HOW TO: Setting up a company in Hong Kong
Thinking of establishing a company in Hong Kong? Expanding into a new international market is exciting for any business, but it also presents its own set of significant challenges. For many executives, the first hurdle is understanding how the company formation regulations and processes work in the new jurisdiction. This includes the required permits and licenses, the legal and taxation requirements, and more. Not to mention, prior to setting up a company, you should also have a clear understanding of the business environment in Hong Kong as well as that of your specific market.
While the company formation process may be complex, our guide below makes it easier to take the leap. Read on for a comprehensive overview of everything you need to know about setting up a company in Hong Kong.
Hong Kong Market Profile
Hong Kong is an important financial hub within the Asia Pacific (APAC) region that is renowned for its business-friendly taxation and regulatory environment, making it fertile ground for business setup. Some of the key characteristics of the Hong Kong market include:
- Office rental pricing: Average monthly rent for grade A office space in Hong Kong’s central district was $HK 1,807 per square metre for the first quarter of 2021.
- Average office space density: 1sq m per person
- Fixed internet download speed: 59 megabits per second in July 2021
- Mobile internet download speed: 06 megabits per second in July 2021
- Gross Domestic Product US$ bn: 344.7
- Population: 7.5 million
- Official languages: Chinese, English
Benefits of setting up a company in Hong Kong
As one of the largest financial centres in Asia, Hong Kong offers many benefits to companies looking to set up a business and establish a presence in the region, including:
- Strategic locational advantages: Hong Kong’s central location makes it an ideal destination for setting up a company that wants to enter the mainland Chinese market or expand its operations within the APAC region.
The Hong Kong market also has many cultural similarities to mainland China, making it ideal for foreign investors to develop a footprint in the Chinese market without having to navigate all of the cultural differences that might be present in other markets during the process of company formation or when running the business.
- Attractive tax structure: Hong Kong’s corporate tax rates between 8.25% and 16.5% (subject to the amount of profit earned) are considered some of the lowest in Asia.
In addition, Hong Kong has no capital gains tax, sales tax, consumption tax, value-added tax, estate duty or withholding tax on dividends and interests.
Further, the ‘territorial source’ concept applies, meaning that residents pay no tax on incomes earned beyond Hong Kong’s borders. Income earners within Hong Kong are taxed at between 2% and 17%, depending on salary. This is considered significantly lower than other jurisdictions in the West.
- No foreign ownership restrictions: 100% of the shares of incorporated companies in Hong Kong can be owned by foreigners or foreign companies. The market also operates on free trade principles, with no onshore or offshore investment restrictions, import or export tariffs and foreign exchange controls. This means that foreigners can start setting up a company in Hong Kong with relatively few barriers.
- Bilingual business communication: in Hong Kong, English is widely used in a business context, making it easier for foreign investors to set up companies within the region.
Steps for establishing a company in Hong Kong
To help you start enjoying all of the above business benefits, we have compiled a step-by-step process of company formation in Hong Kong:
Step 1 - Choose a company type
The first step in setting up your company is to choose the type of company you want to establish. The two most common company types for businesses operating in Hong Kong are:
- Limited Liability Company: This entity type means that a business is set up as its own legal entity. Foreign investors often prefer this type because it offers limited liability for business owners. Companies can be limited by shares or by guarantee.
- Foreign Company Office: Foreign companies can register in Hong Kong as either a representative office or a branch office. Neither option creates a separate legal entity, however, so all liability extends to the parent company.
Step 2 - Give your company a name
Once you’ve chosen your company type, you need to give your company a name.
- be the same as a name already approved on the Companies Register; or
- infringe upon any third party’s intellectual property rights.
The name you choose must comply with the Guideline on Registration of Company Names for Hong Kong Companies, which states that:
- Company names can be registered as either an English name, a Chinese name or both. However, combining English words/letters and Chinese characters is prohibited.
- An English company name must end with the word “Limited”, and a Chinese company name must end with the characters “有限公司”.
- A Chinese company name should contain traditional Chinese characters (繁體字) that can be found in the Kang Xi Dictionary (康熙字典) or Ci Hai Dictionary (辭海) AND also in the ISO 10646 international coding standard. Simplified Chinese characters are not acceptable.
Step 3 - Set up your company structure
An essential part of Hong Kong company formation is setting up the structure of your company per the following requirements:
- Directors: a minimum of at least one person to serve as the director of the company, responsible for managing the day-to-day operations of the business. One director needs to be a natural person (i.e., an individual). Directors do not need to be residents of Hong Kong, but they must be aged 18 or older.
- Shareholders: a minimum of at least one shareholder. Shareholders own part of the company and have a say in major decisions. They can be either an individual aged 18 or older, or a corporate. 100% of shares can be foreign-owned. Sole directors can also act as shareholders.
- Company secretary: a sole director must not act as the company secretary. To register a company in Hong Kong, you must appoint a company secretary who is either:
- a person who lives in Hong Kong; or
- a body corporate with a registered office or place of business in Hong Kong. We provide expert company secretarial services so that your company can meet all of its statutory obligations in Hong Kong.
- Share capital: no minimum share capital is required for company formation in Hong Kong. However, most companies choose to issue at least one ordinary share to one shareholder. Bearer shares are not permitted.
- Registered address: must be a physical address in Hong Kong, not a P.O. Box. If your business does not yet have local office space, professional service firms like BoardRoom can provide your company with a registered office location.
Step 4 - Submit company registration documents
Once you have your company structure in place, you must submit the following registration documents to the Companies Registry for business setup in Hong Kong:
- the Incorporation Form;
- a copy of the company’s articles of association; and
- a copy of the Notice to Business Registration Office.
Step 5 - Make other permit and business licence applications (if applicable)
Depending on the type of business you operate in Hong Kong, you may need to apply for other permits and business licences to complete the company formation process. For example, if you’re setting up a food & beverage business, you will need to apply for a permit from the Food & Environmental Hygiene Department. Find more information about permits and licences here.
Ensuring a successful business setup in Hong Kong
While it can be complex, the process of setting up a company in Hong Kong as a foreigner doesn’t have to be difficult. Our team of company incorporation experts at BoardRoom can guide you through every step of the company formation journey to make it as smooth and seamless as possible. As a specialised corporate services provider with over 50 years of experience, Boardroom excels in helping businesses navigate various regional complexities, from the initial business setup to ongoing administration.
That means not only can our team help you incorporate with ease, but we can also take care of your company secretarial needs. Our comprehensive range of company secretarial services helps you to ensure that your company remains compliant with all legal and regulatory requirements in Hong Kong. As a result, you have more time to focus on what really matters: growth and profitability.
Speak to one of our specialists today to get started in setting up your company in Hong Kong.
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