Hong Kong, as a global free port and financial centre, continues to thrive on the free flow of goods, services, and capital. As the economic and financial gateway to China, and with an efficient regulatory framework and low and simple taxation, it continues to offer the most convenient platform for companies doing business on the Mainland China.
Some of the reasons for the popularity of Hong Kong as a corporate domicile include:
Financial Centre Rating
Hong Kong is a prominent banking centre in Asia Pacific with numerous of the largest banks in the world having local operations within the territory.
Hong Kong has been rated by The Heritage Foundation and Wall Street Journal’s Index of Economic Freedom in 2015 and consecutively for the 20th year with the highest economic freedom score out of 186 countries around the world. The Index of Economic Freedom places particular emphasis on Hong Kong’s efficient legal and tax systems, competitive trade regime and overall business and labour freedom.
The Local currency in Hong Kong is Hong Kong dollar and which is pegged to the US dollar around HK$7.80=US$1.00 in order to maintain its currency stability. Hong Kong dollar can be freely convertible and there no exchange control in Hong Kong.
Hong Kong enjoys a high degree of autonomy from the People’s Republic of China under the “One Country, Two Systems” policy including the right of final adjudication by the Hong Kong Court of Final Appeal. Hong Kong’s Basic Law protects the fundamental rights of individuals and the capitalist system. Common law case law is applied in Hong Kong and the new Hong Kong Companies Ordinance commenced in March 2014. It enhances corporate governance, ensures better regulation, facilitates business and modernises the law. Such competitive and transparent regulatory framework supports dynamic business formation and operation in Hong Kong.
Double Taxation Relief
Double Taxation arises when two or more tax jurisdiction overlap. As of March 2015, Hong Kong has concluded Comprehensive Double Tax Agreements with the following countries:
- Mainland China
- New Zealand
- United Kingdom
- Czech Republic
Hong Kong has also concluded Limited Double Taxation Agreements with various countries in respect to air services income and shipping income.
Favourable tax regime
Hong Kong has a simple and efficient tax system and adopts the territoriality basis of taxation. This means that only profit sourced in Hong Kong is subject to tax. The residential status of a Hong Kong company is therefore not relevant in determining its liability of profits tax. There is no withholding tax levied on dividends or interest paid from Hong Kong companies to non-residents.
Gateway to China
The 2003 Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded between Mainland China and Hong Kong. It opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong. As such, the qualifying products, companies and individuals in Hong Kong can enjoy unprecedented access to Mainland China.
Incorporating a Hong Kong Private Company
The company name can be in English, in Chinese (traditional Chinese characters format only) or in both English and Chinese. The company name must end with the word “Limited” or its equivalent in Chinese characters. A company name must not be identical to that of an existing company, infringe on trademarks or be considered offensive or otherwise contrary to public interest. Prior to incorporation, a company name search must be conducted to confirm the availability of a proposed company name.
Articles of Association
Every company must have Articles of Association which is the only constitutional document of a company. It prescribes the regulations governing the administration of the company including the procedures for Shareholders and Directors meetings and any restrictions on the issue and transfer of shares.
There is no authorised share capital of the company and the shares have no nominal (par) value. The company can determine its share class, the maximum number of shares to be issued and the total issued share capital. No capital duty is payable to the Hong Kong Government for the incorporation.
A private company must have at least one registered Shareholder (but cannot have more than fifty shareholders) who can be either an individual or a body corporate (each founder member is required to subscribe at least one share in the company). There are no restrictions on the nationality or residence of the Shareholder and Shareholder meetings may be held in or outside Hong Kong. Bearer shares are not permitted.
A private company must have at least one Director who is a natural person (at the time of appointment the person must have attained the age of 18 years). Other Director(s) may be either an individual or a body corporate.
There are no restrictions on the nationality or residence of Directors. Meetings may be held in or outside Hong Kong.
Where a company has only one Shareholder who is also the sole Director, the company may nominate in a general meeting a natural person (other than a body corporate) who has attained the age of 18 years as a Reserve Director to act in the place of the sole Director in the event of his/her death.
A Company Secretary must be appointed who can be either an individual or a body corporate. An individual Company Secretary must be ordinarily resident in Hong Kong. A corporate Company Secretary must have its Registered Office or a place of business in Hong Kong.
A sole Director of a private company cannot serve as the Company Secretary of the company. A body corporate cannot serve as the Company Secretary if the sole Director of the private company is the only Director of the Company Secretary.
A company must maintain a Registered Office in Hong Kong. Non-Hong Kong addresses, “care of” addresses or post office box numbers are not permitted. Details of the company’s Registered Office must be filed with the Companies Registry when the company is incorporated.
Time for incorporation
A company is incorporated by filing the prescribed form signed by the initial founder member(s) and director(s) with the Hong Kong Companies Registry (CR). The incorporation takes place when the CR issues the Certificate of Incorporation and this takes approximately five working days after filing.
Every company is required to register with the Commissioner of Inland Revenue under the Business Registration Ordinance. The application for a Business Registration Certificate must specify the type of business to be carried on and all places of business maintained in Hong Kong. Such certificate is valid for a twelve-month period from incorporation and must be renewed annually.
Accounts and audit
Directors are required under the Companies Ordinance to maintain proper accounting records of the company to be kept at its Registered Office or at such other place as the Directors may think fit. The financial statements should be audited on an annual basis but there is no requirement to file the audited financial statements with the CR. Every company is required by Companies Ordinance to appoint an auditor or firm of auditors each year at its general meeting. The first auditor may be appointed by the Directors and may hold office until the following annual general meeting. An auditor must be qualified by virtue of the Hong Kong Professional Accountants Ordinance and completely independent of the company.
A Hong Kong company is taxed on its profits arising in or derived from a trade or business carried on in Hong Kong. Respective tax returns (ie Profits Tax Returns and Employer’s Returns) must be filed within a stipulated time upon receive.
The following annual requirements apply to Hong Kong Private Limited companies in accordance to the Hong Kong Companies Ordinance and the Business Registration Ordinance:
An Annual Return must be filed with the Companies Registry within 42 days after the anniversary date of the company’s incorporation. Penalty will be imposed on the company for late filing, the maximum amount of which is HK$3,480.
The company is required to pay Business Registration (BR) Fee and Levy every year. The BR Office will send the BR demand note to the registered office at least one month prior to the date of renewal of the BR. Penalty will be imposed to the company for late payment of the BR Fee and Levy.
Accordingly, any changes to the registered office address must also be communicated to the BR Office and the IRD.
Annual General Meetings
Hong Kong companies must, in respect of each financial year, hold an annual general meeting (AGM) within nine months after its financial year end. If it is the first AGM, it should be held within nine months after the anniversary of the company's incorporation or three months after the first financial year end, whichever is the later. There is no requirement to file the AGM documents with the CR.
A directors’ report and auditors’ report must be attached to the company’s annual financial statements before the same are presented at the company’s AGM for consideration by its members. In case of a private company (other than a member of a group of companies which contains a public company), its audited financial statements must be laid before its AGM not more than nine months from its financial year end.
A private company that qualifies as a “small private company” and a holding company of a group of companies that qualifies as a “group of small private companies” will qualify for simplified reporting to prepare simplified financial statements and directors' report. Simply speaking, a small private company must meet any two of the following conditions:-
- Total annual revenue is less than HK$100 million;
- Total assets amount to less than HK$100 million; and
- Average number of employees is less than 100.
Other changes in respect of the company eg change of registered office, change of directors/company secretary and respective particulars, change in paid up share capital etc must be reported to the CR using prescribed statutory forms within a stipulated time.
The Inland Revenue Department requires Profits Tax Returns (PTR) to be supported by audited financial statements. The PTR must be completed and submitted within one month from the date of issue, failing which penalty and legal action may be imposed on the company. Corporations are currently taxed at the rate of 16.5 per cent on their taxable profits.