatory|
|Local Auditor required:||Yes|
|Requirement to file accounts:||Yes|
|Requirement to file annual return:||Yes|
|Bank account opening:||Bank accounts can be opened in Hong Kong however presence is required and it can be a difficult process|
Tax and accounting regulations
Tax and accounting regulations in Hong Kong
Although Hong Kong is considered by many to be an ‘offshore’ jurisdiction this is not the how the government classifies it. It is instead a low tax area with a territorial tax system. The tax laws are relatively simple therefore Hong Kong can be summarised as having an advantageous low tax rate coupled with a territorial tax system.
Corporation tax: The corporation tax rate is currently 16.5%.
Income tax: Hong Kong operates territorial taxation principle so any income earned outside of Hong Kong is not a subject to Hong Kong income tax. Taxpayers are taxed not on a residence status but on territorial principle i.e.: where profit was earned.
Foreign source income is exempt from income tax in Hong Kong. Income is not considered to be derived from Hong Kong if:
- A contract is concluded and signed outside of Hong Kong.
- Services are rendered outside of Hong Kong.
- Capital is employed outside of Hong Kong.
- Title of goods is passed outside of Hong Kong.
- Payment of expenses incurred in provision of services or delivery of goods is done outside of Hong Kong.
- The location where goods are stored and maintained is outside of Hong Kong.
- Hong Kong income and deemed Hong Kong source income is subject to income tax.
If any of the above activities are performed in Hong Kong then the revenue generated will be classified as Hong Kong income and therefore subject to income tax.
It is worth noting that the purchase or sales of commodities manufactured in Hong Kong is treated as a Hong Kong based income. Trade in commodities is considered as wholly offshore or onshore for a tax assessment purpose so even a small amount of trading activity in Hong Kong leads to the whole profit classified as originating onshore and therefore subject to Hong Kong income tax. With regards to the issue of agency agreements, the source of income is where duties are performed.
Capital gain tax (CGT): There is no capital gains tax in Hong Kong.
Withholding tax: Royalty income received from Hong Kong source is subject to income tax however generally there is no withholding tax on interest paid to non-residents.
Dividends: Dividend income is excluded from income tax and is no withholding tax on outgoing dividends.
Capital duties: Capital duty on increase of share capital is 0.01%.
International aspects of Cyprus taxation:
- Anti-avoidance regulation: Hong Kong tax code replicates the Australian Income tax model for anti-avoidance rules.
- Transfer pricing: There is specific transfer pricing legislation in Hong Kong which is based on 1918 UK tax regulation.
Double taxation treaties:
Until June 2001 Hong Kong had no comprehensive double taxation treaties in place. This was due to the territorial tax system that operates whereby only income / profit sourced in Hong Kong is subject is subject to tax. Income derived from outside Hong Kong is not taxed in Hong Kong. This principle therefore negates the need for double taxation treaties.
The Hong Kong Special Administrative Region Government however does recognise that there are merits in concluding double taxation agreements as it will provide advantages such as a greater certainty to investors on taxing rights, help investors to assess potential tax liabilities on certain economic activities and provide an incentive for overseas companies to do business in Hong Kong. In April 2010 the Commissioner of Inland Revenue of Hong Kong stated that the territory had entered into a new phase and would be actively be pursuing agreeing double taxation agreements with a number of countries. Under Article 151 of the Basic Law the territory can negotiate its own double taxation treaties independently from China as Hong Kong has the right to maintain an independent taxation system free from interference from the mainland until 2047.
Double taxation agreements are currently in force between Hong Kong and the following countries:
|Jurisdiction||Entry into force date|
In March 2010 Hong Kong signed treaties with Brunei, the Netherlands and Indonesia.
Double taxation agreements between Hong Kong and the following countries await ratification: Austria, Hungary, Ireland, Kuwait and the UK.
If you would like additional information on Hong Kong double taxation agreements please contact us.
Annual reporting requirements:
- All Hong Kong companies are required to keep accounts.
- Accounts are required to be audited on an annual basis.
Opening a bank account in Hong Kong:
Service Pro work with the following Hong Kong banks:
Company administration guidelines
- Shareholders of a Hong Kong company must subscribe for at least for one share to start the Hong Kong incorporation process.
- A Hong Kong company can issue the following classes of shares; ordinary shares and preference shares.
- Share premium is allowed in Hong Kong. However, share premium is a subject to capital duty of 0.1%.
- Proper instrument of share transfer is required to register the transfer of shares in a Hong Kong company.
- The minimum number of Shareholders is one and there are no restrictions on foreign individuals or corporate bodies being Shareholders.
- The number of Shareholders of private company is limited to 50.
- Nominee Shareholders are permitted.
- The minimum number of Directors is one.
- There is no restriction for foreign nationals to act as a Director of a Hong Kong company.
- Corporate Directors are permitted in Hong Kong.
- An annual general meeting of Directors can be held outside of Hong Kong.
Restrictions on name & activity:
- All business entities in Hong Kong must have an approved name prior to company registration. This can be done relatively quickly.
- A Hong Kong company name must end with ‘Limited’.
- There are no onerous restrictions on trading other than the inability to undertake banking and insurance activities.
- Every company in Hong Kong is required to have a registered office where a register containing details of any Directors, Shareholders or company Secretary's, as well times of any general and Director meetings were held. Service Pro can provide this service.
- All changes have to be filed with the Registrar of Companies within a month from the date of any change.
- It is compulsary for a Hong Kong company to have a Secretary. A Secretary can be a natural person or a company who is a resident of Hong Kong. Service Pro can provide this service.
- The company Secretary is responsible for keeping and filing corporate documents with the Registrar of Companies.
- Nominees are permitted in order to achieve a high level of confidentiality.
The timescale for the incorporation of a Hong Kong Limited Liability Company is approximately 5 working days.
The Secretary of a Hong Kong registered company receives a notification for the submission of the company’s income tax form about 27 months (2 years + 3 months) from the incorporation date of the company. Once notification is received, the company has 1 month to prepare its bookkeeping; auditation of the accounts and submit the income tax form. It is recommended that all Hong Kong registered companies prepare their audited accounts within 3 months from the end of their financial year on an annual basis.
The submission of a company’s income tax form is a compulsory requirement by HK’s Inland Revenue Authorities and if the audited accounts together with the tax form are not submitted on time, the company is obligated to pay penalties and may receive a court summons.
Documents needed from clients for bookkeeping:
Applicable for all jurisdictions for newly incorporated companies:
- A detailed description of the company’s activities.
- Bank statements for the financial year for all accounts that are under the company’s name.
- Any sales invoices issued from the company during the financial year.
- Any invoices received from the suppliers of the company during the financial year.
- Any expense receipts issued under the company’s name.
- Any agreements and contracts signed by the company during the financial year.
Documents needed from companies that were transferred from another agent:
Hong Kong jurisdiction:
- All documents that are mentioned above in part A.
- A set of the submitted financial statement of the previous financial year that were submitted to Hong Kong’s Company House.
- A copy of the submitted Inland Revenue notification: tax form.
Procedure of company formation
Hong Kong companies are governed by the provisions of the Hong Kong Companies Ordinance 1984. The most common form of business entity in Hong Kong is a limited liability company. A limited liability company offers the protection of personal assets from business risks and liabilities and is a separate legal entity. It is fairly relatively simple to establish a company, the procedure is outlined below:
Procedure to incorporate:
The following documents are required in order to proceed with incorporation:
- Completed application form to be signed and scanned (containing information about the approved name, details of Directors and Shareholders).
- A copy of the Beneficial Owner and each Director and Shareholders passport.
- A Scanned copy of proof of residence (such as a utility bill, bank statement or bank reference not older than 3 month) can be sent via e-mail.
Once received the following is completed:
- Service Pro will issue an invoice for a company registration in Hong Kong.
- Obtain name approval (this will take approximately 2 working days).
- Director and Shareholder will be sent the company registration forms to sign. Originals must be returned to our Hong Kong office.(Scanned copy of passports for Directors and Shareholders to be sent by e-mail).
- Once this is received it will take approximately 10 days to complete the incorporation process.
- Upon receipt of money on our bank account for Hong Kong company incorporation, Service Pro will begin the process of company incorporation in Hong Kong. It will take up to 10 working days for this to be completed.
- After this has been completed, a Director and Shareholder have to sign the company registration forms and send Service Pro the original which will then be submitted to the Companies Registry of Hong Kong. It will take up to 5 working days to fully complete the Hong Kong company incorporation process.
- The following process of apostille takes up to 4 working days plus an additional day if courier delivery is required.
Shelf companies are ready made companies whose primary purpose is to bypass the lengthy registration or incorporation process that can be required when forming a business.
Certain jurisdictions may take from 3 business days up to 3 weeks for the whole incorporation process to be completed. Shelf companies can be up and running within 4 business days. In some cases banks, government projects and investors will not provide credit ratings, projects or be interested to invest in newly formed companies. This is where shelf companies offer invaluable creditworthiness as they are able to show company history.
Benefits of a shelf company include:
- Saving time involved in taking the steps to create a new company (such as filing corporate documentation).
- Shelf companies gain the opportunity to bid on contracts. Some jurisdictions require that a company has been trading for a certain length of time to have this ability.
- To show that the company has been up and running for some time in order to attract consumers or investors.
- Shelf companies can gain access to corporate credit.
- Clients generally trust companies that have been trading for a number of years.
- Usually, the older the company, the higher it's standing in the business community.
- Opening a bank account for a shelf company is generally a faster process.
If you require additional information please do not hesitate to contact us.
Hong Kong compliance
The types of companies that may be formed and regulated under the new Companies Ordinance in Hong Kong are public and private companies limited by shares; companies limited by guarantee without a share capital and public and private unlimited companies with a share capital.
Any of the different types of companies as listed above, according to the Ordinance states that they must keep accounting records which must show and explain the company’s transactions and disclose their financial position and performance. Accounting records must contain daily entries of all sums of money received and expended by the company, and the matters of which the receipt and expenditure takes place, as well as an accurate record of the company’s assets and liabilities.
Commencing dormant status
The Ordinance states that a company is dormant if it said to have had no relevant accounting transactions during any given financial year. Accounting transaction can be defined as a transaction that is required to be entered in the company’s accounting records.
This means that a company must pass a special resolution, authorising its directors to make a statutory declaration that the company will become dormant, and deliver a copy of the declaration to the registrar. Special resolution is when the members of the company pass a resolution that is by a majority of at least 75%.
The company shall be deemed a dormant company effective as of the date of delivery. If the declaration specifies a later date for the company to become dormant, it shall be deemed dormant from the date specified.
Every company must appoint an auditor who must be a member of the Hong Kong Institute of Certified Public Accountants and hold a practicing certificate. The annual financial statements for a financial year must give a true and fair view of the financial position of the company as well as an accurate view of the performance of the company for the financial year.
The process of rendering a company as dormant effectively allows an inactive company to be retained at a minimum maintenance cost as a dormant company is exempt from the preparation of audited financial statements and appointments, as well as the removal of Auditors.
Annual general meeting
A company must hold a general meeting as its annual general meeting at the end of each financial year. In the case of a private company or a company limited by guarantee, 9 months after the end of its accounting reference period by reference to which the financial year is to be determined.
The Ordinance also holds that this does not apply to a dormant company, effectively rendering it is exempt from holding general annual meetings, unless the company enters into a financial transaction, it will stop having an effect on and after the date of the accounting transaction.
A private limited company incorporated in Hong Kong under the Ordinance is required to file an Annual Return signed by a Director, Company Secretary, Manager or Authorised Representative with the Companies Registry within 42 days after the company’s return date (excluding the year of incorporation.) This is relevant even if the information contained in the last return remains unchanged, it is still necessary to file an annual return certifying that there has been no change since the date of the last return.
The requirement to deliver an annual return for registration does not apply to a company who currently holds dormant status, however, it is still compulsory for a private company to deliver an annual return for the year in which it declares itself to be dormant if the effective date on which the company becomes dormant falls after the 42nd day of the anniversary of its date of incorporation.
Ending dormant status
A company that holds existing dormant status ceases to a dormant company by definition, if the company passes a special resolution declaring that the company intends to enter into an accounting transaction, and the resolution is delivered to the Registrar for registration; or there is an accounting transaction in relation to the company. The company will no longer be deemed dormant upon the date of said delivery or from the date of the declaration of the first accounting transaction.