Setting up a company in Hong Kong
Why should I invest in Hong Kong?
Hong Kong Special Administrative Region (Hong Kong SAR) has become an international hub for business, wealth, commerce and financial markets. This reflects Hong Kong SAR position as one of the most free economy in the world, thanks to the numerous business and tax advantages offered to both locals and foreign investors, which guarantee labour, monetary, investment, financial and business freedom. Such freedom is enhanced by the great amount of DTAs currently signed with other countries in Hong Kong, which facilitates investments and trades. The non-enforcement of capital control makes it extremely easy to set up a business in Hong Kong and to make it thrive. Besides being a member of the World Trade Organization, Hong Kong has for many years consolidated its position as international hub for finance, business and trade. This is reflected by the international relevance of both Hong Kong International Airport and the Port of Hong Kong.
Hong Kong Special Administrative Region (Hong Kong SAR) has become an international hub for business, wealth, commerce and financial markets. This reflects Hong Kong SAR position as one of the most free economy in the world, thanks to the numerous business and tax advantages offered to both locals and foreign investors, which guarantee labour, monetary, investment, financial and business freedom. Such freedom is enhanced by the great amount of DTAs currently signed with other countries in Hong Kong, which facilitates investments and trades. The non-enforcement of capital control makes it extremely easy to set up a business in Hong Kong and to make it thrive. Besides being a member of the World Trade Organization, Hong Kong has for many years consolidated its position as international hub for finance, business and trade. This is reflected by the international relevance of both Hong Kong International Airport and the Port of Hong Kong. The stability of Hong Kong’s financial market is also confirmed by the fact that the Hong Kong Dollar has been pegged to the US Dollar. According to the 2020 World Investment Report, Hong Kong stock of Foreign Direct Investment (FDI) has reached 1867 billion USD in 2019, making Hong Kong the 4th largest recipient and the 4th biggest investor, rising in 2020 as the third best place for business climate. Hong Kong continues to lead in a full spectrum of financial market activities such as asset management, equity, debt and FX market. In fact, not only is Hong Kong the largest offshore RMB centre, but it is also the third world’s largest USD trading centre after New York and London, placing itself as the fourth largest global foreign exchange market. Hong Kong is also leader in the Initial Public Offering (IPO) market and the Hong Kong Stock Exchange is reportedly the world fifth largest by market capitalization.
Why is Hong Kong considered a financial hub?
As a major international financial centre, Hong Kong SAR provides a range of products and services to local and international clients and investors. One of most important reasons why Hong Kong is considered as a financial hub, is that no capital control is imposed on the market. The lack of capital control not only enhances capital flow in and out Hong Kong without particular restrictions, but it has contributed to make Hong Kong the world’s largest offshore RMB business hub, with the largest offshore pool of RMB liquidity and makes of Hong Kong the fifth largest Stock market in the world. Moreover, Hong Kong’s IPO raised seven times since 2009.
With a highly attractive tax framework and a sound financial environment, many of the world’s leading financial institutions and multinational corporations set up their regional headquarters in Hong Kong. The favourable tax environment is further incentivized by the considerable number of concluded Double Taxation Agreements (DTAs) , which highly incentives trading and businesses by relieving countries from double taxations while strengthening Hong Kong's position as an economic hub of Southeast Asia. Additionally, Hong Kong has an Intangible Property friendly environment, protected by a robust legislative framework. IP protection is taken extremely seriously in Hong Kong. The government has developed and is in charge with developing and implementing policies and rules to protect IP rights and promoting international IP trading.
The link between Hong Kong and the world
Other than being one of the most important investment destinations in the world, Hong Kong is the main gateway to Mainland China, now the world’s second largest economy. This makes Hong Kong position crucial, as it is Asia’s largest international assets management centre. Hong Kong is not only the largest offshore RMB centre, but it also originates and intermediates most of China’s inward FDIs and Outward Direct Investments (ODIs) as well as most financial Investments.
The close relationship to China is further enhanced by the Closer Economic Partnership Agreement (CEPA), signed in 2003 and operating since 2004. CEPA is a free trade agreement and its scope is to further strengthen the investments and trade cooperation as well as promoting development of both China and Hong Kong. This would be done by progressively reducing tariffs barriers on the majority of goods, reducing or eliminating discriminatory measures and promoting investment facilitations. In particular, all goods of Hong Kong origin can enjoy zero tariff preference upon importation into the Mainland. It also offers ownership of many Chinese ventures and many concessions in legal, distribution, transport, logistic, real estate and audio-visual services , that extend beyond WTO commitments . Moreover, Hong Kong law strongly facilitates the ownership and holding of Chinese wholly foreign-owned enterprises (WFOEs) through sub-holding and the constitution of Holding Companies with base in Hong Kong and investing in Chinese WFOEs.
Conclusively, it is clear that being the gateway to the now world’s second most important economy puts Hong Kong in a privileged position for both investment and business worldwide.
How can I set up a company in Hong Kong?
Investors and foreign entities interested in expanding their business to Hong Kong usually proceed with the selection of three main types of entities: limited private companies, branch offices and representative offices.
Limited Company
The great majority of Hong Kong companies are set up as Limited Companies. There are two types of Limited Companies:
1. Company limited by shares – the liability of members is limited by
the Article of Association to the amount unpaid on the shares
respectively held.
2. Company limited by guarantee – there is no share capital and the
liability of members is limited by the articles of association to the
amount that the members respectively undertake to contribute to the
assets of the company.
A limited company is structured as follows:
- Director(s): Minimum one natural person. Other directors can be either companies or natural persons of any nationality and residency. Individual director must be over 18 years old.
- Shareholder(s): Minimum one. It can be a company or a natural person of any nationality and residency. Shareholders can reach a maximum of 50 people.
- Company Secretary: Must reside in Hong Kong. In case of sole director, the same person cannot also be appointed as Company Secretary.
- Share Capital: No minimum requirements nor paid up requirements. Any currency can be used.
- Registered Office Address: it must be in Hong Kong and cannot be a Postal Box.
In order to incorporate a Limited Company, all the necessary documents must be filled and sent to the Companies Registry. Processing the application will take around 4 working days. After obtaining the Certificate of Incorporation and Business Registration Certificate, that Limited Company is successfully incorporated.
Other entity structures in Hong Kong
Partnership
A company can be registered under the form of a Partnership and this would require an easy and quicker procedure, since it would not involve the Companies Registry. Partnerships’ structures are quite flexible and can be freely regulated under the partnership agreement. However, because partnerships do not have any legal personality, partners are personally and severally liable for the company faults and debts. The time span to obtain a Business Registration Certificate from Inland Revenue Department (IRD) is usually 1-2 weeks.
Sole Proprietorship
A company can be registered under the form of a Sole Proprietorship and this would require an easy and quicker procedure, since it would not involve the Company Registry. However, because Sole Proprietorships do not have any legal personality, the owner is personally and severally liable for the company faults and debts. The time span to obtain a Business Registration Certificate from Inland Revenue Department (IRD) is usually 1-2 weeks.
Registration of a Non-Hong Kong Company
A non-Hong Kong company is a company incorporated outside Hong Kong which has established a place of business in Hong Kong. Non-Hong Kong companies are legal entities which are not legally disjointed by the company. After sending the required documents with information related to the company registration to the Company Registry, the application will be processed within 3 weeks.
Representative Office
Representative offices (ROs) are usually established by foreign companies that wish to gain market insight, exposure and a better understanding of the Hong Kong business environment before registration as a Non-Hong Kong Company. This entity is not taxed, since it does not generate profit from its Hong Kong activity. An RO cannot engage in profit making activities and is not treated as a legal entity. It cannot sign nor be involved in any contracts or deals on behalf of the company and it cannot engage in any trading activities. Because it is not a legal entity, the parent company will be liable for the actions of the representative office. After sending the required documents to the IRD, it will approximately take around 2 weeks to obtain a Business Certificate.
Set up of a Branch
When a company already has a Business Registration Certificate and would like to carry out business in another place in Hong Kong, it may set up a branch. After sending the required documents to the IRD, it will approximately take around 1-2 weeks to obtain a Business Registration Certificate.
What is the tax framework in Hong Kong?
In Hong Kong taxes are levied on the “territorial principle”: taxes are only levied on income “derived from or arising in” Hong Kong.
Corporate Tax
There is a two-tiered tax rate, which applies as follows:
Corporations (and branches):
- 8.25% on the first HKD 2 million of assessable profits.
- 16.5% on the remainder assessable profits.
Unincorporated:
- 7.5% on the first HKD 2 million of assessable profits.
- 15% on the remainder assessable profits.
Foreign-sourced income exemption (FSIE) regime
The Hong Kong Government amended their foreign-sourced income exemption
regime, with effect from 1 January 2023 (without grandfathering
arrangements). Four types of passive income fall under the scope of the
amended regime: foreign interests, dividends, sale of equity interests
in an entity (disposal gain) and royalties (IP income), when received in
Hong Kong.
Stamp Duty for transfer or sell of Hong Kong shares
On transfer of Hong Kong share, stamp duty is 0.26% of the consideration
or value of the shares (which is higher), i.e. 0.13% each for the bought
and sold notes). If certain conditions are satisfied, intragroup
transactions may be exempted.
Salary Tax
Individuals are subject to salaries tax on income from employment, an
office or a pension derived from Hong Kong. This can be calculated in
two ways, depending on whichever is lower:
- Progressive rate - which ranges from 2% to 17%
- Standard rate - 15%
Employment
How much does an employee cost?
Employments in Hong Kong need to comply to the Employees’ Compensation Ordinance, the Labour legislations and the parameters set out by the Labour Department. Hong Kong established a Statutory Minimum Wage (SMW) for non-domestic workers of 40 HKD/hour.
In addition to the salary, there are two mandatory costs: Mandatory Provident Fund (MPF) Unless a voluntary contribution is requested and enforced by the employee, the following rates apply. This is mandatory only if the employment contract will last for more than 60 days. The maximum contribution to MPF is 1,500 HKD (i.e. 5% of 30,000 HKD).
Employees Compensation Insurance It is compulsory for the Employer to have this insurance covering the Employer’s liabilities for work injuries of the employees. For this there aren’t any fixed rates, it all would depend on the chosen insurance company and different rates apply to different categories of occupation.
How can I onboard foreign staff in Hong Kong ?
All foreign workers require a visa to work in Hong Kong. There are several types of visas in Hong Kong, however, for this scope of work we will be principally focus on the employment and the investment visas.