COUNTRY

Hong Kong is not an offshore centre in the usual sense, but rather a territory that offers a favourable low-tax regime governed by the ‘territorial principle’, under which only income arising in or derived from Hong Kong is taxable there. This makes it the ideal location for a holding company. As such its attraction lies not in the tight secrecy, minimal corporate disclosure and administrative requirements which characterize a number of offshore common-law island jurisdictions, but rather in low tax rates, generous tax-deductible allowances, taxation only on income from within the jurisdiction and the complete absence of taxes on capital gains, withholding, interest, sales or VAT.

The establishment of an office in Hong Kong does not of itself render a company liable to profits tax where that office is not generating profits from within the territory. Indeed Hong Kong has been a favourite choice for regional headquarters, for this reason.

The total number of overseas and Mainland Chinese companies running business operations in Hong Kong was 8,225 in 2017, an increase of 3% on 2016 , according to the Census and Statistics Department survey.

Invest Hong Kong is the Hong Kong government department responsible for foreign direct investment and supporting Mainland, Taiwanese and overseas businesses setting up or expanding in Hong Kong. The ‘Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong’ aims to elucidate the profile of those businesses and their views on the business environment in Hong Kong.

Of the total number of companies, 1,413 are regional headquarters (RHQs), 2,339 are regional offices (ROs) and 4,473 are local offices (LOs). Director-General of Investment Promotion, Simon Galpin, said that the survey had shown “the highest increase in the number of LOs. We work with these companies to help them set up and expand their business and to, hopefully, fulfil their potential as the RHQs and ROs of tomorrow.”

In terms of sectors, finance and banking demonstrated the most robust growth and, it was said, reinforced Hong Kong’s status as a world-leading international financial centre

With regard to country of origin, more than half of the parent companies came from four countries. Japan with 1,378 companies, the USA with 1,313, Mainland China with 1,264 and the UK with 675.

Galpin added “we are seeing greater numbers of overseas companies setting up in Hong Kong as a base from which to expand into the Mainland and beyond. The same is also true of Mainland companies that use Hong Kong as a springboard from which to go global. This phenomenon highlights the strategic importance of Hong Kong to access business opportunities in the Mainland as well as offer geographical proximity to north and south-east Asian markets.”

When choosing to set up RHQs, ROs or LOs, the top five factors in Hong Kong rated as most important were its simple tax system and low tax rate, free flow of information, corruption-free government, absence of exchange controls, and political stability and security. Evidently, the rapid opening up of mainland China, and Hong Kong’s special relationship with the mainland, have increased the attractions of Hong Kong as a regional base from which to operate.

Hong Kong has thrived historically as a trading entrepot serving many Asia Pacific countries and also as a low-cost manufacturing centre, and has turned towards the provision of services, particularly financial services. Its economic success is largely based on a whole-hearted adherence to free and open trade, the values encompassed in a British common law legal system and a laissez-faire, non-interventionist attitude on the part of government. There are few if any significant barriers to investment by foreigners. The government has consistently followed business friendly policies and continues to do so. It is not an ‘offshore’ jurisdiction as such, but has low tax rates which are levied only on Hong Kong-source income. There is no capital gains tax, no withholding tax, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them.

TAXATION

  • Headline tax rates: CIT 16.5%, PIT 15%, VAT 0%
  • Treaty Jurisdictions: Austria, Belgium, Brunei, Canada, China, Czech Republic, France, Guernsey, Hungary, Indonesia, Ireland, Japan, Jersery, Kuwait, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, New Zealand, Portugal, Qatar, Spain, Switzerland, Thailand, United Kingdom, Vietnam
  • TIEA Jurisdictions: Denmark, Faroe Islands, Greenland, Iceland, Norway, Sweden, United States

One thing to remember about taxation in Hong Kong is that the exemptions from corporate taxes do not apply to individuals who are subject to income taxes in their home countries. For instance, if you own a Hong Kong corporation which pays you a salary, your wages will be subject to income taxes in the country in which you reside if it taxes worldwide income, or in some countries, the income of the corporation itself.

No corporate or income taxes are imposed if the sole source of income is generated outside of Hong Kong. The corporate tax rate is 16.5% for all profits derived from income sourced in Hong Kong. The tax is paid by the company and not the individual shareholders. Annual tax returns are filed with the Inland Revenue Department (IRD).

BUSINESS

  • Suitable for: Banking, Insurance, Fund Management, Shipping, Trading Goods, Trading Financial, Intellectual Property/Licensing, Holding Companies, E-commerce, Property Ownership
  • Company Types: Limited companies, public limited companies, trusts, branches, general partnerships, limited partnerships and sole proprietorships
  • Formation Cost: 2000 – 2800 USD
  • Formation Time: 12 – 20 days
  • Maintenance Cost: 600 – 1200 USD

INCORPORATION

While part of China, Hong Kong is classified as a ‘Special Administrative Region’ (SAR). Hong Kong was occupied during the British during the colonial period and after the Second World War. While it was returned to China’s control in 1997, its mix of British and Chinese history has shaped the environment and culture of the region and the business environment is heavily influenced by British models. For the multinational company this means that compared to mainland China, Hong Kong is still very accessible and straightforward option to establish a foreign business, and has historically been considered by many to be the ‘gateway to China’.

An interesting point about Hong Kong is that it has no restrictions on foreign ownership for any company structure, neither for employment, this implies a company may be completely foreign owned and run by foreigners. However, for all company types, Hong Kong regulations do require at least one permanent representative resident in Hong Kong.

Representative Office

Representative offices enable a foreign company to establish a place of business and enter into contractual agreements such as a commercial lease and are able to employ people. However they are not allowed to engage in any “profit-making” activity that would otherwise accrue income/corporate tax in Hong Kong. This structure is thus for preliminary entry, such as market research, scouting the market, establishing presence and holding business meetings and networking.

Hong Kong law recognizes the status of a foreign corporation whose activities in Hong Kong do not require it to be registered as a Hong Kong branch. In such a case, the appropriate status is that of a local representative office of the foreign corporation.

A representative office must not transact any business in Hong Kong which creates any commercial legal obligations, with exceptions such as entering into usual arrangements with utility companies; landlords for leasing and with its employees. Rather, a representative office should not generate any profits within the scope of Hong Kong taxation.

A representative office’s main activities are generally limited to preliminary stages before forming a branch office or company, market research, scouting potential business partners, and possibly building brand awareness. Generally, it would act only in a liaison capacity between the corporation and the corporation’s offices elsewhere and introducing Hong Kong customers to those offices, and not make any decisions on its on.

A foreign corporation, which establishes a representative office in Hong Kong is not required to register but must still obtain a Business Registration Certificate (的商業登記證). The representative office may apply to the Inland Revenue Department (稅務局) for an exemption from filing profit tax returns on the basis that it does not carry on business in Hong Kong; otherwise, it may file annual profit tax returns on a “NIL” basis.

Establish a place of business

This is an optional step for representative offices. As mentioned above, even though not-for-profit, representative offices may take on contracts such as leases and employment, thus it is possible for one to rent a physical office space in Hong Kong.

One option that may be off interest in Hong Kong are services which provide a “virtual address”. This does not mean in the electronic/web-based sense, but are companies that control physical office space in Hong Kong and provide for a service fee, a business address, phone and fax numbers, and staff to answer calls in English, Cantonese, or Mandarin.

Examples of these businesses include HK Commons (http://hkcommons.com/), Compass (http://compassoffices.com/), and Centre O (http://www.centreo.hk/).

Agency: N/A

Time: N/A

Cost: N/A

Apply for a Business Registration Certificate

It is mandatory for all branches to register their business with the Inland Revenue Department’s Business Registration Office (香港稅務局商業登記) and obtain a Business Registration Certificate (的商業登記證). Registration must be done within one month of the date of incorporation in Hong Kong. On successful receipt of the application, the Business Registration Certificate will be issued on the next working day and must be collected in person.

The business registration number that appears on the Business Registration Certificate is also the respective company’s tax filing number.

The Business Registration Certificate must be displayed on the office premises at all times.

Agency: Inland Revenue Department (香港稅務局)

Time: 2 days

Cost: HK$2,000 for a one-year certificate; HK$5,200 for a three-year certificate

Branch

Like a limited company a branch office is a legal entity, however a branch office is treated not as a domestic company but as an ‘extension’ of the foreign parent company. The branch is not a separate legal entity in its own right; instead the foreign parent company is accountable and responsible for all the debts and liabilities of the branch office. Nonetheless, like a subsidiary company, a branch office must be registered with the Hong Kong’s Companies Registrar.

Generally, branch offices are subject to the same legal and tax consequences as companies incorporated in Hong Kong. Branch offices have to adhere to the ongoing compliance requirements like filing annual returns, filing tax returns and are required to execute other public disclosure requirements.

Check Right to Use Company Name

Although the right to use a name does not need to be formally certified, names that are the same as a name already in the index of company names kept by the Registrar of Companies (“the Registrar”) or that infringe on existing IP such as trademarks, will be rejected upon incorporation and the fees will not be refunded.

Generally, the name of the branch must match the name of the overseas parent company. However, the Companies Registry reserves the right of disallowing the branch from using its parent company’s name if the name is already in use in Hong Kong or is otherwise deemed as misleading or improper.

The name will generally be approved unless it is the same as or similar to a name appearing in the Companies Registry’s ‘Index of Company Names’ Infringes on trademarks Is considered offensive or otherwise contrary to public interest.

A company name search may be conducted free of charge through the Companies Registrar’s Cyber Search Centre or Company Search Mobile Serviceor at the Public Search Centre on the 13th floor of the Queensway Government Offices.

A search in the Trademark Register (http://ipsearch.ipd.gov.hk) maintained by the Intellectual Property Department should also be conducted.

When choosing a name, it is possible to use an English name, Chinese name, or both. For a Chinese name, you may include English letters, but not English words. As with most companies, the name when displayed must include the appropriate legal element (e.g. “ABC Ltd.”) and cannot use restricted words such as words that would falsely suggest the company is part of the government.

Agency: Hong Kong Companies Registrar Cyber Search Centre: http://www.icris.cr.gov.hk/csci/ (Chinese language only)

Trademark Register: http://ipsearch.ipd.gov.hk

Time: Instant

Cost: None

Appoint a local representative

A branch office must have at least one permanent agent who is a resident in Hong Kong. The representative must be authorized to accept legal notices served on the company. The authorized representative can be an individual or body corporate (such as a corporate firm of solicitors or professional accountants only).

Agency: N/A

Time: N/A

Cost: N/A

Establish a place of business

A branch office is required to have a place of business, although it apparently doesn’t have to be formally registered. The place must be a physical location where, among other things, statutory documents are kept.

In Hong Kong, there are services, which provide a “virtual address” by providing you a business address, phone and fax numbers, and staff to answer calls in English, Cantonese, or Mandarin. Examples of these businesses include HK Commons (http://hkcommons.com/), Compass (http://compassoffices.com/), and Centre O (http://www.centreo.hk/).

Agency: N/A

Time: N/A

Cost: N/A

Register the Company

Like a subsidiary company, a branch office must be registered with the Hong Kong’s Companies Registrar. The following documents are required:

  • A duly completed form providing details of the branch office such as registered address, local representative, particulars of the parent company, etc.
  • A certified copy of the constitution (e.g. Memorandum and Articles of Association) for the parent company
  • A certified copy of the local Certificate of Registration for the parent company
  • A certified copy of the latest accounts of the foreign company (If the company is not required to publish or disclose its accounts to the public, it is not required to submit accounts but the reason must be stated accordingly).
  • Identification documents for the local representative of the branch office
  • Any documents not in English or Chinese must be translated in English or Chinese through official channels before submission.

If there were no problems with the name approval process and registration documents are found to be in order, the Company Registrar will issue a “Certificate of Registration of Non ­Hong Kong Company”. The certificate has to be collected in person at the Companies Registry. A written authorization will be required if the person who applied sends a different representative to collect the certificate.

Side note: Most of the business activities don’t require any special business licenses in Hong Kong. However if a special business license is required, you must obtain it before commencing operations.

Agency: Hong Kong Companies Registrar

Time: 2 weeks

Cost: HKD$1,720

Apply For Business Registration Certificate

You need to register your business with the Business Registration Office of the Inland Revenue Department (香港稅務局). The application for company incorporation includes a simultaneous application for business registration, so in most cases this step will be combined with the previous step.

If business registration is not done combined with the company registration, you must register at the Hong Kong Companies Register (公司註冊處) in person within one month of starting business, submitting a Notice to Business Registration Office Form (IRBR1).

On successful receipt of the application, the Business Registration Certificate (的商業登記證) will be issued on the next working day and must be collected in person. The Business Registration Certificate must be displayed on the office premises at all times.

Agency: Inland Revenue Department (香港稅務局), or possibly also through Hong Kong Companies Registry (公司註冊處) (online: e-Registry)

Time: 2 days

Cost: HKD$2,000 for a one-year certificate; HKD$5,200 for a three-year certificate

Obtain Corporate Bank Account

Opening a business bank account in Hong Kong is reportedly straightforward. You will need your incorporation and registration documents from the previous steps, appropriate identify and residence documentation, and the bank will advise you further documents they require, depending on the bank.

Banks in Hong Kong normally require a minimum deposit the amount of which varies between different banks.

Agency: Commercial Banks (商業銀行)

Time: 1 day

Cost: None (may vary depending on bank, some banks usually require minimum first deposit)

Company

A Limited Company is the most commonly-used company type. It is fully incorporated in Hong Kong, meaning the company can take advantage of all tax benefits and concessions available to any fully incorporated business, including the Closer Economic Partnership Arrangement (CEPA), a free trade agreement with mainland China. Most of the limited companies incorporated in Hong Kong are private companies limited by shares.

A private limited company in Hong Kong requires at least one director who is an individual (i.e. not a company) and one company secretary (which can be a company or individual). A non-Hong Kong resident can be appointed as a director. If the company has one director only, the sole director cannot be the company secretary at the same time. If the company secretary is an individual, they must reside in Hong Kong, or if the secretary is a body corporate, its registered office or place of business should be in Hong Kong.

For a company limited by shares the liability of members is limited by the articles of association to the amount unpaid on the shares respectively held by them.

Choose a Company Name

Before incorporating in Hong Kong, the right to use the company name should be confirmed first. Although the right to use a name does not need to be formally certified, names that are the same as a name already in the index of company names kept by the Companies Registrar (公司註冊處) or that infringe on existing IP such as trademarks, will be rejected upon incorporation and the fees will not be refunded.

A company name search may be conducted free of charge through the Companies Registrar’s Cyber Search Centre or Company Search Mobile Service or at the Public Search Centre on the 13th floor of the Queensway Government Offices.

A search in the Trademark Register (商標註冊處) (http://ipsearch.ipd.gov.hk) maintained by the Intellectual Property Department (知識產權署) should also be conducted.

When choosing a name, it is possible to use an English name, Chinese name, or both. For a Chinese name, you may include English letters, but not English words. As with most companies, the name when displayed must include the appropriate legal element (e.g. “ABC Ltd.”) and can not use restricted words such as words that would falsely suggest the company is part of the government.

Agency: Hong Kong Companies Registrar (公司註冊處) Cyber Search Centre: http://www.icris.cr.gov.hk/csci/ (Chinese language only)

Trademark Register (商標註冊處): http://ipsearch.ipd.gov.hk

Time: Instant

Cost: None

File Articles of Incorporation

Application for Incorporation is made with the Hong Kong Companies Registry (CR) (公司註冊處). To simplify the process of setting up a limited company, any application for company incorporation includes a simultaneous application for business registration (商業登記).

You may simply deliver the following documents online at the CR’s e-Registry including:

  • Incorporation Form (Form NNC1 for company limited by shares)
  • A copy of the company’s Articles of Association (章程)
  • A Notice to Business Registration Office (IRBR1)

After certificates of incorporation (and registration) are received, it is also advisable to visit the website of the Trade and Industry Department (http://www.tid.gov.hk/eindex.html) for information on other licenses, permits, certificates and approvals relevant to import and export and other business operations in Hong Kong.

Agency: Hong Kong Companies Registry (公司註冊處) (online: e-Registry)

Time: Online: 1 hour

Hard Copy: 4 days

Cost:

  • Company Registration fee – HK$1,720 (If unsuccessful, an application for a refund of HK$1,425 may be made)
  • Business registration fee – HK$2,000 for a one-year certificate; HK$5,200 for a three-year certificate
  • Levy to the Protection of Wages on Insolvency Fund – HK$250 for a one-year certificate; HK$750 for a three-year certificate

Apply for a Business Registration Certificate

You need to register your business (的商業登記證) with the Business Registration Office of the Inland Revenue Department (香港稅務局商業登記). The application for company incorporation includes a simultaneous application for business registration (商業登記), so in most cases this step will be combined with the previous step. If it is not, you must register at the Hong Kong Companies Register in person within one month of starting business, submitting a Notice to Business Registration Office Form (IRBR1).

Once you have registered your business, you must display your Business Registration Certificate (的商業登記證) at your place of business.

Agency: Hong Kong Companies Registry (公司註冊處) (online: e-Registry)

Time:

  • 30 minutes for in person applications
  • 1 hour for online applications (when applying in combination with incorporation)
  • 2 days for posted applications

Cost: HK$2,000 for a one-year certificate; HK$5,200 for a three-year certificate

Open a Corporate Bank Account

Opening a business bank account in Hong Kong is reportedly straightforward. You will need your incorporation and registration documents from the previous steps, appropriate identify and residence documentation, and the bank will advise you further documents they require, depending on the bank.

Banks in Hong Kong normally require a minimum deposit the amount of which varies between different banks.

Agency: Commercial Banks (商業銀行)

Time: 1 day

Cost: None