Hong Kong is one of the most popular options for an offshore company setup.
Not only is it an easy gateway to enter into China market, but offshore profits also are not taxable by the Hong Kong local authority.
That said, trying to start or expand your business here alone can be a highly difficult, time-consuming, and stressful task for all involved.
So, how can you take advantage of this thriving market?
In this guide, we’re going to break down the process of creating your business in Hong Kong.
As well as highlight some of the common complications facing foreign entrepreneurs, and how to alleviate these issues.
First of all, why incorporate in Hong Kong?
Aside from being the best business-friendly city to start a business, I have summarized 10 points about why many foreigners choose to incorporate their companies in Hong Kong.
- Straightforward and easy process for company formation.
- Business outside of Hong Kong is tax-free (Hong Kong Offshore status).
- Low and simple tax regime; the tax rate is only at 16.5% of the profits or less.
- No tax on dividends.
- No withholding tax, sales tax or VAT.
- Business Center in Asia.
- Excellent world-class business infrastructure and facilities.
- The easy way to enter the international market.
- 100% ownership by a foreigner is permitted.
- Enjoy an efficient banking system & multi-currency bank accounts.
CHAPTER 1: The Basics and Definition Guide
Before we go further, we’ll need to go over some terminologies and processes that you may encounter when setting up a Limited Company in Hong Kong as a foreigner.
1. How To Choose Your Company Name
The first step to register a company is to choose a company name. A Hong Kong limited company can have its name expressed in English or in Chinese, or with names in both languages.
If you adopt an English name, then “Limited” shall be the last word of the name. If you adopt a Chinese name, then it shall end with “有限公司”.
Traditional vs Simplified Version
Foreigners shall be reminded that there are two types of written Chinese – Traditional and Simplified version.
Hong Kong adopts Traditional Chinese while Mainland China uses Simplified Chinese. If your company has a Chinese name, it must be in Traditional Chinese.
The Hong Kong Companies Registry does not recognize simplified Chinese in the application form.
Tips When Choosing a Company Name
Additionally, there are several important points to note when you choose the name of your company. First, the name must not be the same as a name appearing in the Registrar index. You can contact an incorporation agent for verification. Name search result can usually be available as fast as 15 minutes. Second, the use of the name must not be offensive or contrary to public interest.
For example, wordings which express “revolution, violence, army” may need further approval. Third, some specific phrases such as “levy”, “trust”, “trustee”, “savings”, “chamber of commerce” are usually not allowed.
If Companies Registrar refuses to accept a name, the application fee is only partially refundable. Hence, foreigners are recommended to contact a licensed service provider for verification.
Check the Availability of Your Company Name
You can check the availability of your Company Name in Companies Registry’s 24×7 Cyber Search Centre (http://www.icris.cr.gov.hk/normal.html).
Should you find the process a complication, Contact Us to check the availability for registration, for free.
2. How To Appoint a Company Secretary
When you register a company in Hong Kong, you need to have a “company secretary” who is either a Hong Kong resident or a Hong Kong company. A company secretary is not an administrative role. It is a role to comply with the registration purpose.
Foreigners shall pay extra attention when choosing a company secretary service provider.
- Verify whether the service provider is a licensed agency. You can input their license number on the following website: https://www.tcsp.cr.gov.hk/tcspls/index
- Compare the pricing. The standard market rate is usually between HK$1,000 to HK$1,500 a year. There is no need to pay a couple of thousands for a company secretary parking service.
- Investigate online reviews. As a non-local resident, it is not easy to change the service provider. Hence, you should choose a company that has a good reputation and your case handler is experienced in this field. This will save you a lot of time and hassle for company maintenance.
FAQ #1: Can I appoint my friend or my wife to be the company secretary?
Our advice is “NO” unless he or she has a good understanding of the Hong Kong Company Law.
Most entrepreneurs who try to save the HK$1,000 secretarial fee end up paying government fine of couple thousands HK dollar. Appointing a professional agency can save you cost in long run.
For example, there is a form NAR1. The company has to submit this form by the anniversary date of incorporation. No advanced filing is accepted while late filing will incur a fine.
Unlike Singapore, foreigners are allowed to have 100% control of their limited company in Hong Kong.
In other words, a foreigner can be the sole director and shareholder. There is no need to have a local director or shareholder.
Restriction on UN Sanctioned Countries
While there are no express restrictions in nationality, most licensed agents are not willing to accept applications from UN-sanctioned countries unless the customer can fulfill their KYC and AML checking requirements. As of November 2018, these countries include, but not limited to, Burma, Cote d Ivoire, Cuba, Iran, North Korea, Syria.
The Minimum Requirement for Share Capital
A Hong Kong company needs to issue a minimum one share. While the principle for par value has been abolished in Hong Kong, the norm for the value of each share is usually HK$1.
FAQ #3: Can I allot more shares after the company is registered?
You can increase the share capital and allot shares to existing or new shareholders. Apart from allotting new shares, you can also transfer your shares to other parties.
4. The Importance of Having A Registered Address
To set up a Hong Kong company, it is fundamental to have an address in Hong Kong as the registered office. There are 18 districts in Hong Kong while most foreigners will choose the Central Business District.
From our observation, the most popular options are Central (Hong Kong Island) and Tsim Sha Tsui (Kowloon). Foreigners only need to have a virtual address. There is no need to rent a physical office in Hong Kong.
The Hong Kong government will send 4 letters to your virtual address per year.
All of these letters have a timeframe to reply and a late fee will incur if one does not reply before the deadline. Hence, you should ensure your service provider will scan you these important letters upon receipt.
For Bank Letters. Almost all banks in Hong Kong provide e-statement these days. You can download these statements outside Hong Kong and you can have full control of your bank information remotely.
FAQ #2: What happens if my customer mails me a letter or a parcel? Will you be able to forward the parcel or the document?
Our answer is affirmative. We offer a scanning service at US$4 handling fee per mail.
For ease of payment, we usually charge when the service fee reaches US$80 (i.e. 20-time scanning) so you don’t have to pay for each request. All government letters scanning are free of charge.
If you would like the letters to be forwarded to your physical address, we will check the mailing fee with the courier service provider and let you know before forwarding.
Important Reminders When Changing Registered Address After Incorporation
After the company is registered, company owners can still change the registered address.
If you decide to update your address, we have three (3) important reminders:
- You should reserve a minimum 1-month processing time in updating the address. Sometimes there are red tapes in the HK banking system. Most banks require customers to fill up a form. You cannot update the address by writing a letter or email to your account manager.
- You should inform the Companies Registry by submitting Form NR1. It is an offense if the company fails to notify the government in time. Each responsible person of the company can be liable for a late fee of $1000 per day.
- The company owner should inform the Inland Revenue Department by submitting Form IRC3111A within one month of such change. Advanced notice will not be accepted. Failure to comply may lead to prosecution.
CHAPTER 2: Ways to Setup a Hong Kong Company
There are two (2) ways to set up a Hong Kong Company: paper submission and online submission.
The Timeframe for Paper Submission
In the Companies Registry website, the Government states that company incorporation takes 4 business days.
However, many incorporation agents will tell you the shortest time frame in practice is around 5 to 7 business days. You may be curious why is there an inconsistency.
The fact is that processing time usually excludes the filing date. After the Government registers your company in the record, certificate of incorporation and business license will only be issued on the fifth day. Hence, you can expect a time frame of 6 – 7 business days for paper submission.
The Timeframe for Online Submission
The government has introduced the e-Registry system in recent years. The term “online submission” has confused many non-locals during the year. In fact, there is a pre-requisite for using the system. Foreigners need to present their passport to the Companies Registrar in person.
Alternatively, they will need a Hong Kong Practicing CPA or Chartered Secretary recognized by the HKICS to certify their passport copy. If non-locals want to make use of the E-registry system, you must hire a TCSP licensed agent. Processing time via e-Registry usually takes 1 business day.
The Main Procedure in Setting up A Limited Company Online
If you use our service at Get Started HK, we can incorporate your company in 12 hours remotely.
We only require three (3) things from you.
- Proposed Company Name,
- Copy of your passport, and
- Copy of your residential address proof.
You can fill up our application form with us using this link. After you have successfully placed your order, we will send you draft incorporation documents for review within 3 business hours.
After you confirm the documents, we will submit to the government for registration. The certificate of incorporation will then be ready in 12 hours.
CHAPTER 3: The Real Costs and Fees
On top of the TCSP licensed agency’s service fees, you also need to pay fees to two (2) Government departments: Companies Registry and Inland Revenue Department.
Companies Registry charges a one-off fee of HK$1,720. While Inland Revenue Department charges a business registration fee of HK$2,250.
The total add-up is HK$3,970 which is around US$510.
CHAPTER 4: How To Open a Corporate Bank Account in Hong Kong
After the company is incorporated, directors need to contact the bank of their choice directly.
One-Stop Bank Contact Details: We have summarized contact details of 18 local Hong Kong banks in this link for your reference.
While you can arrange an appointment over the telephone, some banks provide an online platform (please also refer to link above). Fill out the application form online. Banks will then arrange an appointment with you via email. However, recently, it is usually more efficient to arrange via telephone.
FAQ #4: Do I need to make an appointment in advance?
Yes, you need to make an appointment in advance. Banking culture has changed a lot in the last 5 years. Most banks require 7 days advance notice. Also, banks are usually very busy before and after public holidays, so I’d recommend non-local residents to book at least 10 days in advance during peak season.
In regards to holidays, banks are very busy before and after Christmas and Chinese Lunar New Year holidays. You should only book your flight ticket after banker confirms your appointment. No walk-in is allowed. You should also note that corporate banking opens from Monday to Friday only.
FAQ #5: How many days do I have to be in Hong Kong?
Bank interview usually takes an hour. If you have a busy schedule, you can fly to Hong Kong in the morning, meet bankers in the afternoon, and fly out in the evening. Once your application is approved, banks can mail you the online banking device and/or ATM card so you can control the account remotely.
FAQ #6: How to avoid getting into trouble with banks?
If you believe you are not treated fairly, non-local residents can file a complaint at the Hong Kong Monetary Authority. However, this is usually the last resort. To avoid getting into trouble with banks, you should consult with your incorporation agents as to documents to be prepared and the general banking practice and culture in Hong Kong.
Banking Culture in Hong Kong
Banking practice in Hong Kong can be different from your country. If you choose to open a bank account in Hong Kong, you have to accept its banking culture. Based on our observation, banks focus on the experience of the director and shareholder even though you are applying for a corporate account. Bankers may ask for several sample contracts and invoices from your previous or existing business experience.
FAQ #6: Can I obtain Pre-approval before I visit Hong Kong?
Sizable incorporation agents can provide customers with comprehensive banking support. Based on the nature of your business and director’s background, they can connect you with a designated bank officer. Bank officers can conduct a pre-screening of your company documents. Once bankers confirm your documents are sufficient, you can then arrange your flight to HK. If you choose our service, we will even accompany you to the bank for account interview so you can enjoy a hassle-free process.
An example: What is a good business plan? What does the bank expect to read?
Some bankers may ask you for a business plan. We’ve read many business plans over the years and many foreigners will write very detailed breakdowns of the nature of their business, targeted customers, targeted jurisdiction, etc.
Unfortunately, this is not what bankers are looking for.
Banks are not in a position to judge whether your business will be successful. They are also not interested in your business model. They ask for the business plan because they try to fulfill their Anti-Money Laundering Rules policy.
Hence, the secret is to list out the “source of income” in your plan, including, but not limited to initial funds in setting up the company, funds for maintenance and expansion.
If you want more tips in company formation or bank opening arrangement, you read our FAQ page or you can contact our team at firstname.lastname@example.org.
CHAPTER 5: Taxation in Hong Kong
FAQ #7: Do I have to pay tax in Hong Kong?
Hong Kong adopts a territorial source principle of taxation. In other words, offshore profits are not taxable by the Hong Kong local authority. Hence, if your source of income is outside Hong Kong, you can apply for offshore status. Once the Inland Revenue Department grants you the status, the corporate tax rate is 0%.
Conversely, if your source of income is in Hong Kong, you are subject to the Hong Kong profit tax. Hong Kong government recently sends a welcoming message to business starters who are looking for opportunities in HK by mulling huge cuts to profit tax since February 2018. The reduction confirms to be from 16.5% to only 8.25% for the first HK$2 million (US$256,000) in profit.
Foreigners shall also note that Hong Kong does not have a Value Added Tax (VAT). Hong Kong also does not have Capital Gain Tax.
CHAPTER 6: How to Conduct Due Diligence in Spotting Scammers and Middleman
Here are some important points to consider to check the legitimacy of a Hong Kong company formation agent:
1. What is their Jurisdiction? Ask your agent if they are a Hong Kong incorporated company. If your agent’s company is registered outside Hong Kong, they are likely to be a middleman.
2. Are they licensed? You can confirm this by asking for their license number and checking the database of Companies Registry. Don’t search for the company name. Search for the license number. Scammers can easily replicate a company name.
3. What are their qualifications? Ask your agent if they have an in-house Hong Kong practicing CPA and Chartered secretary recognized by the HKICS. If not, that’s a red flag to watch out as they are likely to be a middleman.
4. Do they have a website? Who are their Partners? Do they have team photos? Who have they worked with?
5. Website security. If they have a website, assess its security. It should have an “https://” domain, not http://. If it’s in http:// only, it isn’t a secured website and I’d be reluctant to fill out their contact forms, especially payment forms.
6. Watch out for an aggressive contact person. Do they repeatedly send you reminders to start the application? Some well-known agencies have limited incorporation quotas per month so a reputable agency is usually not pushy.
CHAPTER 7: How To Choose a Reputable Licensed Agency
1. Online and Offline Reviews. While choosing an agency with the positive Google reviews ranking makes sense, you should also check whether your agent is active and participate in the business community and networking events. This will provide you with an expectation of how much they care about a business’s success.
2. Corporate Social Responsibility. Some agencies definitely have a better corporate image than others. They share volunteer work and team building photos on their website. See Our Team page here as a sample.
3. English Communication Skills. It is important to choose an incorporation agent with fluent English. Their English need not be perfect, but you’d like to avoid miscommunication in important company matters.
First, you can check their efficiency by sending them an email. Second, you may want to call their office and speak to them. Many agencies hire bilingual staff who have studied abroad. So if you find it hard to communicate with a particular agent, you can contact another agency for service.
4. Excellent Customer Care and After-sales Service. Some incorporation agents are willing to do a little more than others. These agencies provide better training and welfare to their staff. In return, their staff is willing to provide their personal WhatsApp or WeChat for communication.
They are also willing to reply to the message after office hour. This is particularly helpful if you live in the UK. If you return to your office at 10 am, it is already 6 pm in Hong Kong.
If you cannot communicate with your case handler via an instant message, then you’ll have to wait for at least one business day for a reply. Hence, when choosing an agent, you should also consider the efficiency of their after-sale service.
Setting up a Limited Company in Hong Kong could be easy when you find a trustful and honest licensed agency. The key is to work with the right team who can handle all your paperwork properly and provide you with guidance in understanding business culture and practice in Hong Kong. You can then focus on growing your business further without any hassles.