Hong Kong, an internationally respected business hub, is known for being an efficient corporate vehicle for setting up business in Asia. Incorporation of a company in Hong Kong allows foreign investors to gain access to the huge market of Mainland China, and is often viewed as “Gateway to China”.

Hong Kong offers a world-class infrastructure and technology, and tax efficiency along with exemption on income sourced outside of Hong Kong. The most common type of business entity registered in Hong Kong is a private limited liability company.

I.  BASIC REQUIREMENTS FOR HK INCORPORATION:

1. Members

In order to form a company in Hong Kong, it must constitute the following members:

1.1 Directors

A minimum of one director and maximum of unlimited number   of directors are allowed. Following is the eligibility criteria to be a director:

• A person or a company of any nationality;
• 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 directors can also be appointed. Directors Board meetings can be held anywhere in the world.

1.2 Shareholders

A private limited company can have a minimum of 1 and maximum of 50 shareholders. Following is the eligibility criteria to be a shareholder of a company:

• A shareholder can be a person or a company.
• Must be at least 18 years of age and
• Can belong to any nationality.

A director and shareholder can be the same or different person with100% local or foreign shareholding. Appointment of nominee shareholders is permitted. Shareholders meetings can be held anywhere in the world.

1.3 Company Secretary

It is mandatory to appoint a company secretary. The secretary can be either an individual residing in HK or a body corporate having its registered office or a place of business in HK. It is pertinent to note that in case of a sole director/shareholder, the same person cannot act as a company secretary. A nominee secretary can be appointed.

2. Share Capital Requirement

There are two types of share capital for Hong Kong companies – authorized capital and issued / paid-up capital.

2.1 Authorized capital

There is no minimum share capital requirement, however, the general norm for companies incorporated in Hong Kong is to have a authorized share capital of HKD 10,000 represented by 10,000 ordinary shares of HKD 1.00 each. The authorized share capital can be increased anytime after the company has been incorporated. However, a capital duty of 0.1% for share capital over HKD 10,000 will have to be paid to the HK government. The capital duty is capped at HKD 30,000 in each case.

2.2 Issued/ Paid-up capital

The minimum issued/paid-up capital is usually 1 share of HKD 1.00. There is no limit or restriction on the maximum amount of share capital for both types. 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. Hong Kong company formation law does not permit bearer shares.

3. Registered Address

In order to register a Hong Kong company, you must provide a local Hong Kong address as the registered address of the company. The registered address must be a physical address and cannot be a PO Box.

4. Public Information

As per Hong Kong company law, it is mandatory to file details of the company officers viz., directors, shareholders, company secretary with the Hong Kong Company Registrar. If a company wishes to maintain confidentiality, a nominee shareholder and nominee director can be appointed by utilizing the services of a professional services firm.

5. Taxation Consideration

HK has a flat corporate tax rate of 16.5% on assessable profits.

5.1 Territorial corporate tax system

Hong Kong follows a territorial corporate tax system. The tax will be levied only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong. Profits tax is not applicable to profits whose source is outside Hong Kong.

5.2 Single-tier corporate tax system

HK follows a single-tier corporate tax system which means the profits earned by companies are taxed only once. When the profit is distributed among shareholders in the form of a dividend, the profits distributed are no longer taxable on the shareholders of the company.

There are no capital gains taxes, no withholding taxes on dividends, interest or royalties, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them in Hong Kong.

5.3 Double tax relief

Double tax relief (by means of tax credit) is available for overseas tax (in the nature of a tax on profits) paid in jurisdictions which have concluded a CDTA with Hong Kong on the foreign income which is also subject to Hong Kong profits tax. Hong Kong has so far entered into a comprehensive double tax agreement / arrangement (CDTA) with Austria, Belgium, Brunei, France, Hungary, Indonesia, Ireland, Japan, Kuwait, Liechtenstein, Luxembourg, the Netherlands, New Zealand, the People's Republic of China (PRC), Switzerland, Thailand, the UK and Vietnam. 

6. Other Compliances

6.1 Maintain Accounts

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 along with tax return must be filed annually with the Inland Revenue Department.

6.2 File Annual Returns

Every company is required to file annual returns with the Companies Registry and pay the annual registration fee.

6.3 Renewal of Business Registration Certificate

The Business Registration Certificate should be renewed, one month before expiry on an annual basis or once every three years, as the case may be.

6.4 Annual General Meeting

An Annual General Meeting (AGM) should be held annually very calendar year. The first AGM should be held within 18 months of the date of incorporation, after which no more than 15 months can elapse between one AGM and the next. A written resolution in lieu of Annual General Meeting is permissible.

II.   COMPANY REGISTRATION PROCEDURE

The incorporation procedure entails two steps: 1) Approval of Company Name, and 2) Application for Company Registration with the Companies Registrar.

1. Approval of company name:

1.1 The foremost step in company’s registration involves the approval of proposed name of the company by submitting an application to Companies Registry.

1.2 The proposed name will likely be rejected if the name is the same as or similar to a name appearing in the Companies Registry’s ‘Index of Company Names’, infringes on trademarks, or is considered offensive or otherwise contrary to public interest

2. Application for company registration with the companies registrar:

Once the name has been approved, the incorporator is required to apply for the certificate of incorporation by submitting the following documents duly completed and signed with the Companies Registry along with the appropriate fee:

2.1 A copy of the Memorandum and Articles of Association (MAA) for the company. A standard MAA document is normally provided by the professional services firm who is assisting with incorporation of the company.

2.2 A duly completed incorporation form that includes the following:

• Company name
• Registered address
• Brief description of business activities
• Particulars of shareholders, directors and company secretary
• Liability of members
• Share capital registered on incorporation (authorized capital)
• Number of shares taken up by subscribers (issued/paid-up capital)

2.3 For non-resident shareholders and directors, copy of passport, overseas residential address proof, bank reference letter

2.4 For resident shareholders and directors, copy of Hong Kong identity card

2.5 For corporate shareholders and directors, copy of parent company registration documents such as Certificate of Incorporation and Memorandum & Articles of Association.

3. Payment of the company registration fees to the Companies Registry

3.1 Application fee for incorporating a limited company having a share capital:

Includes the application fee of 1,720 HKD and the capital fee of 1 HKD for every or part of 1,000 HKD of the nominal share capital subject to a maximum of 30,000 HKD per case. If the application is unsuccessful, one can apply for a refund of 1,425 HKD of the application fee (the lodgment fee of HK$295 is non-refundable) and the capital fee paid.

3.2 Registration fee for incorporating a limited company not having a share capital

Calculated according to the number of members stated in the Articles of Association of the company. The registration fee is 170 HKD (for 25 or less members), 340 HKD (for more than 25 but not exceeding 100 members), and an additional 20 HKD for every 50 members or less after the first 100 members. This registration fee is subject to a maximum fee of 1,025 HKD.

3.3 Annual Return Fee

For a private company having or not having a share capital, the annual registration fee payable for an annual return is 105 HKD if it is delivered within 42 days of the registration, or within 42 days after the anniversary of its date of incorporation.

3.4 Application processing time

A successful application is usually processed within 7 working days and the Companies Registry will issue a Certificate of Incorporation. At this stage a company is basically incorporated but can not engage in commercial activities, and is known as a ‘shell company’.

III. POST-REGISTRATION REQUIREMENTS

1. File Post Registration Documents with Company Registry

Within 14 days of the incorporation, the following documents/notifications must be filed with the Companies Registry:

• Notification of Appointment of First Directors and Secretary
• Notice of Consent to Act as Director
• Notification of Situation of Registered Address
• Other documents as required by the Companies Registry

2. Opening a Bank Account

Once the company is registered, the company may proceed to open a corporate bank account with any of the major banks in Hong Kong. The time taken to open a corporate bank account varies from bank to bank and can range from 2 days to 10 days. Some of the banks in Hong Kong require the physical presence of the company principals at the time of account opening as part of their due diligence procedure. However, there are certain banks which do not require physical presence at the time of opening an account.Most banks in Hong Kong will require a newly registered company to submit the following documents and information in order to open a corporate bank account:

2.1 An extract of the board resolution approving the opening of a corporate bank account.

2.2 Bank account opening form that has been duly completed and signed by authorized signatories, as per the Board resolution.

2.3 A certified true copy of the company’s Certificate of Incorporation.

2.4 A certified true copy of the company’s Business Registration Certificate.

2.5 A certified true copy of the company’s Memorandum and Articles of Association.

2.6 A director declaration providing the personal particulars of directors and principal shareholders. A principal shareholder is a person entitled to exercise or control the exercise of 10% or more of the company’s voting rights.

2.7 A copy of the Hong Kong identity card or passport; residential proof such as utility bills, bank statements, driving license etc.; and former name or alias proof (if applicable) for each of the directors, authorized signatories, principal shareholders and beneficial owners of corporate shareholders.

2.8 A list of specimen signatures of authorized signatories along with a bank reference letter.

2.9 Proof of business such as business plan or audited financial statements.

2.10 For corporate shareholders of the company: A certified copy of an organization chart that shows the percentage of shareholdings held by each individual and the ultimate beneficial owners of the company.

2.11 Details of ultimate beneficial owners for nominee shareholders of a company.

2.12 For ultimate beneficiaries who are trusts: A certified copy of the trust deed or declaration of trust with details of the trustees, settlers and beneficiaries

The copies of all documents submitted must be certified by a certified public accountant, company secretary, lawyer or, banker.

3. BUSINESS REGISTRATION WITH INLAND REVENUE DEPARTMENT

All the limited liability companies incorporated in Hong Kong are required to register their business with the Inland Revenue Department’s Business Registration Office within 1 month after incorporation with the Companies Registry, irrespective of whether the company is actually in business or not. On receiving the application, Business Registration Certificate will be issued on either on the same day or the next working day and must be collected in person. The Business Registration Certificate must be displayed on the office premises at all times.

4. APPLY FOR A BUSINESS LICENSE

Once the company is registered with the Companies Registry and Inland Revenue Department, the company may be required to obtain a business license before commencing business activities depending on the nature of the proposed business activities, such as restaurants, educational institutes, travel agencies, financial services, import/export, etc.

For assistance with Hong Kong incorporation or advice on how a Hong Kong company could assist your China operations, contact S.J. Grand