HONG KONG COMPANY INCORPORATION – WHITE PAPER Hong Kong has evolved into one of the important business centers in the region. Located on the South East Coast of China it became part of China on 1 July, 1997. It is a Special Administrative Region (SAR) within the People’s Republic of China with its own legislature and courts. Despite the presence of business centers such as Shanghai, Hong Kong continues to gain popularity as an offshore jurisdiction and commercial hub because of the economic and political stability and simple and straightforward tax regime and legislative system. A Hong Kong offshore company is a very popular vehicle for conducting offshore banking activities, international trade, investment activities, and for asset protection. Some of the key benefits of Hong Kong as an offshore jurisdiction include: Favorable Tax regime: Hong Kong follows a territorial policy of taxation, the companies are taxed only on the income that is derived from Hong Kong and profits earned beyond the shores of Hong Kong are exempted from tax. Moreover there is no VAT, or capital gains tax or tax on dividends -‐ this makes it a highly desirable jurisdiction. Thus, a Hong Kong offshore company that generates income from abroad practically pays zero tax. Overseas profits are exempt from taxation in Hong Kong even if it is brought back to the jurisdiction. Even for revenue generated from Hong Kong the tax applicable on taxable profit is just 16.5%, one of the lowest in the region. After deductions and exemption the effective tax rate will be much lower than the headline tax rate. Positive Image: Hong Kong companies are not perceived as offshore tax haven as Hong Kong is not regarded as a tax shelter. In an article published in May 2009, the Director of the OECD’s Centre for Tax Policy and Administration commended Hong Kong’s efforts to comply with the international standards on tax transparency and exchange of information while pointing out that Hong Kong is not a tax haven according to the OECD criteria. Subsequently, in its September 2009 report, the OECD vindicated again that Hong Kong is not a tax haven and
recognised Hong Kong’s commitments to the OECD standards. Therefore a Hong Kong Offshore company commands a respectable image. Strategic Location: Hong Kong is considered as the gateway to China, the world’s biggest market and facilitates easy access to mainland China and all the key markets of Asia, most of the Asian cities are within four hours flying radius. Free economy: Hong Kong is regarded as the world’s most free economy with the lack of restrictions and government interventions in trade. The economic policy allows free inflow and outflow of capital and there is no exchange control. The jurisdiction allows 100% foreign ownership of companies. It has been ranked as the freest in the world by the Index of Economic Freedom for 15 consecutive years. Political Stability: Hong Kong a former British Dependent Territory became a Special Administrative Region of People’s Republic of China in July 1997. Since then Hong Kong has retained its autonomous status and under the “one country two systems” concept, the Chinese government does not interfere with the governance of Hong Kong which has flourished by leaps and bounds with a significant share of the world’s largest banks, corporations and high net worth individuals. World Investment Report 2009 released by the United Nations Conference on Trade and Development (UNCTAD) reaffirmed Hong Kong as one of the world’s and Asia’s most attractive destinations for FDI. Despite the tough economic situation Hong Kong attracted US$63 billion inward investment in 2008 and continues to be Asia’s second largest and is the world’s seventh largest FDI recipient. This reflects the investment climate and investor’s confidence which are a direct outcome of political stability. Strong Economy: With a population of 7 million and foreign exchange reserves of over US$140 billion the economy of Hong Kong is resilient and vibrant. The Hong Kong Stock Exchange is Asia’s second largest stock exchange in terms of market capitalization, behind the Tokyo Stock Exchange. As of 31 December 2007, the Hong Kong Stock Exchange had 1,241 listed companies with a combined market capitalization of $2.7 trillion.
Absence of Nationality or Residency Limitation: As an international business center the jurisdiction does not have any stipulation regarding the nationality or the residency of share holders and directors. A minimum of one director and shareholder is required and there is no cap on the maximum numbers and a foreigner who is not residing in Hong Kong can act as the director. The director and shareholder can be the same person. However the company secretary must be a resident individual or a resident company. Minimum Share Capital: The minimum paid up capital is HK $1 and recommended share capital is HK$10,000. Bearer shares are not allowed. Filing of Returns: If a company does not do any business in Hong Kong, which is usually the case with offshore companies, there is generally no requirement to file financial statements and no audit is required. It is only necessary to file an annual Declaration of “No business activity in Hong Kong.” However if the offshore company has an office in Hong Kong or has employees in Hong Kong then it is required to file audited financial accounts. Moreover the government reserves the right to request for filing annual statements at a short notice any time therefore it is recommended to maintain the books up-‐to-‐date. Provision for Anonymity: The names and details of the Directors and Shareholders are disclosed in public records however the nominee provision could be used in order to maintain anonymity. Regulatory Compliance: The other regulatory compliance are simple and is similar to any resident companies such as maintenance of proper records, renewal of licenses, notifying any changes in the registered details etc. Investment Environment: Apart from certain narrow areas (for example, broadcasting), foreign investment is not subject to special regulatory regimes or requirements. Funds from profit or capital accounts can be freely repatriated and remitted overseas, and there is no foreign exchange control.
The general tax environment in Hong Kong is favourable to investors and in addition there are a number of exemptions from tax or allowances designed to stimulate particular industries or businesses. The most common forms of business vehicle used by foreign companies are: ● Representative offices. ● Branches of parent companies. ● Locally incorporated subsidiaries of parent companies. ● Partnerships. ● Joint ventures. ● Trusts. Registration formalities. The incorporation of a private company in Hong Kong is registered on the filing of the memorandum of association and articles of association. After the constitutional documents are filed with (and a statement of compliance and the prescribed capital fee are submitted to) the Registrar of Companies (Registrar), he issues a certificate of incorporation certifying the name and the date of incorporation of the company. This process takes about six working days. Every person establishing a place of business in Hong Kong must also register with the Business Registration Office. Share capital. Apart from certain companies that are regulated (for example, banking, securities and insurance), there is no required minimum or maximum authorised capital. Non-‐cash consideration. Shares can be allotted for cash, services or other consideration such as the transfer of property. The issued share capital may be issued at par value, partly paid-‐up or paid at a premium. If a companys articles of association permit, shares can also be issued as redeemable shares. Rights attaching to shares. The rights attaching to shares are normally set out in the companys memorandum and articles of association and subject to the provisions of the
Companies Ordinance. Foreign shareholders. There is no requirement that a shareholder be resident in Hong Kong except in certain narrow circumstances. Management structure. A private company must have at least one director while a public company must have at least two. Listed companies have more detailed obligations concerning the composition of their boards of directors. There are no restrictions on foreign managers. Directors liability. If a director does not comply with his duties he may be liable to civil or criminal proceedings and may be disqualified from acting as a director. Certain non-‐statutory guidelines on directors duties have been issued by the Companies Registry. Parent company liability. The parent company is not liable for the debts of its subsidiary; its legal liability is limited to the amount of any unpaid issued share capital. Reporting requirements. A profit and loss account and a balance sheet for the company must be audited by Hong Kong registered auditors and laid before the shareholders at a general meeting within 18 months of incorporation and then at least once in every calendar year. Generally, Hong Kong private companies with share capital are not required to file their accounts with the Registrar of Companies. In addition, an annual return must be filed with the Registrar of Companies at least once a year (unless there has been no change in the filed particulars since the date of the last annual return, in which case a certificate confirming this fact can be filed instead of an annual return). A company must also notify the Registrar of certain changes concerning the company (for example, any change in the directors or secretary or in the filed particulars of any existing directors or secretary). Visas and work permits: Foreign employees must obtain a Hong Kong employment visa
to work in Hong Kong. To qualify for this visa, a person must possess skills, knowledge or experience relevant to the job that is unavailable locally. This test can generally be satisfied in the case of an intra-‐company or intragroup transfer. The applicant also needs to nominate a sponsor, which must be a Hong Kong company or a foreign company registered in Hong Kong. The sponsor is usually the employer company. It normally takes six weeks for the application to be processed. The government charges nominal fee for the visa if the application is approved. Imports and exports: Hong Kong does not impose export tax. Imports of the following items are taxed (the rate of taxation varies depending on the specific good concerned): ● Liquor with an alcoholic strength of more than 30% by volume measured at a temperature of 20 degrees Celsius. ● Tobacco. ● Hydrocarbon oil. ● Methyl alcohol and any mixture containing methyl alcohol. ● Motor vehicles. Double Tax Agreements: Hong Kong has: ● Comprehensive double tax treaties with Belgium, Luxembourg, the Peoples Republic of China (PRC), Thailand and Vietnam, and double tax treaties have been signed with Austria, Brunei, Hungary, Indonesia, Ireland, Kuwait, Liechtenstein, The Netherlands and the UK but are not yet in effect. ● Double tax arrangements concerning airline and shipping income with Denmark, Germany, The Netherlands, Norway, Singapore, Sri Lanka and the UK. ● Double tax arrangements concerning airline income with Bangladesh, Canada, Croatia, Ethiopia, Finland, Iceland, Israel, Jordan, Kenya, Korea, Kuwait, Mauritius, Mexico, New Zealand, the Russian Federation, Sweden and Switzerland. Double tax arrangements concerning airline income have been signed with Estonia, Fiji, Laos, Maldives and Macau, but are not yet in effect. ● Double tax arrangements concerning shipping income with the US.
________________________________________ Intuit Management Consultancy www.intuitconsultancy.comDubai: +971 4 351 8381 UK: + 44 78 2765 5809 India: +91 9840708181 The information in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity. There can be no guarantee that the information in this document is accurate as of the date it is received,or that it will continue to be accuratein the future. No individual or entity should act on the contents herein without appropriate professional advice and only after a complete examination of their particular circumstances.