How to open your company in Hong Kong: everything you need to know

Why is Hong Kong good for business?

Hong Kong is a modern city, which is an administrative region of China in the southeast of the country, a former British colony. Hong Kong has established itself as the most suitable jurisdiction for the registration of a holding or trading company, the establishment of a company for further registration of intellectual property rights.

As business develops rapidly and today’s entrepreneurs increasingly look for opportunities to expand into international markets and expand the boundaries of their activities, Hong Kong, as a unique, modernized business city, full of business solutions and opportunities for entrepreneurs, is at the top of the world rankings of business-friendly jurisdictions.

The jurisdiction is characterized by a free and open market. There are no barriers to international trade, there are no customs tariffs, and excises apply only to a very limited number of goods (alcohol, tobacco, oil). An important plus is a developed banking system, which creates a business-friendly environment with an attractive tax regime and, consequently, a large number of investments that the jurisdiction attracts.

Hong Kong is considered an ideal solution if you are planning to establish business or trade relations with China, which gives you every opportunity to do this and not pay sky-high taxes, or even be exempt from tax if the company operates outside of Hong Kong.

What are the benefits of registration of a company in Hong Kong?

• Registration of a company in Hong Kong makes it possible to conduct trading activities in China
• Since the city is open to foreign entrepreneurs, Hong Kong has an easy visa process
• Simple and relatively fast company registration process
• Hong Kong is a modernized and developed city with advanced business technologies and business solutions, developed infrastructure, easy access to business centers
• Developed market for IP services. Registration of a company for further registration of intellectual property rights is gaining great popularity
• Optimal tax system. The corporate tax rate is from 8,5% (for paying tax from income up to 2 million HKD) to 16%. If the company does not operate in the territory of the jurisdiction, does not have business connections and partners from the jurisdiction, such a company is not subject to taxation in Hong Kong.
• Shareholders and the director of the company are not required to be present in Hong Kong in person to register the company.

In what form is the best for registration of a company in HK?

To successfully conduct your business in the jurisdiction and receive all the benefits, we recommend registering a company in the form of a limited liability company – LTD.

The requirements for setting up a company in the form of an LTD are as follows:

• Share Capital – Unlike many business jurisdictions, Hong Kong does not impose a minimum share capital requirement. The amount of capital required to register a company is as low as possible. The recommended share capital for company registration is HKD 10,000. If the share capital exceeds HKD 10 000, a tax of 0,1% of the excess amount must be paid.
• A minimum of one shareholder is required. The maximum number of shareholders is 50. Shareholders may be non-residents. The director and shareholder may be the same person.
• To open a company, you need at least one director of any residency, not necessarily a resident of Hong Kong, but he must have a criminal record.
• Registered address of the company, as each company must comply with this condition and have its registered address in Hong Kong. At this address you can receive all correspondence from the government.
• A company secretary who is a Hong Kong citizen is required.
• All companies in Hong Kong must hold at least one general meeting per year. Such annual meetings (AGM) must be held within nine months of the end of the company’s financial year and once during the financial year.
• Requirements for substance (real presence of a company) do not apply to companies that do not operate within the jurisdiction.
• For this jurisdiction, the audit of financial statements is mandatory for all companies.

When registering a company in Hong Kong, you should also know that, as a plus, it is convenient to manage a Hong Kong company remotely from anywhere in the world, and the local legislation of the jurisdiction is based on English law, so the company’s documents are drawn up in Chinese and in English.

Hong Kong taxation

The attractive tax regime of Hong Kong is a pull factor, attracting the interest of a large number of global entrepreneurs and investors to conduct a successful business in this jurisdiction.

Here the principle of territorial taxation applies, in which only profits received within Hong Kong are taxed. A company registered in Hong Kong that receives income from any other place outside the jurisdiction will not pay tax on its income.

Important advantages of the jurisdiction are that there is no value added tax (VAT), no sales tax, inheritance tax, and capital gains tax.

The main taxes that apply to businesses, as previously mentioned, are corporate tax, income tax, and also property tax.

1. Corporate tax. This type of tax in Hong Kong is subject only to income arising from the conduct of a trade, business or professional activity in Hong Kong.

There are two types of income tax rates in Hong Kong: they differ depending on whether companies use a single-tier or two-tier corporate tax system.

The single-tier taxation system proposes to tax company profits at a rate of 16,5%, and unincorporated enterprises are taxed at a rate of 15%.

A two-tier tax regime is applied to companies by reducing the tax rate to 8,25% on the first HK$2 million of taxable income, and profits above this amount will be taxed at the current tax rate of 16,5%.

2. Income tax or tax that is levied on wages. Applies to any person who derives his income from wages or pensions that he receives in Hong Kong. The rate itself is progressive, the payroll tax ranges from 2% to 17%.
3. Property tax. Property tax is levied annually on the income of property owners from the lease of such property, which is located in Hong Kong. Property owners are generally taxed at 15% on the net assessed value of the property. A company that has rental income from property must pay income tax in accordance with the laws of the jurisdiction, but may also reduce the amount it pays for property tax from income tax, or may apply for exemption from property tax.

When establishing a company in Hong Kong, you should not forget that the Hong Kong authorities take a very responsible approach to monitoring the compliance of companies with legislative norms, including tax ones, for example, if the tax service finds that a company that does not operate within the jurisdiction will receive income from activities in the territory of the jurisdiction, then such income will be taxed at a corporate tax rate of 16,5%.

Therefore, if you are planning to expand the boundaries of your own business, reach a new level and scale of international trade, or register a holding company in one of the most developed and prestigious jurisdictions in the world, or your interests relate to opening a company for registration of intellectual property rights, opening a company in Hong Kong – the option that will satisfy all your requirements.