A Guide to Setting Up Your Business in Hong Kong
What are the benefits of setting up companies in Hong Kong?
Hong Kong stands out as the most economically liberal destination globally, making it highly appealing for entrepreneurs. With a steady influx of investors, this article delves into the reasons to set up a company in Hong Kong from the US for attractiveness and the significant benefits of establishing your business there.
Favorable Tax Environment:
- Enjoy a low tax rate.
- No taxes on sales, capital gains, or shareholder dividends.
- Operate under a territorial tax system, where only income originating from and derived within Hong Kong is taxable.
- Benefit from the double tax agreement with China, reducing tax burdens for businesses operating in both regions.
Strategic Location:
- Positioned at the heart of Asia, facilitating easy access to global markets.
- Convenient geographical location enhances connectivity, enabling seamless access to key markets like the Asia-Pacific region and Mainland China.
Facilitated Expansion into China:
- Close proximity to China simplifies expansion efforts.
- Gain exclusive access to the vast mainland market.
- Leverage the benefits of the free trade agreement between China and Hong Kong.
- The Hong Kong-Zhuhai-Macau Bridge presents extensive business opportunities, further enhancing connectivity and trade prospects.
Components involved in the company formation process
These are the essential criteria to meet before establishing a company in Hong Kong:
- Select a Company Name:
Choose a unique name for your company, which can be in Chinese, English, or a combination of both.
Certain words may require approval before registration, especially if they are associated with the Central People’s Government, the Hong Kong Special Administrative Region’s government, or their agencies. Approval is granted if a genuine connection is established.
Names that are deemed criminal, indecent, or contrary to public interest by the Registrar of Companies will not be registered.
- Establish Shareholders and Members:
Every company in Hong Kong must have shareholders, regardless of their residency or nationality.
A private limited company must have at least one shareholder, with a maximum of 50. Shareholders can be individuals or corporations, including foreign entities.
Shareholders become members of the company upon registration.
- Name Initial Directors:
A private limited company must have at least one director, with no restrictions on the maximum number.
Directors must be at least 18 years old, but there are no requirements regarding their residency, shareholder status, or employment with the company.
At least one director must be a natural person. If a company is appointed as a director, one of its directors must be a natural person.
- Appoint a Company Secretary:
The company secretary serves as the official representative of the company and is responsible for managing corporate documents and compliance in Hong Kong.
A company secretary cannot be the sole director in Hong Kong, but if there are multiple directors, they may also serve as the secretary.
The company secretary does not need to be a natural person or a shareholder/member of the company. It’s common for professional company service firms to fulfill this role.
- Set Up the Registered Company Address:
All Hong Kong companies must have a physical address within the city as their registered address. Many offshore businesses in Hong Kong initially use the address of the company secretary.
- Pay the Share Capital:
Unlike in some jurisdictions where high capital requirements exist, Hong Kong has no minimum capital standards for companies. The only legal requirement is offering at least one ordinary share to one ordinary shareholder, typically valued at one dollar per share in any currency.
- Consider Tax Compliance Obligations:
Hong Kong’s low tax rates are a major draw for businesses. The corporate tax rate is one of the lowest globally, starting at 8.2% for the first $2000 earned and 16.5% thereafter. Personal income taxes are also relatively low, ranging from 2 to 17%. Hong Kong’s tax system operates on a territorial basis, meaning income earned outside the city is not taxed. Additionally, Hong Kong does not impose capital gains taxes, goods and services taxes, or value-added taxes, simplifying the taxation process.
- Gather Necessary Documents:
During the HK business registration process, the Company Registry (HK) will require various documents, including:
A certified copy of the company’s articles of association, outlining essential details such as the company’s name, shareholders, share capital, and limited liability declarations.
Certified copies of passports and overseas residential addresses for non-resident directors and shareholders.
Copies of proof of residential address and Hong Kong identification documents for directors and shareholders who are residents of Hong Kong.
Certified true copies of business registration papers (e.g., articles of association) for corporate shareholders and directors.
A completed Hong Kong company incorporation form, similar to the company’s articles of association.
What are tips for Hong Kong company incorporation?
Here are some circumstances in which a company name may not be registered in Hong Kong:
If it’s identical to a name already listed in the Registrar’s Index of Company Names.
If its use would constitute a criminal offense according to the Registrar’s opinion.
If the name is deemed offensive or contrary to public interest by the Registrar.
If it’s the same as a name of a body corporate established under an Ordinance.
If the name may mislead consumers, hinder fair competition, or challenge Chinese national unity, policies, social ethics, culture, or religion. Certain words implying business operations in specific industries or special characters may not be permitted.
To ensure your chosen name is available, it’s recommended to perform a name search using the Companies Registry’s CyberSearch Centre or Company Search Mobile Service. Use the “Exact Name Search” mode and input the intended name exactly as intended, including spaces, punctuation marks, and ending terms like “Company Limited”, “Limited”, “Company”. Stick to English or traditional Chinese characters for accurate results.
Additionally, consider preparing a shareholder agreement, especially if your company has multiple shareholders. This written agreement helps clarify roles, responsibilities, and dispute resolution mechanisms, ensuring all parties understand their involvement and are protected in case of conflicts.
Lastly, consider partnering with a professional and licensed trust and corporate service provider as your company secretary. These providers are licensed by the Companies Registry and comply with relevant regulations, including those related to Anti Money Laundering and Counter-Terrorist Financing Ordinance. Working with such a provider ensures legal compliance and efficient service delivery.