Business entities in Hong Kong
Choosing the right vehicle and strategy for starting a business in a new jurisdiction is an important decision to make. Healy Consultants has the expertise and experience to advise our Clients on the optimum corporate structure for Hong Kong business setup. There are several ways of doing business in the city, most popular being through a limited company. It is however also possible to register a local branch of a foreign company and a representative office.
The Hong Kong offshore company (Hong Kong non-resident limited company)
- Foreigners can register a Hong Kong offshore company (locally known as a non-resident company) with i) only one shareholder and ii) one director, who both can be foreigners and do not need to reside in Hong Kong. The incorporation process is straightforward, with no minimum share capital requirement and no government approval required. While corporate shareholders are common, corporate directors are not allowed under the Hong Kong Companies Ordinance;
- Hong Kong has an attractive corporate tax system allowing companies to be exempt from local corporate income tax, provided that they do not trade with resident customers. Unlike Singapore, the location of the corporate bank account has however no impact on the taxation of the business. Refer to this page for a comparison between legally tax exempt entities in Hong Kong and Singapore;
- After incorporation, all Hong Kong companies must appoint a Hong Kong resident company secretary and file i) an annual return including up to date information on their owners and directors and ii) their annual financial statements with the Hong Kong Companies Registrar. Hong Kong does not provide an audit exemption for SMEs so the financial statements must always be audited;
- Best uses for a Hong Kong offshore company: being unrestricted in the activities it may perform, a limited company in Hong Kong is the best option for our Clients in a majority of cases. The exemption from tax on corporate income received from overseas operations makes Hong Kong an ideal jurisdiction for both holding companies and international trading companies.
The Hong Kong trust
- It is possible to register a trust in Hong Kong by appointing a corporate or individual trustee, ordinarily residing in Hong Kong and properly licensed. The assets put under trust, the settlor(s) and beneficiary(ies) can otherwise all be non-resident foreigners. The trust is tax transparent, meaning that income channelled through a trust will not be subject to tax in Hong Kong;
- Best uses for a Hong Kong trust: the recent modernization of the Hong Kong Trust regulations (dating from 1934) have made Hong Kong a popular jurisdiction for the registration of corporate and private trusts. They have notably reinforced the protection given to settlors and beneficiaries against mismanagement by the trustee.
The Hong Kong resident company (Hong Kong resident limited company)
- A company registered in Hong Kong is deemed Hong Kong resident if a majority of its directors are residing in the country. Tax residency is however only a consideration for access for some (but not all) of the double taxation avoidance treaties signed by Hong Kong. It does not impact whether the company will have to pay corporate income tax in Hong Kong, which is only due for income sourced from Hong Kong;
- Best uses for a Hong Kong resident company: Structuring a Hong Kong company as resident only makes sense when our Client i) lives in Hong Kong or ii) has a need to access a DTAA restricting its benefits to Hong Kong resident companies only. In such case, it will be necessary to appoint a majority of directors living in Hong Kong, before the Hong Kong tax authority will agree to issue a certificate of residence.
The Hong Kong public limited company (Hong Kong resident limited company)
- Hong Kong public limited companies are allowed to offer shares to the general public, but are required before they do so to file a prospectus with the Hong Kong Companies Registrar. Unlike private limited companies, they can have more than fifty shareholders;
- Best uses for a Hong Kong public limited company: Hong Kong public limited companies are usually registered by owners willing to list their business on the Hong Kong Stock Exchange (HKEx) or another stock exchange. Additional listing requirements will apply according to the exchange’s rules.
The Hong Kong branch office
- Branches are only extensions of their “parent” overseas company, without a separate legal personality. Because of this, any positive or negative financial impact is directly attributable to the parent company. If you need to start doing business in Hong Kong immediately, a branch is a good solution because there may be a month-long gap between commencing operations and branch registration. Like companies, registration of a Hong Kong branch just requires the appointment of a company secretary resident in Hong Kong, with no need to appoint a resident director or country representative;
- Branches in Hong Kong do not need to submit audited accounts with their annual returns or tax filings;
- Best uses for a Hong Kong branch: If you plan only to serve the Hong Kong market with your new operations, a branch may suffice. A company is better for trading outside of Hong Kong, as they will have access to its network of tax treaties. Money can be saved on branch accounting since there is no audit requirement, but you must weigh this against the branch’s unlimited liability.
The Hong Kong representative office
- Unlike a branch office, a representative office is not permitted to make direct sales within Hong Kong. It can only engage in activities such as i) promoting the business of the parent company and ii) market research. If your company’s only presence in Hong Kong is a representative office, you must appoint local agent or distributor to sell goods and provide services to local customers;
- Best uses for a Hong Kong representative office: If your business is considering a move into Hong Kong, establishing a representative office is a good way to station staff in the city to explore the opportunities available. Since representative offices cannot engage in any revenue-generating activities, most of our Clients are better off incorporating a company.
Table of comparison between different entity types
Operations and logistics Resident company Offshore company Offshore trust PLC Branch RO Bank signatory must travel? Yes Yes Yes Yes Yes Yes Doing business in HK permitted? Yes Yes Yes Yes Yes No Allowed to sign contracts with local Clients? Yes Yes Yes Yes Yes No Allowed to invoice local Clients? Yes Yes Yes Yes Yes No Can rent local office premises? Yes Yes N/A Yes Yes Yes Allowed to import raw materials? Yes Yes No Yes Yes No Allowed to export goods? Yes Yes No Yes Yes No Accounting and tax Corporate tax on local income? 16.5% 16.5% 16.5% 16.5% 16.5% Not allowed Corporate tax on foreign income? 0% 0% 0% 0% 0% Not allowed Corporate bank account HSBC HK HSBC HK HSBC HK HSBC HK HSBC HK HSBC HK Statutory audit required Yes Yes No Yes No No Annual tax return to be submitted? Yes Yes No Yes Yes Yes Access to DTAAs? Yes Not all No Yes Yes No Company law Issued share capital required? US$1 US$1 US$1 US$1 None None Resident director required? No No Resident trustee No No No HK shareholder required? No No No No No No Minimum number of directors? 1 1 1 1 1 1 Minimum number of shareholders? 1 1 1 settlor 1 Parent company Parent company Individual shareholders allowed? Yes Yes Yes Yes No No Corporate director(s) allowed No No Yes Yes Yes Yes Corporate shareholders allowed? Yes Yes Yes Yes Yes Yes Public register of shareholders and directors Yes Yes No Yes Yes Yes Immigration Can the entity hire expatriate staff? Yes Yes No Yes Yes Yes How long to get work permit approved 3 months 3 months N/A 3 months 3 months 3 months Fees and timelines How long to set the entity up? 1 week 1 week 4 weeks 3 weeks 2 weeks 2 weeks How long to open corporate bank account? 4 weeks 4 weeks 4 weeks 4 weeks 4 weeks 4 weeks Estimate of engagement costs US$6,255 US$6,655 US$14,000 US$6,255 US$7,455 US$8,155 Draft invoice
How to incorporate a company in Hong Kong
- Consultation phase: Healy Consultants discusses our Client’s requirements and highlights i) any potential licensing requirements and ii) whether any changes to the model articles of association are advisable;
- Planning phase: Next, we draft a detailed engagement plan, mapping out by week each step of the process from day 1 until completion, including i) the incorporation and business registration process ii) document requirements iii) tax implications and iv) obtaining any necessary licences. Doing this optimises transparency, sets Client expectations and helps to ensure effective execution of the engagement.
- Document preparation: Healy Consultants and our Client discuss and agree the following corporate structuring considerations:
- Company name: Decide a unique company name which must follow the guidelines provided by the Companies Registry. Check the availability of a name online;
- Company constitution: Many of our Clients use the simplified model articles of association. If required, Healy Consultants is happy to assist with amending these or the model articles to meet your business needs and governance requirements;
- Share allotment preparation: Confirm i) the identities of the shareholder(s) ii) the currency of the share capital and iii) the number, allocation and value of the shares to be issued. There are no restrictions on the value, number or currency of shares;
- Director selection: Appoint at least one director, who does not need to be resident in Hong Kong. Each director must sign form NNC3 consenting to act as a director of the company. At least one director must be an individual, but corporate directors are permitted;
- Company secretary: Appoint a Hong-Kong resident company secretary. Healy Consultants provides 12 months of company secretarial services as part of our incorporation package;
- Registered address: Find an address in Hong Kong from which to operate your business, or make an agreement to use another party’s address as a registered office. Healy Consultants includes the use of our registered address in our incorporation service plan.
- We then use the above information provided by our Client to complete the incorporation form NNC1 and collate all of the due diligence documents required to complete the process. The shareholders of the company must e-sign the i) finalised articles of association ii) NNC1 incorporation form and iii) IRBR1 business registration form notice for the Commissioner of Inland Revenue.
- Document submission: After all of the documents are in order, Healy Consultants files the incorporation and business registration applications with the Companies Registry and Inland Revenue Department;
- Incorporation approval: Within 4 days of submitting the documents, the company will be incorporated. Approval takes less time if the model articles are used and not amended. Following approval, we immediately email our Client with the certificate of incorporation and business registration certificate.
- Bank account opening: Following receipt of the certificates, Healy Consultants assists our Client with opening a corporate bank account. The majority of our Clients choose either a HSBC or Standard Chartered bank account to support their new company in Hong Kong;
- Business premises: If required, Healy Consultants assists Clients to find business premises and recruit local and expatriate staff by placing advertising campaigns in local publications, such as the South China Morning post;
- Additional registrations: If necessary for the company’s chosen business activities, now is the time to apply for i) social security; and ii) any applicable licences. There is no GST, sales tax, VAT or payroll tax in Hong Kong, so no registration is required for these;
- Engagement completion: Following the issuance of all necessary approvals, certificates and licences, Healy Consultants couriers a full company kit to our Client, including original corporate documents, unopened bank correspondence and a Client feedback survey.