As the offshore world becomes more and more complex, Hong Kong remains just as appealing as a business hub in Asia. Defined as a Special Administrative Region, Hong Kong is strongly connected to China, yet it offers a unique mix of two different systems.
For example, Hong Kong has its own free trade policy, meaning Chinese interference has been dramatically reduced. Throw in the taxation system, the low corporate tax and legal framework and you have one of the best places to start a business as an international entrepreneur.
The Definition of Hong Kong Company Formation
Hong Kong Company Formation pertains to the creation of an offshore company based in Hong Kong. The offshore company will have a non-residential status in Hong Kong.
The rationale of an offshore company works this way. A company conducts its business in country A. Then, the owners set up an offshore company in Hong Kong. The offshore company will follow the jurisdictions and bylaws of Hong Kong, as well as operate within its legal business structure. The main company is still operating in country A, but the company is also reaping the benefits and incentives (for example, asset protection) in Hong Kong.
Benefits of a Hong Kong Company Formation
Non-Residency
A company owner does not need to have a residency in Hong Kong. Companies only need to hire a secretary and rent an office there to qualify for non-residential incorporation.Low Formation Costs
Hong Kong has low incorporation fees. This means that the initial payment towards the Government of Hong Kong is 1,730 HKD. Those who wish to incorporate must pay 250 HKD for their Business Registration Certificate.Tax Benefits
Offshore companies have access to a low corporate tax rate. The tax rate for Hong Kong corporations that operate outside the region's jurisdiction is 0%. However, tax exemptions from corporate taxes are not applicable to individuals who are subject to income taxes in their countries of residency.Multi-Currency Bank Account
Hong Kong Banks have a multi-currency setup. This means that these accounts have e-Banking features. A Hong Kong bank account is accessible and recognized worldwide. Offshore companies can also open bank accounts outside Hong Kong.Hong Kong is a prime location for an offshore business. The region has a stable economy and steady political status. It is a good business decision to form an offshore company there.
Now that you have the takeaways, let’s get a bit deeper into details and figure out everything you may need to run a successful business in Hong Kong.
Types of Companies You Can Register in Hong Kong
Like any other country, Hong Kong allows registering quite a few different types of companies. Different business people have different needs, hence the necessity to research your options. The structure you pick will also affect taxes, personal liability and admin necessities, among other things.Private Limited Company
The private limited company is one of the most popular choices in Hong Kong because it's an independent company that can have contracts, purchase assets, form agreements, and so on. All these things are not related to the shareholders.The setup is independent from its owners, meaning there’s no liability. However, in special circumstances, some limited legal liability will, indeed, occur. But overall, debts and financial considerations won’t become personal.
This is different from sole traders or unlimited personal liability, where debts of the company can be paid from the owner’s account.
The Hong Kong private limited company has a maximum limit of 50 shareholders. Each shareholder can have their own amount of control or responsibility.
Branch Office
The branch office is self-explanatory and suitable for big companies looking to expand. It’s basically a separate office of a parent company. The branch office is easier to register and won’t be as time consuming as establishing a company from scratch.The administrative upkeep is reduced to minimum with this structure. At the end of the day, most formalities are transferred to the main company. The same rule applies to the liability, which targets the abroad parent firm.
Representative Office
The representative office is similar in structure and presence. It’s basically a good choice for companies established overseas to maintain a presence in Hong Kong. There are quite a few limitations though. Such a company can only conduct research and offer limited services, but never with a profit.Independent legal activities aren’t allowed either.
Sole Proprietorship
Similar to the sole proprietorship in other countries, this structure lets people register themselves as the holders of all obligations and responsibilities associated with a company. This includes all the liability as well.The owner is responsible for everything related to the company, including the debt. From this point of view, this business type carries a serious risk of the company facing a crisis.
However, on the same note, it’s an excellent choice for those starting small. You’ll have full control over everything, meaning there’s not much hassle involved.
The registration process won’t give you too much headache either.
Partnership
Last, but not least, the partnership is an agreement between two different entities. They share responsibility while running the business as well. There are two different types of structures you can choose from here.The general partnership is quick to register and popular for small businesses. It carries unlimited personal liability. On the other hand, the limited liability partnership is more suitable for bigger businesses. The personal liability is limited and the registration comes with more requirements.
What to Know Before Registering a Company in Hong Kong
There are quite a few things to be aware of before registering an offshore company in Hong Kong.Most importantly, compared to other offshore jurisdictions, Hong Kong allows you to be the sole shareholder and director of your company. In other words, you don’t need to find any local residents or services offering such features.
Assuming you’re hiring a service for the job or doing all procedures online, you don’t really have to be physically present there. The company registration doesn’t need you in person. But then, there are other things you may have to come to Hong Kong for, such as a bank account.
Last, but not least, it’s also important to know that you don’t necessarily need to relocate to Hong Kong. An offshore company registered in Hong Kong can be operated from overseas as well, with no restrictions at all.
Steps to Open a Company in Hong Kong
While each type of company has its own requirements, the private limited company is the most popular choice out there, and for some good reasons. Here are the steps to go through in order to open such a business structure.
- Pick a name. The name can be in English or traditional Chinese, not both. The name must end with the word “limited” in any language you pick. Names must be unique and not even too similar to other business names. You can search for names online at the Companies Registry’s e-Services Portal.
- Determine the purpose. All the intended ways to make a profit with the company must be included in this section. Some activities, like dealing with alcohol, will require special licenses. The official Hong Kong Business License Information Service can help you determine if your intended activities require more licenses.
- Figure the structure. The internal structure requires one or more shareholders, one or more directors, a company secretary, and a business address. While the shareholder or director doesn't have to be a resident, the company secretary must be a permanent resident or a local company. Having a date of the end for the fiscal year and a designated representative will help.
- Decide on the investment and capital. In terms of requirements, the initial investment must be a share of HKD1, simple as that. The price of a share can be adjusted later, not to mention the total number of shares. Such things are determined by the members of the company later on.
- Plan the meetings. Shareholder meetings must be organized and held on a regular basis to ensure a successful growth of the company. The frequency of these meetings must be included in the Articles of Association as well. One annual general meeting per year is a legal requirement. Whatever is discussed in these meetings must be recorded and passed to all the members.
- Identification. The corporation owner and stakeholders must provide true copies of their passports. Another document that is necessary for this is the proof of residency and a list of the names of the board members as well as shareholders.
- Get the documents ready. Complete the NNC1 (limited by shares) or NNC1G (not limited by shares) form and the IRBR1 form. Get a copy of the Articles of Association too, as well as copies of the directors and shareholders’ IDs. The NNC3 form is also a must for directors who haven’t signed the incorporation consent. Proof of address may be required too, but not always.
- Submit your documents. You can do it online via the government's Companies e-Registry, by mail, or even in person. The Companies Registry address is 14th floor, High Block, Queensway Government Offices, 66 Queensway, Hong Kong.
Understanding the Offshore Tax Status
It is very important to note that apart from low taxes, Hong Kong also offers tax exemptions to offshore companies incorporated locally. At the same time, local businesses can also benefit from this tax exemption if their income is sourced from other countries.To benefit from this exemption, such a business should be part of an international enterprise group. Also, they need to prove economic substance in the country. The status is valid for a limited period of time, usually between three and five years. Annual audits will check its status and eligibility.
Tax exemptions in Hong Kong can be confusing for some. Some people believe such benefits are given to offshore companies only, but local laws apply to local companies as well. To make sure there’s no confusion, you need to understand how different concepts work.
An offshore company is a company incorporated in Hong Kong but with primary activities outside the country. This means your business can benefit from the amazing local infrastructure, as well as the tax efficiency and the global market Hong Kong provides access to.
On the other hand, offshore sourced income is mainly about income generated from overseas. This type of income can apply to local businesses incorporated by permanent residents and citizens as well. It's not just a service for foreigners but for everyone.
This means an onshore company will have the same benefit, assuming it has international earnings. Simply put, both offshore and onshore companies can benefit from Hong Kong’s inclusive tax system. The government is simply trying to promote a business-friendly environment.
What Happens After the Company Registration
Once your documents have been approved, your company will be registered. This means you’ll be issued with a few documents to confirm it. These documents will also include important details about the company.While there could be more documents sent over, two of them are more important.
- Certificate of incorporation confirms the company formation and the right to trade.
- Business registration certificate proves that your company is in operation.
Maintaining the company is just as important. All companies in Hong Kong must have a company secretary. It’s the law. It can be someone with permanent residency in Hong Kong or a company offering such services.
The Significant Controllers Register in Hong Kong has been a requirement since 2018. It includes every individual or company with significant control within the company. Significant control translates into at least 25% of all shares or voting capabilities.
Last, but not least, don’t forget about the annual return. This form includes important details, such as directors, secretary, share summary and so on. It should be submitted on a yearly basis, normally within 42 days of the anniversary. The form is known as NAR1.
Costs Associated with Company Formation in Hong Kong
Generally speaking, the average cost of registering a company in Hong Kong is around HKD 9,000.If you choose to do everything yourself, it’s a bit of a headache, but the costs will be lower. You’ll mostly spend money on fees, which are usually under HKD 4,000. Online submission and delivery will cost you less than the hard copy alternative.
The CPA certification may also cost up to HKD 500. Expect to pay more for a registered office address, not to mention the company secretarial solutions if you need such services.
Hiring a company formation service will save you the headache, but it will also cost you more. Different companies offer different services, and prices vary between HKD 7,000 and HKD 13,000 on average.
It’s hard to think of a specific price because there are many factors that can influence the total price, such as the company type, its complexity, the necessity of various licenses, shareholders and so on.
How Long Company Formation in Hong Kong Takes
On average, registering a company in Hong Kong takes between five and seven working days after you submit all the required documents. The license associated with the Companies Registry may also require another five working days.Small mistakes can make it last longer. For example, if you make a mistake on the forms, you may have to complete it from scratch. High-risk industry? Same issue. Businesses that require extra licenses will also need more time.
Top 5 Company Formation Services in Hong Kong
Too much hassle to do it yourself? No problem! There are quite a few company formation services in Hong Kong, but some of them stand out in the crowd. Here are the forerunners.
Sleek
Sleek guarantees for a quick and easy incorporation, as well as expert support. It’s well rated on review websites and offers a bunch of different services, such as company secretary, accounting, bookkeeping, audit and taxation solutions, CFO and payroll services. As long as you need something related to company formation and running later on, these guys can make it happen.
Bestar Pinewood CPA
Company formation is the primary focus for Bestar Pinewood CPA, but the list of services goes further than that and includes accounting, audit, tax and business, secretarial, licensing, consulting and HR. It’s worth noting that the company’s website also carries an informative blog with important information about running a business in Hong Kong.
Panocean
Panocean offers similar services, from financial advisory and risk management to audit and company registration in Hong Kong, among many others. The company has a good reputation for working very closely with clients, meaning each package is individualized. No matter what industry you’re part of, this company can help. Also, take a look through its informative section on the official website.
Osome
Osome is a well rated digital assistant dealing with company registration and accounting services in Hong Kong. The company provides other services too, yet it’s better known for its cost effectiveness, as well as the zero paperwork company registration service. You’ll get support with bank account opening too. As for company registration, it usually happens within a day.
Prism
Prism offers company registration solutions and accounting, auditing, tax filing, you name it. If it’s related to a business, it’s there. The service has 24-hour customer support and has officially partnered up with companies like Paypal and Stripe. The website offers full information on everything you need to get your company up and running.The list is much longer, but the above mentioned companies have managed to gain reputation with their exquisite services, quality results and excellent communication. Which one is the best for your needs depends solely on what you’re after.
Other company formation services in Hong Kong worth some attention include:
- FastLane
- Sage Management Consultants
- 3E Accounting Limited
- Startupr
- Asia Business Centre
- Premia TNC
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