BUSINESS SET-UP IN HONG KONG
As one of the most open economies in the world, Hong Kong is the ideal location for business set-up and company formation. Hong Kong is strategically located at the heart of Asia, alongside many of the region’s most exciting business markets, and is specifically geared to enable free enterprise to flourish with a minimum of bureaucracy and restriction.
Hong Kong combines a simple low-rate tax regime with free market principles. There are no restrictions on inbound or outbound investment and there are no nationality restrictions on ownership. Foreigners can invest in almost any business and own up to 100% of the equity.
In addition to being a major financial and commercial centre in its own right, Hong Kong serves as a regional headquarters and business hub for the Asia Pacific region. It also acts as a gateway for companies looking to do business in Mainland China and mainland enterprises seeking access to global markets.
Hong Kong is strategically located for business in Asia. Beijing, Shanghai, Singapore, Taipei, Manila, Kuala Lumpur and Perth are in the same time zone as Hong Kong, while Bangkok, Jakarta, Seoul and Tokyo are within one hour’s difference.
Hong Kong’s appeal is built on its political stability, world-class infrastructure, the rule of law, the free flow of information and the use of English as the language of business. It offers a strong pool of local well-qualified talent, while business-friendly immigration policies also make it simple to recruit professionals from overseas.
Hong Kong is considered one of the best cities worldwide to establish and run a business. Its success as a commercial hub is primarily attributable to its location, simple low-rate tax regime and free trade policy, the absence of restrictions on inbound and outbound investment, and a productive legal system.
The key advantages to setting up a business in Hong Kong are:
- There are no restrictions on inbound or outbound investment and there are no nationality restrictions on ownership. Foreigners can invest in almost any business and own up to 100% of the equity. Foreigners are also able to act as the sole director and shareholder in a Hong Kong company. There are no requirements to be local resident or a specific nationality. This offers an advantage over Singapore, where the Companies Act mandates that at least one director of the company must be ‘ordinarily resident’ in Singapore.
- The Hong Kong tax system is territorial. Profits from a Hong Kong business are subject to profits tax (currently at a rate of 16.5%) but foreign-source income is not taxable even if remitted to Hong Kong. There is no capital gains tax, no sales tax, no withholding tax on dividends or interest and no inheritance tax.Singapore’s corporate income tax rate is 17% and its tax system is more complex. In Singapore, income is generally subject to tax on a territorial and remittance basis. A company is required to file an income tax return on income derived from, accrued in, or received in Singapore, although certain qualifying foreign-sourced income is exempt from income tax. Singapore also imposes a 7% Goods and Services Tax (GST) as well as withholding taxes on royalty and interest payments.Hong Kong further amended the Inland Revenue Ordinance in December 2017 to introduce a two-tiered profits tax rates regime that is specifically designed to benefit small and medium enterprises and start-ups. From the year of assessment 2018, the tax rates for the first HK$2 million (US$256,000) of profits of corporations and unincorporated businesses – 16.5% and15% respectively – will be reduced by 50%.
- Hong Kong was the first offshore market to launch renminbi – the official currency of the People’s Republic of China – business back in 2004. Since then, Hong Kong has become the global hub for renminbi trade settlement, financing and asset management, where a wide range of renminbi products and services is available to meet the needs of businesses, financial institutions and investors. Renminbi activities in Hong Kong are supported by the renminbi liquidity pool in Hong Kong, which is the largest outside Mainland China.
- Under the principle of ‘one country, two systems’, Hong Kong has its own legal system, distinct from the Law of the People’s Republic of China. It is based on the combination of English common law and local legislation codified in the Laws of Hong Kong. The separation of the Hong Kong legal system from the PRC is guaranteed constitutionally until at least 2047.
- Hong Kong was ranked as the world’s freest economy in 2018 by the Heritage Foundation for the 24th consecutive year. Hong Kong has been ranked the world’s freest economy every year since the Index was first published in 1995. On a scale of 0 to 100, the overall rating of Hong Kong in the 2018 report was 90.2, 0.4 points higher than last year and well above the global average of 61.1.
- From Hong Kong’s establishment as a colonial port, through its period as a manufacturing hub, and up until its current role as an international financial centre, the city’s population has always looked outwards. As a result, English is widely spoken. Today, it is the language of preference in the government, business and tourism sectors. All official signs and public transport announcements, as well as most menus, are bilingual.
The procedure for setting up a company in Hong Kong is quick, easy and inexpensive. The applicable steps are detailed below:
- Select a company name The company name must not be the same as any existing names in the index of company names kept by the Registrar of Companies.
- Register and incorporate the company.
A company can be incorporated in Hong Kong with any amount of share capital and there is no statutory requirement for the minimum amount of paid-up capital. The share capital is not restricted to the Hong Kong Dollar and can be expressed in any major currency. Shares can be freely transferred, subject to a stamp duty fee.Every company must have at least one registered shareholder. Corporate shareholders are permitted and enhanced public confidentiality can be achieved though the use of nominee shareholders.A minimum of one director is required and full details must be filed with the Public Registry. Corporate directors are permitted but a Hong Kong company must appoint at least one natural person as a director.A Hong Kong company must maintain a registered office address in Hong Kong and must also appoint a Hong Kong resident to act as company secretary. Sovereign provides these services for all our clients. They are generally described in our literature as ‘domiciliary services’.A Hong Kong company is required to file full audited accounts but small private companies meeting certain criteria may apply for a ‘reporting exemption’ and prepare simplified accounts and simplified directors’ reports. All Hong Kong companies must also prepare and file an annual return that provides details of the current directors and of the shareholders who have held shares in the company at any time during the year.
- Open a bank accountThe procedures and documentation for opening a company bank account will vary, depending on the type of company and the individual bank. Depending on the bank, a physical presence in Hong Kong may be required in order to open a bank account in Hong Kong.
- Choosing a business premisesForeigners who do not plan to relocate to Hong Kong are free to operate their Hong Kong companies from overseas. For those who wish to operate their business from Hong Kong, a wide variety of options are available. Leases in commercial or industrial buildings are typically two or three years with an option to renew, while serviced or virtual offices allow for even shorter-term leases.
- Obtain a visa
Companies opening an office in Hong Kong, or those already trading, attract many foreign workers. Many visitors holding a foreign passport can enjoy a visa-free visit of 14 to 180 days, but visitors are not allowed by law to take up paid or unpaid employment or to establish or join in any business. All non-Hong Kong residents wanting to work in Hong Kong are required to hold a Hong Kong work visa. The HK Immigration authorities generally exercise discretion in awarding approvals. Whilst there is no documented qualifying criteria, when considering an application the Immigration Department will usually examine several key areas:• Higher level educational background
• Any relevant experience that is deemed to be in short supply in Hong Kong
• A reasonable salary level – a guide of US$40,000 per year is considered reasonable
• How beneficial the individual is to Hong Kong’s economy, trade and industry
• That a local or resident worker could not fill the position
• How the expatriate can benefit the local workforce (e.g. training).
Sovereign Trust (Hong Kong) can assist you to select the most effective and efficient legal entity for your particular business model. We will then form and register that entity in line with local laws and regulations. Sovereign also provides the necessary expertise in administering and managing companies, including company secretarial services, company law, board procedures, director responsibilities and shareholder relations.