Q1: What is a Hong Kong limited company?
A Hong Kong limited company is either limited by shares or by guarantee. A company is limited by shares if the liability of its shareholders is limited by the company’s articles to any amount unpaid on the shares held by the shareholders; while a company limited by guarantee does not have a share capital, but the liability of its members is limited by the amounts that the members undertake as stated in the articles.
No matter how its liability is limited, a limited company is a separate legal entity like a legal person which enjoys its own rights and benefits but at the same time bears its owns risk, separated from its shareholders/members. A limited company with its liability limited by shares is the most common form in Hong Kong because shareholders generally have greater flexibility in ownership transfer and raising capital.
Q2: Why is Hong Kong good for business?
Hong Kong’s standing as one of the world’s major financial hubs provides a competitive environment with opportunities for significant profits to be made. Setting up a business can seem like a daunting prospect, but one of Hong Kong’s main benefits is that it is relatively easy to set up a company.
Comparative to other jurisdictions, annual maintenance costs are cheap and general yearly compliance requirements (such as filing annual returns, preparing audited accounts and tax returns) are less onerous.
Hong Kong is also a gateway to Mainland China and the Closer Economic Partnership Arrangement provides additional and exclusive Mainland market access benefits. It is common for companies looking to do business in Mainland China through Wholly Foreign Owned Enterprises (WFOE) to use a Hong Kong limited company as the “holding company”.
Hong Kong’s respected judicial system and rule of law makes it the perfect base for doing business with other nearby jurisdictions. It is one of the key centres in Asia for arbitration, is committed to protecting intellectual property rights and enforces stringent regulations on patents, copyrights, trademarks, and registered designs.
Lastly, profits tax is significantly lower than other jurisdictions.
Q3: What is the profits tax rate in Hong Kong?
Hong Kong has a simple tax regime. Income/profits are only taxed if sourced from Hong Kong. There is no distinction on tax treatments between residents and non-residents, a resident may derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong. If you wish to set up a company that will carry on business in Hong Kong, generally the profits tax rate will be 8.25% on the first HK$2 million of profits, and 16.5% on everything thereafter.
Hong Kong does not have capital gains tax. Transactions, such as disposal of assets/businesses and dividends paid to shareholders are tax free, giving opportunities for huge savings.
However, a shareholder wishing to dispose of shares in a Hong Kong company will need to pay stamp duty on the transfer. Stamp duty is charged at 0.1% of the amount of consideration for the transfer or the market value of the shares, whichever is the higher, on each sold note and bought note of the transfer, so in total 0.2%.
Q4: Can non-residents start a business in Hong Kong?
Generally, there are no restrictions on foreign ownership of Hong Kong companies. Approval of (or limits on) foreign ownership of Hong Kong companies applies to a handful of specific industries, such as the broadcasting sector.
It is possible for non-residents to set up a business in Hong Kong, even if they are abroad. A Hong Kong company must appoint at least one natural person as the director, who can be a non-resident. The company secretary, who will take care of general corporate and compliance matters (e.g. statutory filings with the Companies Registry) needs to be a Hong Kong resident or a Hong Kong registered company. A Hong Kong company also needs to have a registered office address in Hong Kong.
If a business owner needs to enter Hong Kong to conduct business negotiations and/or sign contracts, then they can take advantage of Hong Kong’s relatively liberal immigration policies and enter as a short-term visitor on a visitor visa or entry permit. Many nationalities can enter Hong Kong visa-free, for periods ranging from 7 to 180 days.
If moving to Hong Kong becomes desirable/necessary, there are viable visa avenues for business owners, such as a visa/ entry permit for investment as an entrepreneur.
Q5: How long does it take to set up a company in Hong Kong?
A Hong Kong company can be set up through Companies Registry via e-registration (limited to account users) or by paper application. The company can be incorporated quickly within 3-5 days and sometimes even within 24 hours (if by e-registration).
As part of the compliance requirements, a company service provider needs to identify the shareholders, the directors and all ultimate beneficial owners (if the company is held by nominee shareholder) and ascertain their respective residential address.
Shareholders/directors/ultimate beneficial owners will need to send a copy of their passports, a copy of an official document as proof of residence (for instance, a driver’s license) to Hong Kong. A standard questionnaire containing questions regarding relevant information, such as the proposed company name, will also need to be completed.
Company secretary services will provide the option of helping incorporate a brand new entity or picking a “shelf company”. If a company needs set up urgently, then using a shelf company may be appealing as it will help reduce the risk of any delays occurring.
A company service provider is required to possess a “Trust and Company Service Provider” licence in order to provide company services to companies. As such, it is essential to choose a licensed company service provider.
Q6: How do I open a business bank account in Hong Kong?
A common criterion for banks in Hong Kong is for the person opening the account (usually the director of the company) to be physically present in Hong Kong. This can create problems during these uncertain times, where individuals based abroad may be unable to travel to Hong Kong due to COVID-19 concerns/restrictions.
Some banks have recently introduced remote account opening on a “case by case” basis, unfortunately they do not publicise the qualifying criteria. Currently, these banks are very selective when opening accounts remotely and only Hong Kong resident clients have succeeded in opening accounts without visiting a branch.
Alternatively, foreign based banks with branches in Hong Kong have been known to help clients set up and open accounts with their Hong Kong branch. There is also the option of exploring virtual banking and foreign currency platforms.
Q7: How much does it cost to set up a company in Hong Kong?
Incorporation is inexpensive. Currently the government requires a Companies Registry fee of HK$1,730 and a fee of HK$250 for the Business Registration Certificate. There are other related fees that will need to be considered and costs will vary depending on the specific services and agents needed.
Other expenses include the cost of incorporation documents and obtaining a company seal, stamp etc. Different company secretaries will charge different rates, but all will charge a yearly fee for the ongoing services provided. Company secretary service prices will increase the more that is required. For instance, fees will be added for provision for the registered office address and assistance in opening overseas bank accounts.
Prices are reasonable and incorporating a company in Hong Kong will not break the bank. Once the company is up and running, there will be general annual maintenance costs that will need to be met. These costs include corporate services (such as annual return filing fee, Business Registration Certificate renewal, annual general meeting costs, etc.) and audit/accounting fees.
Q8: I want to hire employees, are there any mandatory benefits I need to pay employees?
In Hong Kong, medical insurance is not compulsory. However, if hiring employees, other compulsory requirements will need to be considered. Hong Kong employers are required to take out employees’ compensation insurance. Section 40 and schedule 4 of the Employee’s Compensation Ordinance, Cap. 282 provides the minimum amounts of insurance coverage required.
The introduction of the Minimum Wage Ordinance, Cap. 608 in 2010 means that employers are required, by law, to pay their employees a minimum wage. The Hong Kong statutory minimum wage for non-domestic helpers is currently HK$37.5 per hour.
Employers also have to pay 5% of employees monthly Mandatory Provident Fund (MPF) contributions, subject to the minimum and maximum relevant income levels.
Overall, employers must ensure they comply with the Employment Ordinance, Cap. 57, which confers rights to employees such as sickness allowance, holidays, paternity leave, employment protection and more.
Q9. What other licences, registrations or approvals do I need to start my business in Hong Kong after the company has been set up?
After a company has been incorporated and registered with the Companies Registry, companies are required to apply for a Business Registration Certificate from Inland Revenue Department, within one month from the date of commencement of business. If a company operates in more than one place in Hong Kong, it will need to apply for separate Branch Business Registration Certificates for each additional place of business.
Some industry sectors may require separate licences or pre-approvals prior to commencement of business (e.g. catering businesses and securities-related activities). If there are any doubts as to whether a business needs a separate licence or pre-approval, a local adviser or lawyer should be consulted.