With the obvious ascension of China as a world leader and economic giant, and record growth in various South East Asian economies generally, the world is starting to look Eastwards when it considers matters of strategy and business expansion. These FAQs deal with some of the concerns raised in connection with Hong Kong, the world’s most open economy and natural gateway to the East.


Q1: HK companies seem to be popular with anyone trading goods globally, and particularly with those businesses that source their goods in Asia. Why is that the case?

A1: HK enjoys a number of advantages over other jurisdictions when it comes to carrying on trading operations. Unlike other major trading economies, HK has a very friendly tax regime, very few restrictions on setting up a company and is a natural entry basis for anyone who wishes to trade with China. HK itself has excellent banking infrastructure with world class professionals in its financial services industry, inter alia. HK has all the advantages of a traditional offshore financial centre, but without the negative perception that sometimes accompanies those other financial centres.

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Q2: I have heard HK companies pay no tax. Is that correct?

A2: Not quite: HK uses a territorial based system of taxes which means only those profits that are sourced within HK are subject to tax there. Profits derived offshore are not taxed in HK.

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Q3: Apparently HK companies need to be audited every year and the auditors’ costs in HK are astronomical. Is that correct?

A3: Yes all HK companies need to be audited annually – but no, the fees are not exorbitant. Sovereign has a range of auditors that it works with and we are able to accommodate all clients – irrespective of their size.

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Q4: HK used to be a good place to form a company but apparently Singapore is much better as a financial jurisdiction recently. Is that true?

A4: No that is not correct. Both jurisdictions have excellent financial, legal, accounting and professional services standards generally and banking infrastructure in both of these jurisdictions is world class. Singapore and HK are constantly vying for top spot (in the world) to be considered the best financial centre – which means the standards stay very high and fees remain competitive. Each offers something slightly different but both jurisdictions are good choices for someone wanting to carry on a business with a head office or base in Asia.

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Q5: Does HK have banking secrecy? What safeguards exist to protect me from 3rd parties trying to access my private financial information?

A5: No, HK does not have banking secrecy in its law – but it does have very strictly interpreted laws on financial secrecy generally. Outside of the legal provisions which deal with issues like the proceeds of organised crime and money laundering, HK maintains a very strict information exchange approach. This information is exchanged only in very limited circumstances under CDTAs (comprehensive double tax agreements). To date, HK has provided very little financial information to external parties.

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Q6: If I mean to carry on a business or trade in HK, do I need a HK company and work visas for my staff?

A6: It is possible to carry on a business or trade in HK either by way of a HK company or by registering a branch of a company incorporated elsewhere. Expatriate staff will need work visas and those can be arranged without any significant difficulty.

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Q7: I understand HK is not really part of China and has a different legal system, with different company laws and practices. What happens if my HK company needs to deal with Chinese customers?

A7: HK is part of China but does indeed have a different legal system to the Chinese mainland – known as the “one country two systems” approach. On the whole, this is not a problem for countries doing cross – border business. In fact for anyone who chooses to access China from a business perspective – HK is the ideal base as the authorities there are more familiar with HK than other jurisdictions.

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Q8: I have heard that it is impossible for foreign companies to set up in China. Is that true?

A8: No that is incorrect. HK serves as the ideal base to set up a WFOE (wholly foreign owned enterprise) or representative office. The former acts as a subsidiary company that can invoice for goods and services rendered. The latter is typically designed to carry out marketing, quality control, market investigation type services but cannot invoice at all. Sovereign assists clients with both types of entity formation.

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