Company Registration in the Hong Kong- An Overview
Hong Kong is one of those countries which has developed its economy radically within the competitive Asian market. Hong Kong is a city in China with an immense capacity for trade and business. Hong Kong is one of the most preferred locations due to its lucrative markets that have so much to offer. Companies based out of Hong Kong or registered there are doing exceptionally well. Now, register your company through Enterslice and stand a chance to make the most of the opportunity in Hong Kong.
Benefits of Company Registration in Hong Kong
Following are the benefits of company registration in Hong Kong:
- Gateway to the Mainland China -
Registering your Company in Hong Kong opens the doors to access the market of Mainland China both geographically and economically. The famous Pearl River Delta, the region's largest and most productive manufacturing hub, is optimally connected with Hong Kong, facilitating trade between Hong Kong and Mainland China.
- Double Taxation Avoidance Agreement between Hong Kong and China-
Hong Kong and China entered into a Comprehensive Double Tax Agreement in 2006 which came into effect in 2007. This comprehensive DTA allows the Hong Kong enterprises investing in China to claim preferential treatment in terms of reduced withholding tax on the rates of dividends, royalties, interest and exemptions on certain capital gains.
- Advantages of being a member of APEC -
Being a member of the Asia Pacific Economic Cooperation, Hong Kong avails a number of benefits from the trade agreements. Having a company registered in Hong Kong allows it to pay lower tariffs on certain goods and services among the member states.
- The western regulatory system for companies -
Despite being a part of Mainland China, Hong Kong continues with its previous regulatory system, which is similar to that of western nations, which makes it easier for the companies belonging to the western sovereign nations to invest and register their subsidiaries in Hong Kong. Further, being a signatory of the Comprehensive Economic Partnership Agreement, it allows its registered companies to have closer cooperation in trade and investment with the Mainland Chinese market.
- Lower Tax rates -
The registered companies in Hong Kong are required to pay Corporate Income Tax at the rate of 16.5%, one of the lowest corporate income taxes among the countries in the region. Further, Income tax in Hong Kong is also one of the lowest ranging from 2% - 17%, making Hong Kong a popular destination for employees from other nations to come and settle down in Hong Kong. Last but not least, Hong Kong's government does not impose indirect taxes such as VAT, GST etc. This tax regime offers a conducive environment for businesses to flourish in Hong Kong, especially small and medium businesses.
- Minimal currency restrictions-
As a major global financial center of the world, a number of transactions occur in different currencies. A unique feature of the Hong Kong regulatory system is that there are no foreign exchange regulations in Hong Kong, which allows unhindered money exchange worldwide. In addition, Hong Kong allows the use of foreign currencies for multiple official purposes. For example, the company's share capital can be paid in any currency other than Hong Kong Dollar.
- Major Banking and Payment hub of the world -
Hong Kong also takes pride in being one of the world's major International Financial Services centers. It offers a variety of payment services and financial solutions. It provides a simple process to set up multiple currency business accounts to save on currency conversion while dealing with multiple currencies.
Eligible Business Structures under Company Registration in Hong Kong
Foreign investors wanting to establish their presence in the Hong Kong market can set up a Hong Kong company. The companies incorporated in Hong Kong can be either private or public companies. According to the amendments introduced by the Companies Ordinance (Cap. 622), the following are the major types of companies that can be set up in Hong Kong:
- Private Companies Limited by shares (private limited company)
- Private Unlimited Companies with a share capital (private unlimited companies)
- Public Companies Limited by shares (public limited company)
- Public Unlimited companies with a share capital (public unlimited company)
- Companies limited by guarantee without a share capital
- Private Companies Limited by shares (Private Limited Company)-
A private limited company has a share capital divided into a number of shares with a certain value. These shares are issued to the company's shareholders, and such shareholders' liability extends to the unpaid subscription price of the shares. These types of companies are most suitable for profit-making purposes.
Following are the features of a private limited company in Hong Kong:
- The shareholders’ ability to transfer shares of the company is restricted
- A private limited company has the capacity to have a maximum of 50 shareholders in the company
- These companies cannot invite the general public to subscribe to the shares and debentures of the company
These private limited companies account for 99% of all the companies registered in Hong Kong. Generally, this type of legal structure is adopted by small to medium-sized companies because of its features such as limited liability, easy incorporation procedure, separate legal entity, convenience in the transfer of ownership and a positive image among the banks and investors.
- Public Limited Companies
A public limited company is an entity whose shares and debentures (securities) can be offered to the public. Suppose a company is a Limited Liability Company but does not fall under the ambit of a private limited company or a company limited by guarantee. In that case, it is a public limited company. The regulatory requirements for registering a public limited company are comparatively stricter than a private limited company since it raises capital from the public.
This type of legal structure of a company is usually adopted by big businesses that want to raise capital from the public. Usually, medium to large companies decides to transfer from the legal structure of a private limited company to a public limited company when they witness substantial growth in their businesses. Most of the public limited companies registered in Hong Kong are listed on the stock exchange of Hong Kong.
- Private and Public Unlimited Companies with share capital -
The peculiarity of these companies is that despite having shareholders who have contributed share capital, they have unlimited liability against the debts and obligations of the company, where each member is jointly and severally liable. Foreign companies generally avoid these kinds of business structures.
- Companies limited by guarantee without share capital -
A company limited by guarantee does not have a share capital, and the liability of its members extends to the amount of assets they contribute to the company. Such legal structures have been apt for non-profit-making activities such as education, research etc. These structures are not ideal for companies that have a profit-making motive.
- Branch office -
Apart from choosing the structure of Hong Kong incorporated companies, foreign companies may also decide the legal structure of a branch office. A branch office in Hong Kong is an extension of the overseas company in Hong Kong, where the foreign company is liable for all the debts and liabilities of the branch office in Hong Kong.
For the registration of a Branch Office in Hong Kong, a foreign company must register with the Companies Registry as a non-Hong Kong company and, after that, a Business Registration Certificate (BRC). Generally, the branch offices of foreign companies are subject to similar tax and legal regulations as any other Hong Kong incorporated company would be liable to pay.
Though it is not advised for a foreign company to set up a branch office in Hong Kong over a Hong Kong subsidiary due to the liability of the foreign parent company, foreign investors prefer establishing a branch office for the following reasons:
- A branch office is a comparatively more tax efficient than a parent company, such as in cases where losses are incurred in the Hong Kong branch.
- A branch office is not subject to limited compliances compared to a subsidiary.
- A branch office is not required to conduct a separate audit
- The process of termination of a branch office is easy by notifying the Companies Registrar
- Representative Offices -
Similar to a branch office, a representative office is not a separate legal entity, and the foreign parent company bears all the liabilities of the representative office in Hong Kong. A representative office is not permitted to carry out profit-generating commercial activities. A representative office can only engage in limited activities such as liaising, marketing, research, etc.
A representative office is not required to be registered with a Companies Registry. It only needs to obtain a Business Registration Certificate from the Inland Revenue Department. Foreign investors generally enter the Hong Kong market through a representative office for market research purposes, as these offices are exempt from filing taxes since they are not engaging in profit-generating commercial activities.
Eligibility Criteria for Company Registration in Hong Kong
The following eligibility criteria need to be met for the registration of a company in Hong Kong:
- Shareholding of the company
The law prescribes that a minimum of 1 shareholder and a maximum of 50 shareholders are allowed to register a private limited company in Hong Kong. The law permits a person belonging to any nationality to become a shareholder in the Hong Kong Company. 100% ownership is permitted, and a foreign company is allowed to have a wholly-owned subsidiary in Hong Kong.
- Requirement of the founding Directors
At least one director is required for the registration of a company. This director can either be a natural person, who should be above 18 years of age, or a body corporate. The director may belong to any nationality or resident of any country. However, such a director should not be bankrupt or have not been convicted before. The law allows a sole shareholder to act as the company's sole director.
- Company Secretary
A company is required to appoint at least one company secretary at the time of registration of a company. Such a company secretary can either be a natural person or a body corporate. It must be noted that a director and sole shareholders cannot become the company secretary in Hong Kong.
- Local Registered Business Address
In order to register a company in Hong Kong, a physical address is required and not a P.O. Box address. This address is required to be registered with the Company Registrar. This is the place where all the correspondence with the Company Registrar takes place. The company is supposed to maintain the prescribed internal documents and registers at this address. It must be remembered that residential spaces cannot be used as registered business addresses.
A Hong Kong company is required to submit the audited annual financial statement to the Inland Revenue Department, which makes it necessary for the company to appoint a Chartered Accountant (CA). Such CA should be the holder of a practising certificate and a member of the Hong Kong Society of Accountants.
- Share Capital
The law does not prescribe a minimum share capital for the registration purposes of a company in Hong Kong. The general practice followed is the registration of a company with a minimum authorised share capital of HKD 10,000 with paid-up share capital of HKD 1 per share.
Procedure for Company Registration in Hong Kong
Hong Kong has maintained a record of being the freest economy in the past 20 years. Registration of a company in Hong Kong can be done in the following easy steps. Foreigners who wish to set up an offshore company in Hong Kong should following the given procedure:
- Choosing a name for the Hong Kong company
- Selecting an appropriate legal structure for the company
- Delivering application for registration purposes
- Collecting the certificates for registration of the company
- Opening of Bank Account
- Obtaining the required business permits and licenses for the company
- Choosing a name for the Hong Kong company -
Every business is supposed to choose a name for the company. Approval of the Companies Registrar is required to register a company in Hong Kong. The name can be either English, a Chinese name or an English and Chinese name. However, a combination of both English letters and Chinese characters is not permitted. The English name of the Company should end with 'Limited'.
While choosing a name for the company, it must be remembered that the name should not have been registered in the Registrar's Index of Company names. The name should not be similar to a company's name that has already been incorporated or established under an ordinance. If the registrar feels that the name of the company would constitute a criminal offence or is otherwise offensive or contrary to the public interest, then such a name won't be accepted by the company.
Additionally, the company's name should not infringe on the intellectual property rights of a third party. In case Chinese characters are selected for the name, then the name should contain the traditional Chinese characters found in the Kang Xi Dictionary or Chi Hai Dictionary and also that can be found in ISO 10646 international coding standard. Simple Chinese characters won’t be accepted as a name for the company.
- Selecting an appropriate legal structure for the company -
Before proceeding further with the company registration process, the business owner must decide the company's business structure. The deciding factor in the selection of the company's legal structure would depend on the company's commercial activities. It includes the way how the business files its taxes and how it conducts its business. Following are some of the legal structures that can be chosen for a business:
- Hong Kong incorporated company (public and private company)
- A branch office of a foreign company
- A representative office or a liaison office of a foreign company
- A collaboration (either as a partnership or a company)
- Sole Proprietorship
Foreign companies generally adopt the vehicle of privately incorporated companies and branch offices over other forms of business structures.
- Delivering application for registration purposes -
The following documents are required to be delivered along with the prescribed fee either through the 'e-registry' or 'CR eFiling’ mobile application or in hard copy to the Shroff at the 14th Floor of Queensway Government Offices:
- Incorporation Form: Form NNC1 (for companies limited by shares) or Form NNC1G (for companies limited by guarantee)
- Copy of the Company’s articles of association; and
- Notice to the Business Registration Office (IRBR1)
All the companies in Hong Kong are registered with the Companies Registry. Most entrepreneurs prefer a Limited Company (LLC) business vehicle because of its multiple advantages since these entities are separate legal entities and can protect the owners' personal assets from any business risks.
Another reason for selecting the structure of an LLC is its relatively simple registration procedure.
- Collecting the certificates for registration of the company
If the abovementioned forms and documents receive the approval of the Companies Registry, the business owner gets to download the Certificate of Incorporation and Business Registration Certificate. These certificates are issued either in the electronic format or as a hard copy depending on the mode of delivery of an application. It must be remembered that electronic and hard forms certificates have the same legal effect.
Applications delivered in electronic format: the electronic certificates for the registration of a private company limited by shares usually take place within an hour. An email notification containing the downloadable link of the certificate is delivered to the message box and the registered email address of the registered user who delivered the application in the first instance.
Applications delivered in hard copy format: where the application was delivered in the hard copy, the certificate of registration is issued within a period of 4 working days. The presenter of the application is notified by fax when the certificates are ready for collection. The presenter can collect the documents from the Registry in the Notification of the Collection of Certificates presentation and the identification document/ company chop mentioned therein. Suppose the presenter sends his representative for the collection of the certificate. In that case, the representative has to show a written authorisation from the presenter along with the identification document mentioned in the written authorisation.
- Opening of Bank Account -
As soon as the company registration process is concluded, the next most important thing to be done is to reach out to financial institutions to raise investment for the business. This requires a bank account in the name of the company. Opening a bank account in the company's name requires several documents. Following is the list of documents that any traditional bank in Hong Kong may ask for:
- The registered address of the company and the contact details of the company, and the owner of the company
- Certification from the attorney of the company, company secretary or public accountant
- Company establishment documents
- Certified copies of the company identification documents
- Evidence that the company is carrying on its business operations, such as a business plan or audited financial documents
- Details of Ultimate beneficial owners of the shareholders of the company
- Certified copy of the business registration certificate
- Other documents are mentioned in the bank application.
- Obtaining the required business permits and licenses for the company -
The last step in the registration of a company in Hong Kong is to apply for the necessary permits and licenses to run the business smoothly. There can be a number of permits and licenses that may be applicable to your business depending on the type of commercial activities undertaken by your company. Different government departments have prescribed a number of licenses for your business.
Corporate Tax in Hong Kong
Corporate Income Tax applicable to the companies operating in Hong Kong is 16.5%. However, there are no taxes on capital gains, withholding tax on dividends and indirect taxes applicable in Hong Kong such as VAT, GST etc.
Documents for Company Registration in Hong Kong
The documents specified below should be kept ready for registration purposes:
- Articles of Association
- Drafted notice to Business Registration Office
- Name of the company
- Copy of the Bank account
- Details of the Directors and Shareholders such as their passport copies, residential proof of non-resident directors and shareholders (in case of non-resident shareholders and directors
- Photo identity proof of the concerned office holders
- Trade name for your business
- Copy of foreign company incorporation documents such as Certificate of Incorporation (in case of branch or representative office)