Since 1997, Hong Kong has been a Special Administrative Region (SAR) of the People’s Republic of China. Hong Kong’s slogan ‘One Country, Two Systems’ articulates that the city is largely autonomous from China and that business is conducted under a different set of rules than those applicable on the Chinese mainland. Because of this, Hong Kong has long been known as the gateway to China and listed at the top of most favourable places to start a company in Asia. Despite recent political turmoil and the COVID-19 pandemic Hong Kong has managed to hold on to this title. The city’s pro-business commercial and tax laws have remained extremely favourable to companies for decades and to this this day and entrepreneurs from all over the world are attracted to the city’s unique business environment. Hong Kong’s free market economy, close proximity (and only gateway) to China, leading position in business and banking, superb infrastructure, judicial security, and global ranking as least corrupt nation create an unusually stable and efficient business environment in which foreign businesses can establish and operate with few or no restrictions.
Business services, retail, information and communication technologies, electronics and biotechnology, tourism and transportation are Hong Kong’s main business sectors and receive the most Foreign Direct Investment (FDI). Even though these sectors are highly established, they continue to have strong potential.
In order to pursue economic development towards greater diversification the government has set priorities for development of certain sectors: medicine (assistance to the disabled and the elderly), education, environmental technologies, tourism, and innovative services.
Growth factors that drive opportunities for foreign investors in Hong Kong are the city’s access to modern and efficiently working infrastructures in telecommunication, cross border transport and power supplies. Hong Kong’s simple tax system (1), access to skilled manpower, advanced technology and not to forget strategic location also attracts foreign entrepreneurs wanting to expand their business into greater China (2).
1. Current tax rates are:
- Offshore income: 0%
- Capital gains tax: 0%
- VAT or GST: 0%
- Onshore CIT: 16.5% (8.25% on the first 2 mio HKD net profit)
- Individual tax rate: 15%
2. Entering China via Hong Kong
As a Special Administrative Region of China, Hong Kong businesses benefit from the relationship with the Mainland in many ways.
Closer Economic Partnership Agreement (CEPA)
CEPA is a free trade agreement that legally allows qualifying products, companies and residents of Hong Kong to enjoy preferential access to the Mainland Chinese market. Many of CEPA’s preferences exceed those made with the WTO when China joined in 2001.
Double Tax Agreement (DTA)
The DTA agreement’s main purpose is to avoid double taxation and to prevent fiscal evasion with respect to taxes on income. The DTA provides beneficial treatments for Hong Kong companies such as reduced withholding tax rates on dividends, interest, royalties, and exemption treatment for certain capital gain.
RMB offshore centre
The Chinese Government actively supports the growth of the RMB market in Hong Kong where it plays a vital bridging role for money flows between China and the rest of the world. In 2004 Hong Kong became the first place outside China to conduct personal renminbi (RMB) business. The Hong Kong Government and Mainland authorities have been actively exploring the introduction of new types of RMB business in Hong Kong to enhance the capability of Hong Kong‘s financial system to handle RMB-denominated transactions. Since 2011 eligible enterprises in China can settle cross-border trade in RMB with their trading counter partners in all foreign countries and jurisdictions. This further strengthens the status of Hong Kong as an important offshore RMB and international financial centre.
Hong Kong corporate formations available to foreign investors:
Private Limited Liability Company
- Incorporated by at least one shareholder (resident or non-resident), one director (resident or non-resident) and a local secretary and local registered office (with an actual physical address, not a Post Office box).
- Must have at least one personal director (resident or non-resident). Corporate directors are permitted for companies that are not subsidiaries of public listed companies.
- Must have a local secretary and a local registered office which must be a physical address and not just a Post Office box.
- Must have at least one shareholder (resident or non-resident). Details of the company’s directors, secretary and shareholders must be filed at the Companies Registry and are on public record.
- All companies must obtain a Business Registration Certificate from the Inland Revenue Department (“IRD”).
- All companies and are required to file a set of audited accounts and tax return annually with the IRD once the company has commenced business. Penalties apply for late filings.
- Branches and representative offices of foreign companies in Hong Kong are considered legal entities and need to be registered at the Company Registry.
- The foreign parent company is fully liable for the branch’s actions
- The branch can engage in the activities of the foreign company
- Local activities in which the branch can engage in Hong Kong are limited to those performed by the foreign company.
- The branch can undertake commercial activities and derive profit in Hong Kong
- The representative office may not conduct commercial activities and is only used for marketing purposes.
Please click here for more information about:
Registering a company formation in Hong Kong
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