Business set-up and company formation in Hong Kong

Introduction

Hong Kong Special Administrative Region (SAR) is one of the most open economies in the world. It is an ideal location for setting up a business and forming a company. Hong Kong is designed to promote free enterprise with minimal bureaucracy and restriction.

Hong Kong offers a low-rate tax system combined with free market principles. It allows unrestricted inbound and outbound investments and has no nationality restrictions on ownership. Foreigners are free to invest in any business and can own up to 100% of the equity.

Territorial tax system

The tax system in Hong Kong is based on the territory principle. This means that the profits generated by a Hong Kong business are subject to profits tax, which is currently charged at a rate of 16.5%. However, foreign-source income is not taxable, even if it is remitted to Hong Kong. Hong Kong does not have capital gains tax, sales tax, withholding tax on dividends or interest, or inheritance tax.

Intellectual Property

The Special Administrative Region of Hong Kong has established policies and legal measures to safeguard intellectual property rights. The laws pertaining to intellectual property in the city have been developed to comply with the highest global standards, ensuring a just and equitable business environment.

Regional headquarters and business hub

Hong Kong is not only a major financial and commercial centre but also a regional hub for the Asia Pacific region. It acts as a gateway for companies looking to do business in Mainland China and for mainland enterprises seeking access to global markets. With all of Asia's key markets less than four hours away, it's no surprise that over 9,000 businesses have made Hong Kong their home. Many companies have established strategic functions in the city, including sales, operations, R&D, distribution, regional headquarters, and corporate treasury centres.

Hong Kong's independent legal system, rule of law, free flow of information and capital, and sound regulatory regime make it an international finance centre. These factors put it in a prime position to help businesses take advantage of China's 'Belt and Road' Initiative. The initiative aims to link Mainland China with countries across Asia, Europe, and the Middle East.

Favourable business environment

Hong Kong's attractiveness as a business hub relies on its political stability, adherence to the rule of law, free exchange of information, and the use of English as the language of commerce. It boasts a rich pool of highly qualified local talent, and its immigration policies are business-friendly, making it easy to recruit skilled professionals from overseas.

Guangdong-Hong Kong-Macao Bay Area (GBA) city cluster

An exciting opportunity has emerged in the region, where more than ten cities will join forces to create a cluster. Hong Kong will play a crucial role in ensuring the cluster is globally competitive, making it an ideal location for businesses and companies to reap the benefits.

Free Trade

One of the benefits of starting a business in Hong Kong is the city's free trade policy. Its free port status and simple customs procedures make it easier for businesses and companies to operate. Additionally, Hong Kong has eight Free Trade Agreements, including agreements with Mainland China, New Zealand, the Member States of the European Free Trade Association (EFTA), Chile, Macao, the Association of Southeast Asia Nations (ASEAN), Georgia, and Australia.

Company Formation process in Hong Kong

When it comes to forming a company, there are multiple crucial steps that need to be taken into consideration. These steps may include legal procedures, documentation, financial planning, market research, branding, hiring employees, and many more. Each step plays a vital role in ensuring the successful formation and functioning of the company. It is crucial to follow these steps diligently to avoid any legal or financial hurdles in the future.

• Company name – The approval of the company name is required before proceeding with the incorporation of a Hong Kong company.
• Companies Ordinance – Effective from 1st March 2018, all companies incorporated in Hong Kong, except for those listed in the Hong Kong Stock Exchange (HKSE), will be obligated to establish and uphold a register of individuals who have significant control over the company.
• All companies must appoint a Designated Representative (DR) to report to prescribed local authorities upon demand regarding the SCR. For further details, please refer to the New Hong Kong Companies Ordinance guide.

• Directors –At least one individual director is required, but there is no limit on the maximum number of directors for a Hong Kong company. The director can be of any nationality and doesn't need to be a resident of Hong Kong. To be eligible, directors must be at least 18 years old and must not have a criminal record related to malpractices. They don't need to be shareholders of the company. Additionally, a nominee corporate director can be appointed alongside the individual director. Board meetings can be held anywhere in the world.

• Shareholders –A private limited company based in Hong Kong is allowed to have at least one and a maximum of fifty shareholders. There is no need for shareholders to be residents of Hong Kong. The same person can be appointed as both a director and shareholder, or they can be different individuals. The shareholder must be at least 18 years of age and can be of any nationality. The shareholder can be a person or a company. Both local and foreign shareholding is permitted, with a maximum of 100% foreign shareholding. The appointment of nominee shareholders is also allowed. Shareholders meetings can be held anywhere in the world.

• Company Secretary – When starting a business in Hong Kong, it is mandatory to appoint a company secretary. The company secretary must be an individual who ordinarily resides in Hong Kong or a body corporate that has its registered office or a place of business in Hong Kong. It is important to note that if there is only one director/shareholder, they cannot serve as the company secretary. The company secretary is responsible for maintaining the statutory books and records of the company and ensuring compliance with all statutory requirements. A nominee secretary can be appointed if needed.

• Share Capital – It's not mandatory for a company incorporated in Hong Kong to have a minimum share capital requirement. However, it's generally expected that they have at least one shareholder with one ordinary share issued during the formation process. The share capital can be expressed in any major currency and isn't restricted to the Hong Kong Dollar. Shares can be transferred freely, but a stamp duty fee is required. Bearer shares are not permitted.

• Registered Address In order to register a company in Hong Kong, the company must have a physical address in Hong Kong. P.O. boxes are not permitted.

• Public Information Under Hong Kong Company Laws, the information about company officers, including directors, shareholders, and company secretary, is publicly available.

• In Hong Kong, it is necessary to file the information of company officers with the Companies Registry. However, if you want to keep the details confidential, you can appoint a corporate shareholder and nominee individual director through a professional services firm. This will help you maintain your privacy while fulfilling the legal requirements.
• Taxation Corporate tax in Hong Kong, also known as profits tax, is set at 16.5% of assessable profits for companies registered in the country. Hong Kong follows a territorial basis of taxation, meaning only profits that arise in or are derived from Hong Kong are subject to tax in the country. There is no capital gains tax, withholding tax on dividends, or GST/VAT in Hong Kong. For more details on corporate taxes, you can refer to the Hong Kong Corporate Tax guide..

• Ongoing Compliance – All companies in Hong Kong are legally required to prepare and maintain their accounts, which must be audited annually by Certified Public Accountants. The audited accounts, along with the tax return, must be filed every year with the Inland Revenue Department. Additionally, all companies must file annual returns with the Companies Registry and pay the associated annual registration fee.

• To ensure the legality and continuity of a business, it is important to renew the Business Registration Certificate before its expiry date. This should be done annually, or once every three years depending on the specific requirements. Failing to renew the certificate may result in penalties or even the closure of the business. Therefore, it is essential to stay on top of the renewal process and ensure the certificate is always up to date.

·         Every Hong Kong company is required to hold an Annual General Meeting (AGM) every calendar year, which should be held within 18 months of the company's incorporation. After the first AGM, no more than 15 months can elapse between one AGM and the next. In case it is not feasible to hold an AGM, a written resolution can be passed instead. To learn more about the annual compliance requirements for Hong Kong companies, please refer to the "Annual Compliance for Hong Kong Companies" guide.

Conclusion:

Hong Kong is a great place for businesses with low tax rates, free market principles, and supportive regulatory framework. It is a regional hub that offers connectivity to global markets. It has robust intellectual property protection measures, efficient company formation process and legal compliance. Navigating through the legal requirements and procedures can be complex, but with proper guidance, businesses can successfully establish and operate in Hong Kong. All aspects of company formation should be carefully considered to ensure the smooth operation and longevity of their ventures. Overall, Hong Kong is a leading global business destination with many opportunities for growth and success.