Hong Kong is home to over 9,000 overseas and mainland businesses – and the number is growing thanks to the city’s much-praised attributes, including its ease of doing business, sound legal system based on the rule of law, robust infrastructure, competitive and business-friendly tax regime, and free flow of capital. Despite its enviable position, Hong Kong is eager not to rest on its laurels – being mindful of other regional contenders jostling for ascendancy in the tough battle to become the next favourite international hub.
Forming a company in Hong Kong is not difficult. The most common entity types in Hong Kong are:
- A company limited by shares;
- A branch of a non-Hong Kong based company; and
- A representative office of a non-Hong Kong based company.
The guide below will focus on Hong Kong limited company establishment, which is by far the most prevalent type of business entity used by foreign investors in Hong Kong.
Overview of HK company formation
While Hong Kong companies can be either public or private and limited either by shares or guarantee, the most popular kind of business vehicle in Hong Kong is a private limited company.
The “limited” designation refers to the limited liability of the company. Based on the strict principle of separate legal personality enshrined in company law, liabilities do not trickle down to individual shareholders; only in exceptional cases can the corporate veil be pierced by a court, where the rights and duties of a company are deemed synonymous with those of its shareholders.
In usual practice, shareholders’ liability is limited to the value of their capital investment in the company or any amount unpaid on their shares. This means that, in the event of bankruptcy, pecuniary loss is confined to the extent of assets or finances belonging to the company, thereby keeping shareholders’ personal assets out of bounds.
The main features of a private limited company are:
- The right to transfer shares is restricted;
- The number of shareholders is limited to 50 (excluding employees and former employees); and
- Any invitation to the public to subscribe for shares is not permitted.
Company name
The name of the new company may be in English or Chinese or both. However, a name made up of a combination of English letters and Chinese characters is not allowed. A company incorporated with a Chinese name must choose traditional Chinese characters found in select dictionaries approved by the Hong Kong Companies Registry. If a company has an English and a Chinese name, both names should be used together, as they form the full name of the company.
The name should not be identical to one appearing in the Registrar of Companies’ index of company names. In other words, it should not be the same as that of an existing company. In addition, names with specific wording as set out in the Companies (Words and Expressions in Company Names) Order (Cap. 622A), such as “trust”, “chamber of commerce”, etc., shall be subject to the Registrar of Companies’ prior approval.
To safeguard against inadvertently committing trademark violation, it is very important to use a name that does not infringe an existing trademark, which can be verified consulting the Intellectual Property Department’s Trademark Register.
Directors
A company must have at least one director. Where there is only one director, the director must be a natural person and not a corporate director. Generally, directors must be individuals who are at least 18 years of age or corporate entities of any nationality, domicile and residence. Where a company belongs to a corporate group of which a listed company is a member, no corporate directors will be allowed. It is usual practice for a company’s founder members to appoint its first directors.
It had been obligatory for directors’ personal details, including name, identity card number, passport number and residential address, to be filed in the public records of the Hong Kong Companies Registry. However, with the phased implementation of the New Inspection Regime, sensitive personal information will be shielded from public view. The second phase has recently been brought into operation, with the final phase expected to come into force in December 2023.
Shareholders
A company must have at least one shareholder and a maximum of 50 shareholders, excluding employees and former employees. Shareholders can be individuals or corporate entities of any nationality, domicile or residence. Nominee shareholders are permitted; where this is the case, the identities of the beneficial shareholders are not disclosed.
Share capital
The Companies Ordinance prescribes no minimum share capital. Since the amendment of company law in March 2014, companies are no longer required to set a par value per share, thereby affording a large degree of discretion in setting the price of shares for each issuance.
Share capital can be classified as ordinary, deferred or preference shares to which special rights are ascribed, as specified in the Articles of Association. Preference shareholders benefit from receiving dividends ahead of ordinary shareholders and a less risky form of investment due to the fixed-income nature of preference shares, which is not contingent on profits earned. Deferred shareholders are entitled to fewer rights than ordinary shareholders, in that they only receive dividends after other classes of shares have been paid, and they have limited rights to a company’s assets in the event of bankruptcy.
Shares need not be paid in full upon issuance; however, shareholders will be liable to settle the amount on any unpaid shares should the company become insolvent. In addition, the issued share capital can be denominated in a foreign currency. The currency in which books of accounts are kept can differ from that of the issued share capital. While it is feasible to change the currency in accordance with relevant statutory procedures after incorporation, it can be relatively time-consuming to do so in practice.
Stamp duty is chargeable upon every transfer of shares to both the transferor and transferee. With effect from 1 August 2021, stamp duty on sale or purchase of any Hong Kong stock is charged at a rate of 0.13% of the amount of the consideration or of its value on every sold note and every bought note, whichever is higher.
Company secretary
A company must appoint a company secretary that is either a Hong Kong resident ordinarily residing in Hong Kong or another company with a Hong Kong-based registered office or place of business. It is important to note that, where there is only one director, the sole director cannot concurrently act as the company secretary. The latter’s role includes maintaining statutory books and records, such as the registers of directors and shareholders, the corporate minute book and the share certificate book.
The company secretary’s personal particulars also fall within the purview of the New Inspection Regime and will accordingly be withheld from public inspection.
Articles of association
The Memorandum of Association was abolished under the new Companies Ordinance that came into effect in 2014; therefore, a company is only required to prepare a set of Articles of Association. The provisions previously set out in the Memorandum of Association under the old Companies Ordinance now appear in the Articles of Association, which play a critical role in a company’s constitution. Their function is akin to that of a rulebook, which lays out the guidelines on how the company is to be run. Mandatory provisions include name of the company, objects of the company (i.e., scope of business), liabilities or contributions of members, and capital and initial shareholdings.
The Articles of Association can be amended at any time subject to the approval of not less than 75% of shareholders at a general meeting or through a written resolution passed by all shareholders.
Registered office
Pursuant to the Companies Ordinance, a company is required to have a registered office address in Hong Kong to which all official correspondence can be sent. To be included in the incorporation form, the registered address must be that of physical premises and not a PO Box, which can be different from a company’s business address.
Business registration certificate
Under the convenient one-stop company and business registration regime, applicants for company incorporation will be deemed to have applied for “simultaneous business registration” with the Hong Kong Companies Registry, bar those who are already registered under the Business Registration Ordinance (Cap. 310).
Applicant companies can elect to have either a one-year or a three-year business registration certificate. Subject to approval, the Hong Kong Companies Registry will issue the certificate of incorporation and the business registration certificate simultaneously – in electronic form for electronic applications and in hard copy for paper applications.
It is required by law to display the business registration certificate in a legible manner at the business address. For every business address and trade name of the company, a separate business registration certificate must be obtained.
Corporate bank accounts
Over the recent years, the corporate bank account opening process has undergone changes as a result of major shifts in the regulatory landscape in an effort to combat money laundering, terrorist financing and tax evasion. Additional hurdles now need to be overcome in order to successfully open a corporate bank account in Hong Kong. For example, most banks require that the principal director and shareholder physically attend the bank account opening appointment. This notwithstanding, meticulous preparation with the help of a professional can greatly enhance the chances of a successful application. In addition, owing to Hong Kong’s inherent strength in the provision of financial services, a range of business account opening solutions are available.
Hong Kong company compliance
Annual filing requirements
Every year, all companies are required to file an annual return within 42 days of the anniversary of the date of incorporation with particulars and any updates thereof, including:
- All trading names under which the company conducts business;
- Particulars of directors and company secretary;
- Particulars and number of shares held by existing shareholders and those that have ceased to be shareholders since the last annual return;
- Details relating to the registration of any transfer of shares;
- Registered office address;
- Addresses of other locations where registers and company records are kept;
- Registered encumbrances, i.e., charges over its assets, such as charges on land, ship, book debts, etc.
A filing fee of HKD105 is payable, if the return is filed within 42 days of the anniversary of the date of incorporation, and up to a maximum HKD3,480, if the return is filed after nine months.
Annual audit
All companies are legally obligated to appoint a Hong Kong-registered Certified Public Accountant to carry out an annual audit of accounts, which must be submitted to the Inland Revenue Department. The accounts of a private limited company are not filed in public records. The initial audit should be presented before shareholders at a general meeting within 18 months of incorporation, and subsequent audits are usually laid before shareholders at the annual general meeting.
Tax return
Companies are required to file an annual profits tax return, which is usually submitted together with the audited financial statements to the Inland Revenue Department.
A business-conducive and competitive two-tiered profits tax-rate regime is currently in operation in Hong Kong:
- The first HKD2 million of assessable profits is taxed at 8.25%;
The remaining profits in excess of the initial HKD2 million are taxed at 15%
Click here for a summary of Hong Kong taxes 2022-23 and 2023-24.
Hong Kong operates a territorial tax system marked by certainty and simplicity, which means that an entity is only subject to profits tax if it carries on a trade, profession or business in Hong Kong, and it has profits arising in or derived from such trade, profession or business carried on in Hong Kong. In other words, income that is not Hong-Kong sourced will not be chargeable to profits tax – unless the company is a constituent entity of a multinational enterprise group, where certain exceptions may apply.
Consult our Simplified Annual Compliance Guide in Hong Kong for more information.
What CW can do for you
CW provides bespoke Hong Kong company formation services as well as Hong Kong company registration services to suit your every need.
We can help you realise your ambitions of international expansion by taking care of all aspects of your business, from entry into Hong Kong and beyond, Hong Kong company setup service, Hong Kong incorporation service, business account opening – as well as ensuring ongoing compliance with tax, accounting, auditing and other regulatory requirements, identifying restructuring opportunities, managing your payroll to hiring and upskilling of staff.
