Doing Business in Hong Kong
By Belinda Wong (PWFO Thought Leader)
Subject Exclusivity: Hong Kong
Hong Kong is a small city with population slightly over 7 million. Situated at the southern tip of China, it is a hub in Asia connecting major cities in this region. Long haul flights can reach global cities. Hong Kong is a well-recognized international financial center, a trading and distribution center of wines in the Asia Pacific Region and a top art market in the world. With such diversity, it is no wonder why overseas businessmen and expatriates wish to set up legal entities and work here.
Being a Special Administrative Region of China, Hong Kong has its own legal and tax system distinct from that of China but with tax arrangement to facilitate cross-border transactions.
Legal system is common law system. The most favorable legal entity for doing business here is ‘private company limited with share capital’. ‘Private’ means the company is restricted from inviting the general public to subscribe for its shares and the number of shareholders should not exceed 50. ‘Limited' means the liability of its shareholders is limited to the extent of any unpaid amount on the share(s) subscribed. The subscription amount for each share is to be determined by the board of directors with each shareholder who agrees to take up the certain number of share(s). In each instance, the board must act in the best interests of the company to procure the most favorable subscription price.
Incorporation service, company secretary and registered office can be provided by a provider licensed by the Registry for Trust and Company Service Providers (‘TCSP’). Foreign businessmen should check the register at the TCSP before engaging a service provider to handle all the incorporation related matters.
Expatriates do not have to come here to attend to incorporation. Specified form to report the corporate details i.e., director / shareholder / share capital / company secretary / registered office address etc. as well as the articles of association (‘articles’) can be arranged by the service provider for signatures by the director(s) / shareholder before submission to the Companies Registry (CR) which is responsible for overlooking and enforcing the Companies Ordinance (Cap. 622). A director has to be well versed with the directors’ duties as published by the CR before taking up the position. There is no need to specify the business scope or objects of the company in the articles of the company. Anything legal can be done by a company incorporated in Hong Kong. However, it should be checked beforehand if special licence is required. For instance, there are different types of licences in the financial industry. Licences must be in place before commencement of operation.
Once the company is set up, director / shareholder may have to come to Hong Kong for bank account opening purpose. Banks have to go through the ‘know your client’ requirement to comply with the anti-money laundering rules and also have a thorough understanding of the business background and future operation of their clients. The banks will also download the specified form and articles filed with the CR for authenticating the existence and corporate details of the company. Foreign businessmen can also conduct search on a company registered with the CR before entering into transactions with these companies to ensure that the company they deal with is duly incorporated.
Ongoing compliance is not onerous. The company has to prepare audited financial statements for adoption at an annual general meeting. Written resolutions of shareholders can be passed in lieu of the annual meeting. Companies may also opt to dispense with the holding of this meeting. An annual return showing the updated corporate details has to be filed with the CR.
When there are changes in the corporate details filed with the CR, specified forms have to be used to report the changes. Transfer of shares has to be stamped at the Stamp Office with a stamp duty rate of 0.26% on the higher of the consideration or net asset value of the shares being transferred before the buyer can be registered as the new holder of the shares being transferred. Audited financial statements do not have to be submitted to the CR for filing.
Companies incorporated by the CR also need to have business registration certificate which is renewable on an annual basis. The registration of sole proprietorship and partnership is done through the Business Registration Office. These 2 types of entities do not offer their owner / partners limited liability protection. The registration number and details could be downloaded at the government website at a fee. This enhances transparency of doing business in and with Hong Kong legal entities which is another reason why so many foreign businessmen come to do business here.
July - August 2022
Hong-Kong’s trade in services amounted to US$180.1 billion in 2019. Hong Kong ranked 21st in the world league of commercial services trading entities – 22nd largest importer and 21st largest exporter.
Belinda will guide you on how to enter Hong-Kong, China. She will be delighted to give a 30 minutes free Q&A interview to deal with any specific question you may have.
Send an email to [email protected] to book an appointment.