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Today, many investors and entrepreneurs are choosing to set up their companies overseas – especially in jurisdictions like Hong Kong. The rationale behind this trend is to primarily facilitate entry into an international market and to benefit from tax-friendly jurisdictions. Hong Kong is considered one of the best cities to start a business, as it scores high on factors that matter to businesses, such as:
Those mentioned above are some of the factors that continue to contribute to the success of Hong Kong. Detailed below are some of the key benefits of registering a company in Hong Kong and will serve to provide you with the answers to the question Why you should set up company in Hong Kong.
Hong Kong strategically locates at the heart of the Asian continent. A five-eight-hour flight will connect you to most markets in the Asia-Pacific region. If you need to tap into the Mainland Chinese market, you will find that Hong Kong is perfectly situated on the southeast coast of Mainland China, flanking the mouth of the Pearl River Delta. This advantage facilitates travel to and from Hong Kong to Beijing, Shanghai, and other major Chinese cities within a single day.
Hong Kong is renowned for being an ideal place for company incorporation. You can start setting up a company in Hong Kong in about two week's working time. It notes that the excellent infrastructure facilities and business premises are easily available. Intellectual Property protection is taken seriously, with strict regulations in place. There are various dispute resolution channels that businesses can avail themselves of.
Besides, the simple and business-friendly tax system is another reason for attracting foreign investors to the city. In this regard, Hong Kong boasts of being one of the lowest tax jurisdictions in the world. Personal income tax (or salary tax as it is known) goes from 2% to 17% for income above 120,000 HKD. Corporate tax is at 16.5% of assessable profits for corporations and 15% for unincorporated businesses.There is no capital gains tax, nor any withholding tax on dividends and interest or collection of social security benefits. Furthermore, there is no sales tax or VAT in Hong Kong.
The Hong Kong Special Administrative Region (HKSAR) is rated the freest economy in the Economic Freedom of the World 2020 Annual Report by the Fraser Institute. Among the five areas of assessment (including: Size of Government, Legal System and Property Rights, Sound Money, Freedom to Trade Internationally, Regulation), Hong Kong was ranked top in Freedom to Trade Internationally and Regulation.
With this recognition, Hong Kong has a worldwide reputation for the highly developed free-market economy characterised by low taxation, almost free port trade and well-established international financial market. To say more, there are NO:
Factors such as a sound banking system, almost no public debt, a strong legal system, sizable foreign exchange reserves, and a strict anti-corruption regimen strengthen Hong Kong's position as a business-friendly region. Hence, many entrepreneurs choose to open company in Hong Kong to take full advantage of this world's freest economy.
Many programs have been established by the Hong Kong government and the private sector to help both local and foreign businesses grow and improve in every stage of business development. Many business support programs and financial incentives to foster the growth of SMEs have been established, such as:
These are some of many governance funding schemes aiming to support businessmen to set up company and maintain the business sustainably in Hong Kong. And all of the funding schemes are updated on Hong Kong goverment websites for the ease of business's reference:
Hong Kong has all along adopted an open immigration policy. Nationals of about 170 countries and territories are allowed visa-free visits to Hong Kong for periods ranging from 7 to 180 days.
Professionals and entrepreneurs are welcome to start a business and invest in Hong Kong. Overseas professionals who possess special skills, knowledge or experience of value to and not readily available in Hong Kong, or who are in a position to make substantial contributions to the economy, may apply to work here under the General Employment Policy (GEP).
Short-term visitors may conduct business negotiations and sign contracts by entering Hong Kong on a visitor visa or entry permit. The government has introduced appropriate work visa provisions, anticipating the needs of business entrepreneurs who may wish to relocate to Hong Kong for company registration or who may want to hire foreign professionals to work in their company.
There are various policies and schemes for the employment of foreign professionals, employment of Mainland talents and professionals, those wishing to enter for investment, etc.
Hong Kong's legal system is separate from Mainland China's, and English common law prevails. With the establishment of the International Arbitration Centre in 1985, Hong Kong has become a key center for arbitration in Asia and arbitration is now a popular method of dispute resolution in Hong Kong.
The law is committed to the protection of Intellectual Property Rights (IPR) and enforces stringent regulations for patents, copyrights, trademarks, and registered designs. Furthermore, Hong Kong also sets up a Intellectual Property Department to monitor the IP regime in Hong Kong and this department is reputed to have extensive experience in handling IP matters. There are distinct rules and regulations concerning trade and commerce, employment, taxation, and other business-related areas, making it an attractive place to set up and operate a business.
Most businesses choose to set up a company in Hong Kong as it is believed to be politically stable with pro-business governance and free-market principles. It is also cited as one of the most corruption-free economies in the world. Hong Kong has even set up an anti-corruption watchdog – the Independent Commission Against Corruption (ICAC) – mandated to deal with both public and private sector corruption.
Hong Kong Independent Commission Against Corruption (ICAC) Headquater
Hong Kong consists of a highly trained, well-educated, and skilled work-force. The workforce consists of a local talent pool of experienced and entrepreneurial professionals who are known to be especially well versed with the business culture in the fast-growing Mainland cities. Employees are generally considered to be hard-working, competitive, and are constantly seeking to improve themselves. Although English is the language of communication in business settings, the bulk of the workforce is also conversant with Cantonese and Mandarin, owing to the country's link to China.
Hong Kong has taken endless measures to continuously upgrade its infrastructure to meet the growing demands of businesses. It is said to have one of the Best Airports and Busiest Ports in the world. Transportation services are efficient and cheap connecting all major centers.
Hong Kong is home to world-class industrial/business parks like Cyberport and the Hong Kong Science and Technology Parks. These parks provide integrated infrastructure in one region that helps reduce the per-business expense and also help companies operate in a highly conducive, environment-friendly setting.
Hong Kong's telecommunications infrastructure is one of the most technically advanced in the world. Broadband coverage is available to virtually all commercial and residential buildings. Hong Kong's open markets ensure there are several competitive mobile phone and Internet service providers. Broadband Internet connection is available to over 98% of households in Hong Kong.
Most foreign professionals and entrepreneurs who set up a business in Hong Kong tend to re-locate with their families. Hong Kong has been very famous for its standard of living. The public transportation system in Hong Kong is well connected, clean, safe, efficient, reliable, and above all affordable. Getting around Hong Kong is easy, given its wide network of buses, trains, ferries, and taxis.
Hong Kong is home to several international schools that follow a curriculum identical to those in their home country and offers world-class private and public health services and expert medical practitioners. The health-care environment is clean, efficient, safe, and affordable. There are several recreational activities to indulge in and Hong Kong boasts of a vibrant and exciting Nightlife and is often quoted as the 'city that never sleeps'.
Choi Hung Estate in Kowloon, Hong Kong
The most common type of business entity registered in Hong Kong is a private limited liability company. Limited liability companies have:
As a limited liability companies, raising capital and transfering of ownership are easier when compared to other business structures such as sole proprietorship and partnership. Foreigners, who wish to register a limited liability company or an offshore one in Hong Kong, must take into consideration the following points:
Foreigners are free to be the sole directors and shareholders of a Hong Kong company. There are no local resident requirements.
Foreigners, who do not plan to relocate to Hong Kong, are free to operate their Hong Kong offshore company from overseas. They can travel to Hong Kong on a visitor visa as and when required.
Although there is no requirement to be physically present at the time of company registration, physical presence may be required for the purpose of opening a bank account, depending on the bank chosen.
Directors – A minimum of one individual director and unlimited maximum number of directors allowed. The director must be a natural person who can be of any nationality and need not be resident in Hong Kong. Directors must be at least 18 years of age and must not be bankrupt or convicted for any malpractices. There is no requirement for the directors to also be shareholders. Nominee Corporate Directors can also be appointed in addition to the individual Director. Directors Board meetings can be held anywhere in the world.
Shareholders – A Hong Kong private limited company can have a minimum of 1 and maximum of 50 shareholders. There is no residency requirement for shareholders. A director and shareholder can be the same or different person. The shareholder must be at least 18 years of age and can belong to any nationality. The shareholder can be a person or a company. 100% local or foreign shareholding is allowed. Appointment of Nominee shareholders is permitted. Shareholders meetings can be held anywhere in the world.
Company Secretary – Appointing a company secretary is mandatory. The secretary, if an individual, must ordinarily reside in Hong Kong; or if a body corporate, must have its registered office or a place of business in Hong Kong. It has to be noted that in case of a sole director/shareholder, the same person cannot act as the company secretary. The company secretary is responsible for maintaining the statutory books and records of the company and must also ensure the company's compliance with all statutory requirements. A Nominee secretary can be appointed.
Share Capital – Although there is no minimum share capital requirement, the general norm for companies incorporated in Hong Kong is to have at least one shareholder with one ordinary share issued on their formation. Share capital can be expressed in any major currency and is not restricted to the Hong Kong Dollar alone. Shares can be freely transferred, subject to a stamp duty fee. Bearer shares are not allowed.
Taxation – Corporate tax, (or profits tax as it is called), is set at 16,5 % of assessable profits for companies setup in Hong Kong. Hong Kong follows a territorial basis of taxation i.e. only profits which arise in or derived from Hong Kong are subject to tax in Hong Kong. There is no capital gains tax, withholding tax on dividends, or GST/VAT in Hong Kong.
Ongoing Compliance – It is mandatory for companies to prepare and maintain accounts. Accounts must be audited annually by Certified Public Accountants in Hong Kong. The audited accounts together with tax return must be filed annually with the Inland Revenue Department.
To setup a Hong Kong limited liability company, normally the following documents will be required:
For non-resident shareholders and directors: Copy of passport, overseas residential address proof, bank reference letter
For resident shareholders and directors: Copy of Hong Kong identity card and Copy of residential address proof
For corporate shareholders and directors: Copy of parent company registration documents such as Certificate of Incorporation and Articles of Association
Opening a Representative Office (RO) is a suitable option for foreign companies who wish to explore opportunities in Hong Kong and the surrounding regions, before making large investments and setting up a company in Hong Kong. A Representative Office is considered a promotion and liaison office and must restrict itself to conducting such activities only. A Representative Offices have no legal status and cannot conduct any profit generating business activities.
A Representative Office has no legal standing or recognition and the parent company bears implicit liability for all the actions of the Representative Office.
Generally, the name of the Representative Office must match the name of the overseas parent company. However, if the name is already in use in Hong Kong, the overseas company will need to adopt another name for the Representative Office in Hong Kong.
A Representative Office operates as a cost centre and can only engage in liaison, promotional work, and market research type activities. It cannot engage in commercial profit generating activities such as engaging in business, concluding contracts, providing consultancy for a fee, undertaking transshipment of goods, or negotiating letters of credit. If it wishes to enter into any transaction - which creates a legal obligation, it will need to change the business structure to that of a subsidiary company or a branch office.
A Representative Office is considered as a temporary administrative office helping the foreign company test business environment and explore the viability of doing business in Hong Kong.
There is no registered capital requirement to set up a Representative Office.
Representative Offices are non-earning entities and are not liable for filing tax returns with the Inland Revenue Department. However, Representative Offices must file for a Business Registration Certificate with the Inland Revenue Department.
A Representative Office will usually appoint a staff member from its foreign parent company who will relocate to Hong Kong and manage the office. It may also engage local employees as support staff.
There are no registration requirements with the Companies Registry for Representative Offices in Hong Kong. However, it must apply for a Business Registration Certificate with the Inland Revenue Department within one month from its date of commencement. The following documents are required during registration:
Completion of a prescribed application form
Proof of identity for the RO's chief officer in Hong Kong
Once the Representative Office has received the Business Registration Certificate from the Inland Revenue Department, a corporate bank account can be opened with any of the major banks in Hong Kong.
Registering a Branch Office is one of the ways a foreign company can establish a presence in Hong Kong. Meanwhile, the other two options being: setting up either a Hong Kong Subsidiary or a Representative Office.
A Hong Kong Branch Office is a legal entity registered with the Company Registry. Unlike a subsidiary, a Branch Office is treated as an extension of the Parent Company and as such the Parent Company is responsible for all the debts and liabilities of the Branch Office.
Register branch name and prepare documents required to set up branch in Hong Kong
Provision of a registered address for the first year (includes the safe-keeping of the company's statutory documents)
Business registration certificate for the first year
All government fees for incorporation (to HongKong government and government agencies)
Support to apply for Employment pass for Local Representative office in Hong Kong
Other services (if any)
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