10 Most Important Benefits of Hong Kong Company Formation

by | Oct 5, 2021 | 0 comments

With a low corporate tax rate and an efficient regulatory system, Hong Kong is one of the world’s best places to start up your business. 

The city has transparent policies that are fair towards both consumers as well as businesses. The Hong Kong gateway into Mainland China makes this island even more appealing!

Guide to setting up a company in Hong Kong

Want to learn more? In this article, we will cover:

  • The 10 key benefits of setting up a Hong Kong company
  • The types of companies available in Hong Kong
  • Which company can help you to set up an HK company

The 10 benefits of setting up a company in Hong Kong

Company formation in Hong Kong comes with many benefits including low tax.

Hong Kong is a world-class city with trusted, business-friendly policies. The location provides access to an international market which makes it easy for companies from all over Asia and beyond to come here in search of opportunities.

For entrepreneurs looking at expanding their footprint abroad; there’s no better spot than Hong Kong!

We’re going to dive in and explain each of the key benefits of setting up a company in Hong Kong.

Free-trade policies

One advantage of setting up a business in Hong Kong is that it has no restrictions on investments, including both inward and outward.

There are also free-trade policies that allow for the open market economy to thrive. This means people can be confident they will be treated fairly by local laws as well as other businesses around them without having their opportunities limited just because they come from another country or culture.

Companies are quick and easy to set up in Hong Kong

Starting a business in Hong Kong is easy and quick. If you are keen on starting your own company,  five days could do it for you! As well as being user-friendly with its pro-business administration which has helped Hong Kong to rank in the top 3 countries when considering “ease of doing business“.

Low taxes with a simple tax system

Hong Kong has one of the most attractive and simple tax systems for foreign investors in all of Asia. This makes it a popular destination with many people looking to establish their companies and save money on taxes they would have incurred if they didn’t have a company registered here.

These factors make Hong Kong an especially great place for businesses who want both simplicity AND savings!

On top of it, another advantage to setting up a business in Hong Kong is that there’s no sales tax or VAT (valued added taxes). You also don’t have any withholding taxes on capital gains or dividends.

In 2017, the Hong Kong government announced they were cutting corporate taxes to help make Hong Kong competitive. As such, they announced profit and income earned by companies would only be taxed at 8.25% for revenue generated under HKD 2 million. This reduced tax rate remains in force as of October 2021.

Location

Located at the heart of Asia, Hong Kong is well connected with the world. So whether you would like to tap into Mainland China or other parts of APEJ (Asia Pacific Economic Zone), setting up your business here is a good option for success.

Low set up cost

The total cost of setting up a company in Hong Kong is relatively low in comparison to other countries. You can set up a company for slightly more than USD 1,200 and the annual renewal fees aren’t much either.  

Free economy

One advantage of setting up a business in Hong Kong is that you can enjoy free trade, open markets, and enterprise without any interference from government.

With no restrictions on investments or ownership, this means there are few constraints for what type of company an entrepreneur wants their venture to be- which gives them plenty more opportunities when looking at expanding globally thanks to how international-minded our jurisdiction already makes us feel!

Access to Mainland China

One major advantage of setting up a business in Hong Kong is that it provides easy access to Mainland China. Under the Closer Economic Partnership Arrangement (CEPA), businesses hosting their companies in Hong Kong will have preferential treatment when entering and exporting from this region as part of an agreement signed between our Central People’s Government and HKSAR in 2020.

Legal system

One of the major advantages of starting a business in Hong Kong is its transparent law and order system. The establishment of the International Arbitration Centre has helped make this part of Asia, where disputes are resolved with arbitration instead of litigation or other means like mediation for example.

Another important point is that Hong Kong has a very developed bankruptcy process.  

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Also, there’s no inheritance tax either so shareholders won’t have any extra costs – just peace of mind knowing everything will go well for them if anything should happen.

No local residency requirements

A foreigner is eligible for 100% ownership rights of a company incorporated and based in Hong Kong. The law does not impose local residency requirements, which means that the sole director can be any non-Hongkonger without having to have ties or citizenship here; another added advantage with this type of business structure? No physical address is needed!

Vibrant start-up community

The vibrant start-up community in Hong Kong is a big positive for people doing business. The thriving startup scene is perpetuated by government initiatives aimed at supporting entrepreneurship – such as the “Science Park” and “Cyberport”.

The Hong Kong start-up community provides an excellent environment and support network for people who want to do business in the city.

The types of companies that can be set up in Hong Kong.

Limited Liability

Limited liability companies are the most common types of companies in Hong Kong. They can be public or private and can be limited by either shares or by guarantee. Every company must appoint one director and one registered shareholder. In addition, each limited liability company needs to have a company secretary that is a resident in Hong Kong. 

Representative Office

Businesses registered outside Hong Kong may set up Representative Offices in Hong Kong.  A ‘Rep Office’ can only incur expenses and has certain restrictions in the activities that they can carry out in Hong Kong. Rep Offices are normally set up by entities to enable market research and conduct surveys before venturing in as a subsidiary or a branch office.

Branches of foreign companies

Branch offices of foreign companies can be set up in Hong Kong. Each branch office needs to have a local representative and must be registered with the company’s registry as a branch of a foreign company.  In this instance, you will need to obtain a Business Registration Certificate from the Inland Revenue Department.

Which company can help you with Hong Kong company formation services?

When you’re looking for company formation services in Hong Kong, Pinetree is the team to turn to. With offices based right in Kowloon and experience working on behalf of businesses from all over the Asia Pacific region; this group knows their way around company formation in Hong Kong.

What services does Pinetree provide with respect to forming a company in Hong Kong? 

By hiring a company that is experienced in setting up companies, you can benefit from all their knowledge and experience. Pinetree can offer the following services in a single package:

  • Company name search
  • Certificate of incorporation
  • Articles of association
  • Business registration license
  • Company statutory records
  • Company secretary services
  • Hong Kong designated representative
  • Significant controllers register
  • Registered office address in Hong Kong
  • Bank account opening 

Hong Kong Business Rankings

When it comes to business, Hong Kong ranks highly:

  • Hong Kong’s Business Freedom score is 89/100 which is better than Singapore’s 64/100 or Qatar’s 45/100.
  • PwC and the World Bank ranked Hong Kong as the country with the most friendly tax system, second only to Bahrain in 2020.
  • Ease of doing business in Hong Kong is also high and recent rankings show that Hong Kong is one of the best countries in the world to do business.
  • Hong Kong is not a tax haven but it has very low corporate taxes and a well-developed financial sector.

The Heritage Foundation states that “the Hong Kong Special Administrative Region (SAR) of China has a dynamic capitalist economy and low tax rates for both individuals and corporations”.

FAQs about Hong Kong company formation

How much money does it cost to set up a company in Hong Kong?

If you hire an experienced company to help you set up a company in Hong Kong, you can expect to pay a fee of $10,000-$15,000.

What are the annual costs & activities associated with holding a company in Hong Kong? 

On an annual basis, you will need to pay for:
– Company secretary
– Annual business registration fee
– Annual audit 

You will need to submit:
– Annual tax return 
 
In addition, you will incur costs for maintaining the accounts and getting them audited. The total costs will depend on the nature of the business and the volume of activities.

How long does it take to set up a company in Hong Kong?

If you use a company that is familiar with setting up a company, the process can be completed in less than a week. Although the opening of business bank accounts can be a hassle, this can be made a lot easier if you are advised by experienced corporate service companies, such as Pinetree.

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Which bank do most business owners in Hong Kong use?

HSBC, DBS, and Bank of China are banks commonly used for opening up business bank accounts in Hong Kong. While some have complained about how long it can take to set up a bank account with these banks, if you use a corporate service firm such as Pinetree it will help reduce the time.

There are also some other options.

For example, you could consider opening up a bank account with one of the several virtual banks that have been approved by the HKMA. If you open up a bank account with a virtual bank, it will mean you won’t actually have to come to Hong Kong to set up a company.

Yet another alternative option is to set up a business bank account in another jurisdiction, for example, Singapore.

What do I need in order to open a business bank account for a limited liability company in Hong Kong?

The bank will require:
– some evidence of business of the company, such as a signed business contract
– a business plan
– certification of incorporation
– memorandum and articles of association
– return of allotments and/or instrument of transfer (if applicable)
– normal KYC documents of the directors and shareholders

I can’t travel to Hong Kong, can I still open a company in Hong Kong?

Yes, you can still open a company in Hong Kong even if you can’t physically come to Hong Kong. This is especially true if you utilize the services of a corporate services firm.

However, please note that if you don’t come to Hong Kong, you won’t be able to open a bank account with one of the traditional banks in Hong Kong such as HSBC. However, you can consider opening a bank account with one of the virtual banks that have been approved by HKMA. You can also consider opening a bank account in another jurisdiction such as Singapore.

Later once you can travel, you could always consider switching over to a business bank account with a traditional bank such as HSBC.

 

Finally

Establishing a company in Hong Kong offers many benefits. The low corporate tax rates and efficient regulatory system, along with the high economic freedom index, make this an attractive location for any entrepreneur looking to establish their business.

If you are considering establishing your own company in Hong Kong or want more information on what it means to form a limited liability corporation here, please don’t hesitate to contact Pinetree.

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