Hong Kong

Without nominee services
With nominee services
Company incorporation, including state fees
Registered office address for 1 year
Local secretary for 1 year
Set of documents with Apostille
Corporate seal
Sending of documents (from the jurisdiction and from nominee director)
Nominee director and/or shareholder (issue of one power of attorney with Apostille)
Total cost of registration
2300 $
2600 $
 
Annual maintenance
1900 $
2200 $

“Zero” account is included into the cost of annual maintenance.

Additional services

Audit and accounting for an active company
from 3000 $
“Deregistration” of a company
1000 $ +
overhead expenses (up to 566 $).

Advantages of a Hong Kong company:

- no taxes, as long as the company conducts its business outside of Hong Kong;

- international image of the jurisdiction. The global community regards Hong Kong as a legal (non-offshore) state. Hong Kong is not listed in any “blacklists” which means that your company will not be treated as an offshore (including by executive authorities);

- favourable conditions for business development: simple tax system with low tax rates (total tax rate is 16.5%); no currency exchange control, all kind of financial and other professional services;

- Hong Kong is acknowledged as a world leader among economically free countries by various expert studies. For many years the Index of Economic Freedom published by the Heritage Foundation in the Wall Street Journal has been placing Hong Kong on the top position by economic freedom among other countries;

- we are glad to offer opening of an account at various prestigious banks of the world to companies registered in Hong Kong: HSBC, DBS, Bank of China, Standard Chartered Bank, Citibank and others;

- political stability and real independence from global tendencies to elimination of tax free zones.

These and many other factors make Hong Kong one of the most attractive jurisdictions for incorporation of a company.

General information

Hong Kong (Xianggang) is a special administrative region of the People's Republic of China on the coast of the South China Sea, and consists of Xianggang island, Kowloon Peninsula, and a number of small islands. Hong Kong has an area of 1,104 km2 with population of 7,1 mln people (2009) where 98% are Chinese. Official languages are Chinese and English.

During 155 years Hong Kong was governed by Great Britain. It was transferred to the sovereignty of China on 1 July 1997, and adopted the full official name: Hong Kong Special Administrative Region of the People's Republic of China. Hong Kong has a high degree of autonomy, and operates independently in administrative, legislative and judicial systems (except issues regarding military defence and foreign relations), maintains the status of a free port, a separate customs zone, and has reserved the right for economic and cultural relations with different countries and international organizations. The special status of Hong Kong will remain in force at least until 2047 provided the principle “one country, two systems” is observed.

The legal system of Hong Kong is based on English Common Law.

Although the foundation of economy are financial and foreign trade operations, Xianggang has highly developed shipbuilding, ship-repairing, textile, clothing, electrical, radioelectronic, hydrocarbon processing and other industries focused on export.

The major trade partners (except mainland China) are the USA, Japan, Great Britain, Taiwan, etc. The currency is the Hong Kong dollar.

Over many years Hong Kong tops the annual world ranking of economic freedom complied by the Wall Street Journal and the Heritage Foundation. In 2010, authors of the research awarded Hong Kong 89.7 points out of a possible 100, having noted low taxation regime and flexible labour market in the jurisdiction.

General characteristic of companies registered in Hong Kong

You can choose from a range of company types:

Private Company Limited by Shares. The company may have a maximum of 50 shareholders. The company may not offer its shares for public sale, transfer of shares is allowed only with approval of a general meeting of the members.

Public Company Limited by Shares. There are no requirements for a maximum number of shareholders.

Limited Partnership may have a maximum of 20 partners, individuals or corporations of any residency.

Company Limited by Guarantee without share capital.

Branch offices of foreign companies and trusts are allowed for registration.

The most commonly-used company type in international business is Private Company Limited by Shares which will be described below.

The new Company Ordinance has entered into force on 13 January 2004. In accordance with the law the company is required to have a minimum of 1 director and shareholder. A sole director of the company may not be appointed by the secretary of the company. The directors and shareholders may be both individuals and corporations. The directors / shareholders may be of any nationality and residency. The detailed information on directors and shareholders is provided to the Public Registry and is public and open.

The law gives definition of the term “shadow director” which means a person under instructions of which a director or a majority of directors conduct business on a regular basis. This definition does not include lawyers, auditors, and other professional consultants.

The director may be dismissed by an ordinary resolution instead of a previous requirement – by at least three-fourths of the total votes of the shareholders.

The shareholders will only be liable for any debt according to their participation interest in the share capital of the company regardless of whether the capital has been paid or not.

As in England, there is difference in authorized and paid up share capital of Hong Kong companies. Since the amount of annual government levy in Hong Kong depends on the amount of the authorized capital, normally the authorized capital of the Hong Kong companies is 10,000 HKD. The minimum issued capital is 2 shares of 1 HKD each.

The registered office of the company must be located in Hong Kong. Each Hong Kong company has a local secretary (an individual or corporation, but a resident of Hong Kong). The original of Certificate of Incorporation and other corporate documents should be kept in safe custody at the registered office of the company. After incorporation, the client will get a set of copies of documents duly apostilled and certified by notary.

All companies should hold annual meetings of the shareholders (meetings outside of Hong Kong are allowed). The secretary of the company has to execute minutes of the meetings of the Board of Directors and of annual general meeting of the shareholders, prepare notices of annual meetings, minutes of an annual general meeting, execute and submit Annual Return to the Register of Companies, check compliance of the Ordinance requirements, complete applications of state authorities given to the company during a year.

In order to establish a company in Hong Kong you will have to observe requirements for the name of the company. The name will not be accepted if it relates to state or royal power (Royal, Federal, etc). Names suggesting financial activity (such as Building Society, Chamber of Commerce, Chartered, Co-operative, Imperial, Kaifong, Mass Transit, Municipal, Savings, Tourist Association, Trust, Trustee, Underground Railway, Bank, Insurance, Assurance, Reinsurance, Fund Management, Asset Management, and Investment Fund, and their equivalents in other languages) are subject to licensing.

Banking, insurance or financial businesses require a licence.

The company names should be written only in English, only in Chinese or in both languages. The company name resembling the existing one will not be accepted.

Taxation

Hong Kong tax system has formed on the model of English system and has succeeded to the principles of the British Commonwealth tax package approved in 1947. Hong Kong does not divide companies into residential and non-residential, but adopts territorial tax concept. It means that the Hong Kong companies are taxed only if profits are derived from Hong Kong or operations aimed at receipt of such profits have been executed in Hong Kong. If the company has not been active in Hong Kong and has not received income from sources in Hong Kong, it will not be levied.

The key legislative act is Inland Revenue Ordinance which provides for 4 types of income tax:

- profits tax;

- tax on wages and salaries;

- real property tax;

- withholding tax.

Profits tax has a significant importance in international tax planning and will be reviewed here in detail.

There are no taxes on capital gains, dividends, interests, royalties received from or transferred abroad. Profits tax for companies active in Hong Kong is 16,5%.

To be exempted from profits tax the Hong Kong company should match the following criteria:

  • the company should not have business place in Hong Kong, for example offices, shops, work places;
  • produced goods should not be sold in Hong Kong;
  • no employees working in Hong Kong;
  • all contracts should be executed and performed outside of Hong Kong;
  • no suppliers and contractors in Hong Kong;
  • the goods should be carried between ports outside of boards of Hong Kong.

Foreign cash fees and license fees related to music, movies, incomes from patents, publications, mineral rights, consultation services, rental income are not subject to taxation in Hong Kong. Such incomes can be transferred into a deposit account in Hong Kong or held elsewhere without being taxed.

Thus Hong Kong offers a tax regime which can give offshore zones a good run, and offers advantages for international trade and financing.

You can open a company in Hong Kong and enjoy benefits of double taxation for the countries with which Hong Kong has signed the agreement. At present Hong Kong has signed about 20 tax agreements, including with countries of the European Union.

Thus key features of the Hong Kong tax regime are the following:

  • territorial tax concept: profits tax is not imposed if such profit is derived from the sources outside of Hong Kong, and operations aimed at receipt of such incomes have not been executed in Hong Kong;
  • viewed as a respectable financial center by the most of the countries;
  • no basic taxes, except 16,5% profits tax from revenue collected in Hong Kong;
  • personal income tax of individuals does not exceed 16%;
  • interest income on deposit opened in Hong Kong is not levied in Hong Kong;
  • no taxes on income from capital or capital gains;
  • no taxes on dividends received from abroad;
  • no taxes on dividends transferred abroad.

Accounts and returns

A Hong Kong company is a serious financial instrument requiring, unlike offshores, additional expenses for financial reports. All Hong Kong companies should keep accounting books and records in accordance with Company Ordinance and Inland Revenues Ordinance, regardless whether the company conducts business inside or outside of Hong Kong.

The companies are required to file the following documents to the Inland Revenue Department:

1. Annual Return which contains information on registered address, partners and managing structure. The return should be provided within 42 days after the end of the year from the date of registration of the company.

2. Financial Accounts, if company was not active it should file Dormant Accounts.

3. Director’s Report certified by auditor which indicates information on current directors and shareholders who have held shares during the year.

4. Profits Tax Return. Within 12-18 months after registration the company receives is first Profits Tax Return from. During one month after receipt of the form (if the due term is not prolonged) the completed Profits Tax Return need to be submitted to the Inland Revenue Department of Hong Kong.

Within 12-18 months after registration of the company you will need to choose a financial year end date which will be in future the end date of each financial year. The first financial year may continue up to 18 months, the following years only 12.

5. Auditor’s Report.

6. Tax computation.

Normally these procedures are carried out by secretarial companies for beneficiaries. If during financial period the company has not been active, it will file a simple report on absence of business activity. In such cases information on activity is not requested from owners of the company.

To prepare all reports and audit the owner of the company is required to provide auditors with bank statements, invoices, shipping documents and agreements for each transaction.

If incomes were received from the source outside of Hong Kong and is not subject to taxation in Hong Kong, when the company reports to the tax authorities, tax officers will direct a letter to the address of the company with a list of questions in order to identify the source of profits:

  • Organizational structure of the company, details of creation of its structures in Hong Kong and abroad (place of business, size of the office, number of employees, their names, positions, duties, salaries);
  • Description of the company’s actions in the process of collection of profits, indicating names of persons in charge, place of transaction (contacts with buyer/supplier, price fixing, execution and signing of sales / purchase agreements, storage and delivery of the goods);
  • Method of payments with clients;
  • Copies of contracts signed with each contractor, their names, addresses.

Afterwards the auditors file a letter with explanations to the tax authorities, and further represent interests of the client before the tax authorities. This procedure is carried out for the first time after Profits Tax Return has been filed for the period of the first year when the company gained profits. If business of the company is not changed, such a procedure will be carried out in 3-4 years.

Differences between Hong Kong and offshore zones

Despite there are tax solutions similar to those of offshore jurisdictions, Hong Kong is not a classical offshore.

The Hong Kong companies are not exempted from taxes automatically. You will need to file Dormant Accounts with the Inland Revenue Department. In some cases The Department may request documents proving that the company has not had incomes derived from sources in Hong Kong, and has not been managed inside Hong Kong.

Another distinction between the Hong Kong companies and classical offshores is transparency. Details of shareholders and directors of the Hong Kong companies are open for public.

All this makes the Hong Kong companies prestigious corporate instruments recognized all over the world. Companies registered in Hong Kong and legally conducting their business will face far less difficulties in proving legality of their capital origin in case of investments in developed countries which is a significant advantage over offshore companies.

Use of a Hong Kong company

1. A Hong Kong company as an intermediary in international trade.

The Hong Kong company is an ideal intermediary in trading with China and countries of Asia, however, it can be widely used in trading all over the world. General mechanism of a Hong Kong trading company:

- the Hong Kong company is a connecting link, a party concluding contract with the suppler and the buyer of the goods;

- the goods are delivered directly from the suppler to the end buyer (“direct supply”);

- the company receives an invoice and pay the supplier for the goods , and issues an invoice to the buyer adding to the price the amount of its own profit;

- tax free profit is accumulated on the accounts of the Hong Kong company.

2. A Hong Kong company as a supplier of services. The payment for provided services will be transferred to a bank account of the company. Based on the territorial taxation principal, there is no obligation for the company to pay income taxes.

3. A Hong Kong companies in toll processing

The company acts as an overseas partner who actually manages several companies located in Russia with the purpose of obtaining a profit:

- the Hong Kong company buys raw material directed for processing

- the manufacturer processes the materials received from the Hong Kong company into finished products. The Hong Kong company pays the manufacturer its fees or hands over a part of the products as a remuneration.

- The finished products are delivered to the Russian company. There is an Agent Agreement between the Russian and Hong Kong companies in accordance with which the Russian company-agent receives a commission, and earned money is transferred into the bank account of the Hong Kong company-principal.

4. A Hong Kong company as an international forwarding company.

5. A Hong Kong company as an investor and/or holding company.

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