Company Formation in Hong Kong

Hong Kong Incorporation Services

Introduction

General information

Hong Kong is situated along the southeast coast of China, comprising a multitude of islands and a portion of the mainland, covering an area of approximately 1,064 square kilometers. On July 1, 1997, the entirety of Hong Kong transitioned from British administration back to Chinese control and assumed the status of a Special Administrative Region (SAR) within the People’s Republic of China (PRC).

Type of Law: Common Law based on English Common Law.

Infrastructure and Economy: Hong Kong boasts outstanding communication infrastructure and a state-of-the-art international airport. Victoria Harbour, which separates Hong Kong Island and the Kowloon Peninsula, is globally renowned as one of the world’s finest natural harbors. The port handles an estimated 100,000 containers monthly, arguably making it one of the world’s busiest. Hong Kong is the preeminent financial and commercial hub in Southeast Asia and ranks as the world’s third-largest financial center, following New York and London. The Hong Kong Stock Exchange is the most active in Asia outside of Japan.

Language: The official languages are English and Chinese. English is primarily used in commercial and political contexts, while Cantonese Chinese is widely employed in industry and domestic trade.

Currency: The Hong Kong Dollar, officially pegged to the US Dollar (1 US$ = HK$ 7.74 to HK$ 7.78).
Principal Corporate Legislation: Governed by the Companies Ordinance (Cap 32).

Company Information

Type of Company or International Trade and Investment: Private Company limited by Shares.

Procedure to Incorporate: Involves the submission of a Memorandum and Articles of Association and a Declaration of Compliance. Additionally, a Notice of Situation of Registered Office must be filed within fourteen days of incorporation.

Restrictions on Trading: Prohibited from engaging in banking or insurance activities or soliciting funds from or offering shares to the public.

Powers of Company: A Hong Kong company possesses all the legal powers of a natural person.

Language of Legislation and Corporate Documents: Chinese and English.

Registered Office Required: Yes, it must be maintained in Hong Kong.

Name Approval Required: Names cannot be reserved, but it’s crucial to ensure there are no similar or identical names on the register to avoid hindrances to the incorporation process.

Shelf Companies Available: Yes.

Time to Incorporate: Typically, around two weeks from the submission of required documents.

Name Restrictions: Names that closely resemble or are identical to existing companies, names constituting criminal offenses, or names contrary to public interest are prohibited. Names implying royal or government patronage are also not allowed.

Names Requiring Consent or License: Names including “Building society,” “Chamber of Commerce,” “co-operative,” “imperial,” “Kaifong,” “mass transit,” “municipal,” “royal,” “savings,” “tourist association,” “trust,” “trustee,” “underground railway,” “bank,” “insurance,” “assurance,” “reinsurance,” “fund management,” “asset management,” and “investment fund” require specific consents or licenses.

Suffixes to Denote Limited Liability: “Limited.”

Disclosure of Beneficial Ownership to Authorities: No.

Compliance

Authorized and Issued Share Capital:
The standard authorized share capital is HK$1,000, with a minimum issued capital requirement of two shares of par value.

Bearer Shares:
Bearer shares are not allowed.

Other Permissible Shares:
Deferred, founders, and management shares are permitted.

Financial Statement Requirements:
Hong Kong companies are obligated to maintain accounting records for a minimum of 7 years, which can be stored at the registered office address or another location at the discretion of the directors. Every company must appoint an auditor who must be a member of the Hong Kong Institute of Certified Public Accountants and hold a practicing certificate. While there is no mandate to file accounts with the Registrar, filing accounts with the Hong Kong Inland Revenue Department is required.

License Fees:
The Business Registration Fee is presently HK$2,250 at the time of incorporation and subsequently on each anniversary of incorporation. A special tax concession arrangement by the HKSAR is granted until 31st March 2014, reducing the Business Registration fee for each company to HK$250.

Double Taxation Agreements:
Hong Kong maintains comprehensive double tax agreements with several countries, including Austria, Belgium, Brunei, Czech Republic, France, Hungary, Indonesia, Ireland, Japan, Liechtenstein, Luxembourg, Malaysia, Malta, Netherlands, New Zealand, Portugal, Switzerland, Spain, Thailand, the United Kingdom, Vietnam, and Mainland China. These agreements aim to alleviate taxation on various income sources, such as dividends, interest income, and royalties. Foreign tax paid on a turnover basis can be deducted in Hong Kong, minimizing issues with double taxation of income for businesses operating in Hong Kong. Additional agreements with Canada, Jersey, Kuwait, Mexico, and Qatar became effective from 1st April 2014 to address double taxation concerns.

Permissible Classes of Shares:
Hong Kong companies can issue various classes of shares, including ordinary shares, preference shares, redeemable shares, and shares with or without voting rights.

Taxation:
Hong Kong’s tax system is based on a territorial basis, distinguishing it from many other countries that tax global profits, including income from offshore sources. Hong Kong profits tax applies exclusively to profits generated from trade, professions, or businesses conducted within Hong Kong. This means that if a company operates a business in Hong Kong but earns profits elsewhere, it is not liable for taxation on those offshore profits in Hong Kong. Hong Kong sourced income is currently taxed at a rate of 16.5%. Capital gains, dividends, and interest earned are not subject to taxation in Hong Kong.

The key principle of Hong Kong profits tax is that it is imposed on profits sourced within Hong Kong rather than being residence-based. Income generated outside of Hong Kong, even if remitted to Hong Kong, remains exempt from Hong Kong profits tax. In cases where the place of contracting for the purchase and sale of goods and commodities determines the source of profits, “effected” covers not only the legal execution of contracts but also the negotiation, conclusion, and execution of contract terms.

For businesses earning commission by facilitating product buyers or suppliers, the source of income is the location where the commission agent’s activities are carried out. If these activities are conducted through an office in Hong Kong, the income is considered to have a Hong Kong source.

Certain payments, such as royalties, made to non-resident entities for the use of intellectual property rights are subject to withholding tax. The payer, seeking a deduction for intellectual property use against its assessable income, is required to withhold a specified percentage from the payment. The withholding rate is 4.95% of the gross payment for unrelated parties but increases to 16.5% for related parties. Recipients of royalties may qualify for different rates under double taxation agreements.