Hong Kong is one of the leading trading economies in the world and a major investment destination for both multinational and local companies. Honk Kong has a capitalist service economy distinguished by low taxation rates and free trade. It provides investors with an opportunity to earn maximum profits without being obliged by huge tax deductions.
The geographical location of Hong Kong makes it a prospective business destination for companies operating in the Peoples Republic of China as well as the entire Asia. Due to the tax friendly environment prevailing in the country, Hong Kong-based companies are increasingly chosen as the entities for conducting trading activities in Asia.
Located on the south east coast of China, Hong Kong became a part of Republic of China on 1st July 1997. Hong Kong was established as a Special Administrative Region (SAR) within the Republic of China but has preserved its own legal system. With a population of seven million people in just 1,104 sq km area, Hong Kong is one of the most densely populated areas in the world. The city is known for its deep natural harbour and beautiful skyline. Approximately 95 percent of the population is Chinese. Once a British-ruled area, Hong Kong is still influenced by the British culture. The legal system in Hong Kong is based on the British pattern with official languages being English and Chinese.
Unlike most other countries, there is no “offshore” legislation in Hong Kong. All companies operating in Hong Kong follow the same rules whether they conduct business onshore or offshore. Further, companies that do not use the resources of the land are not subject to tax, but are considered as offshore firms.
A great part of success of the companies operating in Hong Kong owes to the excellent infrastructure and strong regulatory framework the city offers to investors both within and outside it. |
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| Benefits of Incorporating a Company in Hong Kong |
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| According to the Index of Economic Freedom, Hong Kong is one of the freest economies in the world, so it is one of the most favourable places to incorporate a company. The advantages of incorporating a company in Hong Kong are many. Some of these benefits are listed below: |
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Hong Kong has a simple and straightforward tax system with a very low interest (16.5 percent on net profit). |
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Since Hong Kong is considered as a major trading entity, the incorporation a company is more likely to be considered as ‘legitimate’ than a tax minimisation/avoidance means. |
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There are no taxes on capital gains in Hong Kong |
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The British Legal System followed in Hong Kong allows companies to produce and report all information in English. The communication in a global language makes the business process smooth and effective. |
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Hong Kong allows foreigners as shareholders or directors of a Hong Kong company. It also allows greater freedom in financial services, allowing for fund transfer to and from most of the countries in the world. |
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Incorporation of a Hong Kong company is simple and quick. |
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The cost of incorporating and running a company is low in Hong Kong |
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There is no withholding tax on dividends, royalty or interest. |
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There is no net worth tax in Hong Kong. |
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Foreign dividends are exempted from income tax in Hong Kong |
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Tax credits are offered on foreign taxes, subject to certain conditions |
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With just a single director and shareholder a limited liability company (LLC) can be formed in Hong Kong |
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There are no minimum requirements for share capital |
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As the system of territorial taxation is prevailing in Hong Kong, foreign source trade profit is not subject to income tax in Hong Kong. |
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The formalities involved in winding up a firm are relatively simple and cost effective. |
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Hong Kong has a stable political and social system. |
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Hong Kong has a robust banking and transportation system. |
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The city has an extensive communications infrastructure. |
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As it is geographically and politically associated with China, the city offers a huge number of investment opportunities. |
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Hong Kong is considered as the global centre of information exchange |
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Having a company in Hong Kong also opens the door to investments in China. A Hong Kong-based company can be used to apply for a representative office in China. The close relationship between Hong Kong and China makes the process of applying for a representative office faster and easier.
A company can avail several benefits by opening a representative office in China. Listed below are a few among them. |
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The new company can divide the investment risk of the parent company. |
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A change in shareholding of a Hong Kong company effectively changes the shareholding of the China business. For this reason, investors find it’s easier to change the ownership of China investment. |
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Upon winding up the Hong Kong company, the activities of the representative office can be stopped completely. |
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| Conditions for Incorporating a Company in Hong Kong |
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| Following are the conditions to be satisfied while incorporating a company in Hong Kong |
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There should be at least one shareholder and director for the new company in Hong Kong (can be the same person) |
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Shareholders and directors can be any nationals. |
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Documents to be prepared by corporate shareholders, if any, include: Certificate of Incorporation of corporate, Memorandum & Articles of corporate; and Minutes of Directors approving taking up shares / directorship in the HK Company, and authorisation of signatory. |
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Minimum subscribed share capital should be HK$1 |
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The corporate should have a registered address in Hong Kong |
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There should be one company secretary, either a Hong Kong resident or a Hong Kong limited company |
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The company should hold English name or Chinese name or a combination of both. |
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| Procedure for incorporating a Hong Kong Company |
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| In order to incorporate a company in Hong Kong, clients may not be physically present there. They may choose between a Tailor Made Company and a Ready Made Company (Shelf Company). |
