As a touching point between the west, China and vibrant Asian countries, among the most competitive economies in the world, and housing a cultured customer base, Hong Kong is an exciting, if not ideal place to start a business or start up a company. Whether you’re an entrepreneur or foreign professional, here is your comprehensive guide to registering a new company in one of the world’s most vital business environments.
Why open a company in Hong Kong?
Hong Kong has been ranked as the freest economy worldwide for more than two decades according to the Canadian Fraser Institute. This characteristic has consistently attracted foreign entrepreneurs and growing companies hoping to open offices in the city. Hong Kong has maintained this esteemed status for multiple reasons:
● Anyone above the age of 18 can incorporate a company,
● Directors can be located locally or outside Hong Kong,
● Company registration procedures are straightforward and conducted online,
● Nearly any legal business category is accepted,
● Money transfer is permitted for any business category,
● Corporations are not limited to bank accounts in Hong Kong,
● And importantly, corporate tax rates are low, and sales tax, dividend tax, and capital gains tax are not charged.
How much does company registration, or incorporation, cost? What is the difference between a limited and unlimited company, and which one best suits your business? While the process is not difficult, it involves jumping through some hoops and attention to detail.
Step 1. Select the company type
First, choose the type of business entity that is suitable for your company’s industry, needs and size. There are five types of business entities in Hong Kong: limited liability company (LLC), sole proprietorship, partnership, representative office and branch.
Entrepreneurs usually pick LLCs. There are two main types of limited Hong Kong companies:
● limited by guarantee (private)
● limited by shares (public)
In general, SMEs prefer private corporations, which are relatively low risk because founders’ personal finances are treated separately from the legal entity. This separate legal entity has its own responsibilities and can sign contracts with the company name. For instance, if legal action is taken against your business, you and your investors’ or stakeholders’ finances are not at risk in the lawsuit. If company debt is accrued, shareholders are only responsible for an upper limit of their capital contribution.
However, with unlimited companies (sole proprietorship/partnership), proprietors are responsible for all debts, even if that means using their personal assets.
There are some fees associated with applying for a limited company, including HK$150 for the application and HK$1,720 for the process of business registration. Applications for limited companies should go to the Companies Registry while those for unlimited companies should go to the Inland Revenue Department.
As LLC is the most common choice among entrepreneurs in or entering Hong Kong, most of this article will deal with the set-up process for this type of firm.
Step 2. Choose the firm name
When choosing your company name, the best first step is to read the “Guideline on Registration of Company Names for Hong Kong Companies”. In short, English names must end in ‘Limited’ and Chinese names must end with ‘有限公司’ (“limited company”). Chinese names must be in Traditional Chinese; Simplified Chinese characters will be rejected. Note that you cannot combine English and Chinese words when you register a company name.
Some general guidelines are to make sure the name isn’t the same or too similar to existing companies by checking it against the Registrar of Companies’ online registries (For example, the Company Search Mobile Service). When searching, make sure to check ‘Exact Name Search’ and input your full proposed company name. Even if your firm name is considered too similar to an existing registered business, there’s a chance your application will be rejected.
If you intend to trademark your company name, check the name you’ve landed on with the Intellectual Property Department to avoid infringing on third party copyrights.
Step 3. Choose the registered address
The registered address is used in official company registration documents as well as for mail. This address cannot be a P.O. box or residential address. This is because information in your Company Registry must be public by Hong Kong law, which could potentially lead to privacy issues if you use a private home address.
It can be a dedicated private office in an industrial or commercial building. You can also avail of virtual office services like mail forwarding, telephone line and a premium Hong Kong business address for business cards and marketing purposes.
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Step 4. Outline the company structure
After you’ve decided on the company name and defined a registered business address, you must assign the director and shareholder roles. There are strict requirements for the company structure of LLCs. The guidelines are as follows:
1. At least one company director who is at least 18 years of age. The director does not need to be a Hong Kong resident; they can be an overseas passport holder. Sole directors cannot act as the company secretary.
2. At least one, but a maximum of 50 shareholders. Shareholders can reside in or outside of Hong Kong.
3. At least one company secretary; this must be either an individual or a corporate. Corporates must have a registered address or have a local business in Hong Kong.
Step 5. Submit application documents to the Companies Registry
Specifically, the NNC1 form for companies limited by shares and NNc1G form for other entities. For the NNC1 form, prepare company structure information, share capital at the time of formation, and details about the company secretary and director(s).
A copy of the company's articles of association
These documents should contain information about share capital, shareholders and members’ liabilities. The Companies Registry provides samples of this for reference.
ID and/or address proof
The application documents should include a copy of each passport and residential address proof for foreigners OR a copy of each Hong Kong ID card for Hong Kong residents.
Fees for incorporating a limited company
You must fill out a form outlining whether they choose a one-year or three-year business registration certificate. The one-year certificate costs HK$150 while the three-year certificate costs HK$3,650. As stated above, a company registration fee of HK$1,720 also applies.
Step 6. Collect certificates
The receiving of your Certificate of Incorporation and Business Registration Certificate. The lead time for receiving these certificates is one hour for electronic applications and up to four days for hard copy applications.
You’ll receive the certificates in either soft or hard copy depending on the application method. If you applied in-person, you must collect the two certificates at the Companies Registry office in Queensway Government Offices. Make sure to bring along the ‘Certificate Collection’ notice which you’ll receive by fax, as well as your identification document or company chop.
Step 7. Apply for other relevant permits and licences
Some business sectors require compulsory licences or permits to conduct their business activities. Note that these must be registered with the corresponding government departments within a month after incorporation. Examples of industries that must have licences to run their businesses are:
● restaurants (The Food and Environmental Hygiene Department)
● schools and other education centres (The Education Bureau of Hong Kong)
● investment firms (The Securities and Futures Commission)
● medicine and cosmetics shops (The Department of Health)
● travel agencies (The Commerce and Economic Development Bureau)
● cinemas (The Television and Entertainment Licensing Authority)
Step 8. Manage Taxes and Financing Reporting
The Companies Registry will automatically notify the Internal Revenue Department upon your company's successful incorporation. Delightfully, Hong Kong offers significant tax advantages, including (non-exhaustive):
- Low Corporate Tax Rate: Notably, the corporate tax rate in Hong Kong is one of the lowest in globally, with only 8.25% on the first HKD 2 million of profits and 16.5% on profits thereafter.
- Territorial Tax System: Hong Kong employs a territorial tax system, which posits that profits earned outside of Hong Kong are not subject to local profit tax. This feature is particularly beneficial for companies with a global presence and international business activities.
- No Capital Gains Tax: The region does not impose capital gains tax, which is a significant incentive for regional investment and financial growth.
- No VAT: Hong Kong does not have a value-added tax (VAT) system, reducing the overall tax burden on businesses and its appeal for overseas investors.
For further updates on tax regulations, visit the Hong Kong Government’s website.
Step 9. Look for office space
Once your company has been incorporated, the final step is to look for an appropriate workspace. This might look like a flexible shared space or serviced office, depending on your needs. Compass Offices offers ready to move-in offices and virtual office packages to help businesses get started quickly with all the necessary business amenities and professional services, such as company registration, company secretary, multilingual call and mail forwarding and more.
Registering a company in Hong Kong is a relatively simple process. If you carefully fill out the application forms, have a clear and defined plan for assigning directors, shareholders and company secretaries, and mean to conduct a legal and contributive business, then the process is generally smooth. Whether you’re registering a new business or filing an annual returns declaration, Compass Offices can make your incorporation smoother.