Hong Kong company formation

Enrolling a company abroad can be a strategic maneuver for business founders and investors targeting to expand their global reach and tap into the advantages offered by alternative markets. One of the most enticing regions for entity registration is Hong Kong. It stands as a preeminent monetary hub, drawing in a plethora of businessmen and investors. Business activities here are significantly streamlined owing to its advanced infrastructure, favorable geographical positioning, skilled workforce, tax incentives, and expansive market. In this article, we shall delve into the benefits of company registration in Hong Kong and the procedural aspects involved.

Launching a startup in Hong Kong is a decision that attracts many foreign entrepreneurs. Doing so can offer a plethora of advantages that can assist in the growth and success of your business. In 2020, the government allocated HKD 5 billion to the Innovation and Technology Fund and announced the establishment of a Venture Fund amounting to HKD 2 billion to incentivize private venture funds to invest in startups.

Hong Kong boasts a dynamic economy and has emerged as a prime hub for launching startups in Asia. Additionally, it serves as a pivotal center for international trade. These factors render the jurisdiction a favorable locale for commencing entrepreneur endeavors.

• Electronic commerce;
• Hardware;
• FinTech;
• Professional services;
• Healthcare;
• Data analysis;
• Education and training.

What are the main upsides of a non-resident when enrolling an entity in Hong Kong?

Foreign business owners opt to create their ventures in Hong Kong for various reasons. A primary driving key consideration for investors deciding to set up operations in Hong Kong is its geographically beneficial location. Since the jurisdiction is an autonomous administrative area of China, it offers a sizable enough consumer base. Additionally, the rapid expansion of the economy serves as a magnet for businesses worldwide, offering several advantages:

• The ease of founding a business: non-residents can wholly own corporations in Hong Kong. Registering a business in Hong Kong is straightforward, with simple prerequisites, and the incorporation process can be quickly completed within a 24-hour online system.
• Open market: boasting one of the most liberal economies, the country boasts an extensive array of corporate activities.
• Hong Kong maintains a competitive tax system through its utilization of territorial taxation, exempting profits earned outside the territory from taxation. Starting from the fiscal year 2018/19, earnings made within Hong Kong are liable to taxation at rates varying between 8.25% and 16.5%. Additionally, there are no taxes imposed on profits from investments, stock dividends, value-added transactions, retail transactions, or deductions from earnings.

Thanks to the simplified registration procedure and requirements, applicants can swiftly establish a company without the need for personal presence and obtain ready-made corporate documents within 24 hours, enabling prompt business commencement. To successfully complete the registration procedure, the following steps should be undertaken:

• Select the suitable category of business;
• Choose a company name;
• Determine the configuration of the corporation;
• Select an agent, appoint a secretary, and establish a legitimate entity address.
• File an application with the Hong Kong Registry of Companies (usually done by an agent).

Securing authorization to conduct corporate operations in Hong Kong

The special administrative region of the People's Republic of China underscores that possessing a business enrollment certificate in Hong Kong does not grant authorization for conducting commercial activities. Hence, it is recommended to determine which other licenses may be essential for business operations. For example, specific licenses are obligatory for engaging in various sectors such as:

1. Financial services.
2. Healthcare.
3. Telecommunications.
4. Construction.
5. Professional services.
6. Chemical industry.

You can visit the website of the Hong Kong Department of Commerce and Industry to view all permits, licenses, and certificates that may be required for conducting your business.

License or permit are mandatory if business sectors fall under the prerequisite for obtaining permission.

Basic prerequisites for company enrollment in Hong Kong in 2024

Below we will conduct an analysis of the key features for enrolling a company in SAR Hong Kong.

Authorized capital

Establishing a company does not mandate a minimum authorized capital. Furthermore, there is no limit on the currency for capital, and the transfer of shares incurs only stamp duty.

Registered address

All entities should have a valid legal physical address, not just a PO BOX.

Appointment of a secretary after creating a company

As per regulations, a business should designate a minimum of one indigenous secretary. However, it's crucial to note that the company leader is ineligible to serve as a secretary, as distinct individuals must fulfill these roles.

Business name

Using a title already claimed by another lawful entity in SAR Hong Kong, or presently being sought after in the registration of a business title, is prohibited. Furthermore, refrain from employing any linguistic elements or icons that might imply an official affiliation with the authority of SAR Hong Kong.

The provided document provides detailed instructions for the name of a corporate entity. Specifically, it emphasizes the use of the word "Limited" in the entity's name, supposing that English is the language of choice. It also highlights how crucial it is to stick to one language and refrain from using a mix of Chinese and English characters. The paper requires the completion of a name clearing procedure in order to assure the uniqueness of the selected appellation.

Director

No residency demand. A citizen of any country can incorporate an entity in Hong Kong.

Business plan

To embark upon a corporate venture, a business strategy is imperative. Despite the quality of your innovative idea, without a concrete course of action, your enterprise cannot attain success.

The business plan must contain complete data about the business:

• Business goals are both primary and secondary.
• Marketing plans.
• Budget.
• Information regarding the team that could aid in accomplishing your company objectives, assuming you are in the recruiting process.

Forms of businesses in Hong Kong

A suitable business structure should be selected based on the circumstances:

• Size of the company.
• Investments in fixed capital.
• Whether there will be employees or not.

Some common business structures

LLC enrollment in Hong Kong

This kind of business entity is widely regarded as among the most favored. Consequently, hereafter, we will delineate the primary attributes of initiating an LLC in SAR Hong Kong.

A lot of small- to medium-sized business owners are thinking about forming an LLC in Hong Kong. One of the key features of this type of corporation is that it is a separate legal entity and that, to the degree of their participation, the shareholders alone bear responsibility for the company's debts.

The utmost count of individuals permitted for this category of enterprise can extend to 50 participants, with no specifications concerning their residency.

Starting a small or medium-sized company in Hong Kong's Special Administrative Region commonly involves forming an LLC, which offers the advantage of not requiring a minimum registered capital.

Here are the main features of enrolling an entity in Hong Kong as an LLC:

How to register an LLC in Hong Kong

Creating an LLC requires founders to follow several essential steps. They must prepare and submit the following papers:

1. Charter;
2. Duly completed application form;
3. Notification to the Business Registration Administration;
4. Details regarding the approved capital, along with records concerning the stakeholders;
5. Official translations of documentation into English when necessary.

Prior to creating a business in Hong Kong, entrepreneurs must verify that the selected name adheres to intellectual property regulations. Requests for approval should be made through the Hong Kong Companies Registry. Certain licenses and approvals may be required for an LLC, depending on its industry sector.

An online submission could result in receiving an electronic incorporation certificate, while a physical incorporation certificate may also be provided, both holding equal legal validity. Moreover, certain businesses might be required to enroll with the Taxation Service.

As was already noted, entities that are formed in Hong Kong are subject to certain rules on the yearly financial return and paperwork that must be delivered. In addition to other requirements, accounting records and documentation must correspond with the company's registered address.

• Engagement of an auditor, except in scenarios where this is not obligatory;
• Conducting a yearly general assembly;
• Acquiring, upholding, and refreshing business licenses is granted by the Securities and Futures Commission.

Furthermore, it is imperative for the company to relay alterations. These adjustments are forwarded to the Registrar of Companies, encompassing various modifications:

• Addresses;
• The quantity or titles of corporate associates and/or executives;
• Change of firm's secretary;
• Modification in the volume of approved finances.

While Hong Kong boasts attractiveness as a commercial hub, it isn't typically chosen by investors for setting up offshore enterprises.

In Hong Kong, establishing a limited liability company requires more thought than establishing a sole proprietorship. The founders of the firm are also subject to regulations regarding the dissemination of specific information about the company, including updates to relevant data.

• The identities of the directors;
• Company capital;
• Other details in accordance with the prerequisites of the Register.

How to create a partnership in SAR Hong Kong

One of the alternative options for doing business in Hong Kong is partnership.

This organizational and legal form allows several persons (in the future partners) to conduct certain activities, combining their capital and efforts, while sharing responsibility and profit.

• Lack of legal entity status. The partnership does not have the status of a legal entity, which leads to the fact that it does not have governing bodies, there is no need for registration, changed taxation, etc.
• Simplified registration procedure. For a partnership, there is no need to draw up a charter, collect documentation on beneficial ownership, etc., but only a partnership agreement between the partners is sufficient, which will govern all relationships between them.
• Taxation by pass-through. The proceeds earned by a partnership are divided among its members as per the agreed terms and fall under individual taxation for each participant, as partnerships do not possess the legitimate entity status that would make them liable for corporate revenue tax.
• Partners exchanging messages with each other. The collective partnership bears no legal responsibility for debts incurred. As a result, if debts go unsettled, the personal assets of the partners are used to bridge the gap between their contributions and the obligations.

In a general partnership, each partner shares in the gains and losses of the partnership, which may also affect their personal assets. The partnership agreement typically contains the scope and method for such a section.

Limited partnerships consist of two categories of partners: general partners and limited partners. The principal partners differentiate themselves through overseeing the partnership and holding the power to represent it. Similar to a general partnership, they also participate in costs and setbacks, potentially jeopardizing personal belongings. On the flip side, restricted partners are prohibited from overseeing the partnership or overseeing its activities. In exchange for exemption from personal responsibility, they are required to provide a predetermined contribution to the statutory capital, as outlined in the partnership contract.

Thus, partnership represents a rather unique form of conducting business. It is frequently utilized within professional spheres (lawyers, accountants, etc.), yet can also be applied across any other field at the discretion of the founders.

What is a Business registration certificate, and why is it needed?

A legally binding document issued by the relevant regulatory body is a Certificate of Enterprise Registration, sometimes referred to as a Business Registration Certificate. It provides information about the organization and serves as official documentation of its founding. If your company's information changes, you must contact the Business Registration Office thirty days in advance so that the registration may be updated as soon as possible. The following details about your business are often included in the certificate:

• Business name.
• Physical location or address of the enterprise.
• Type of your organization.
• Core activities of your enterprise.
• Commencement date of your operations.
• Registration number of your venture.

Enterprise registration number

An enterprise's registration number, issued by the Department of Inland Revenue upon enrollment, is a distinctive identifier. It comprises eight digits and is visibly displayed on the Business Registration Certificate.

Ways to register a company in Hong Kong

There are three ways to establish a company:

• Electronic registration online.
• Through a mobile application that can be downloaded from the App Store.
• Send all paper documents to the Registrar of Companies.

The time it takes to register a company in Hong Kong differs based on the method of submission. For instance, processing an application online can be completed within one hour, whereas utilizing paper forms may extend the processing time to up to four business days.

Taxation

There is a two-tier profit tax structure in the Special Administrative Region of Hong Kong. A 16.5% tax rate is applied to earnings beyond 2 million HKD, while an 8.25% tax rate applies to the first 2 million HKD. Geographical variables determine this tax arrangement.

Below is a table for clarity of information on taxes in SAR Hong Kong

The regulator requires the filing of a corporate tax return depending on the end of the company's fiscal year.

Every corporation must adhere to yearly submission obligations with both the Inland Revenue Department and the Registrar of Companies.

An alternative option for starting a business in Hong Kong

Setting aside time for duties like paper preparation, registration submission, and account opening is crucial, even with Hong Kong's relatively simple registration process.

Alternatively, you could consider purchasing an existing entity in Hong Kong as a potential route to starting a business.

This method accelerates the process notably while reducing obstacles, given that all required steps are finalized before the acquisition of the company.

Due to the ability to bypass drafting multiple documents, waiting for registrar feedback, or searching for a bank willing to open an account, numerous business owners opt to acquire a newly incorporated company instead.

Below is a table outlining the key distinctions between company enrollment and acquisition.

Publicity

The disclosure of company data is of great importance to many business owners. It's noteworthy that since 2018, every business entity operating in Hong Kong is required to provide the registrar with extensive information about its founders and ultimate beneficial owners.

This is necessary to conform with global AML protocols. Simultaneously, a portion of this data, disseminated to the pertinent governing body, is accessible to the public, meaning anyone can acquaint themselves with it.

That information encompasses, though is not restricted to, the identities and whereabouts of the creators/primary beneficiaries.

However, notwithstanding this, certain details remain undisclosed and are solely furnished upon the solicitation of pertinent individuals (specifically, law enforcement entities).

Conclusion

The state is actively fostering an environment conducive to encouraging foreign entrepreneurs to set up businesses in Hong Kong. With its competitive tax system and appealing business climate, the region offers promising opportunities. Before commencing operations, it's essential to establish the legal structure of the enterprise, finalize its name, and acquire the necessary paperwork. Hong Kong's strategic location facilitates access to the vast Asian market, particularly China. Key drivers of foreign investment in this area encompass the low tax rates, government incentives, and efficient company enrollment processes.

We have analyzed the primary forms of enterprises. One of the most prevalent entity forms is Ltd. To clarify all registration details regarding company incorporation in Hong Kong, you may contact specialists at YB Case.