How to Set up an Offshore Company in Hong Kong in 2024

Hong Kong is a prime destination for global entrepreneurs because of various factors, such as its strategic location, favourable corporate tax rates, and, most importantly, its territorial tax system, which exempts foreign-sourced income from taxation.

However, while setting up a company in Hong Kong is relatively straightforward, qualifying for offshore tax status is essential to fully benefit from these tax advantages.

In this guide, we’ll walk you through the offshore company registration process in Hong Kong, covering key requirements, ongoing compliance, and business account options to help your business operate efficiently and benefit from Hong Kong’s tax system, all while ensuring full compliance with its regulations.

Setting up an offshore business in Hong Kong involves meeting certain legal and operational requirements, similar to registering any other type of business. Here are the key requirements you need to be aware of:

• Company Name: The name must be in English, Chinese, or both and must be approved by the Hong Kong Companies Registry.
• Director and Shareholder: At least one director and one shareholder are required. They can be the same person and do not need to be Hong Kong residents, as the Hong Kong government allows complete foreign ownership. 
• Company Secretary: A company secretary is mandatory. This must be a Hong Kong resident or a company secretarial service based in Hong Kong.
• Registered Address: The company must have a physical address in Hong Kong, which cannot be a P.O. Box.
• Share Capital: A minimum share capital of HKD 1. 

Additionally, to qualify for offshore tax exemption, your company must demonstrate that all business activities are conducted outside Hong Kong and that no income is generated within the jurisdiction. This involves providing audited documents confirming the company's offshore operations, including accounting records and financial statements.

To set up an offshore business in Hong Kong, you’ll first have to register your company with the Companies Registry. This follows the same registration process as onshore companies and includes the following steps:

1. Choose the type of business entity for your company. The most popular options are private limited companies and sole proprietorships.
2. Define your company structure and prepare the Articles of Association. This document outlines the internal management of your business.
3. Choose and verify your company name. Ensure the name complies with the requirements of the Companies Registry and is not already registered. 
4. Appoint a company secretary. 
5. Get a registered office address.
6. Fill out the online application, submit the required documents, and pay the government fee.

After completing the company incorporation process, you will receive two documents:  a Certificate of Incorporation from the Companies Registry and a Business Registration Certificate from the Inland Revenue Department (IRD). 

Once your Hong Kong company is registered, you can then apply for the offshore profits tax exemption as well as claim other tax benefits. 

Many people assume that any international business incorporated in Hong Kong but operating elsewhere is automatically classified as an offshore company. However, this is a common misunderstanding. To benefit from a 0% tax rate on foreign-sourced income, businesses must qualify under the Foreign Source Income Exemption (FSIE) regime.

To apply, you must submit an offshore status application with your first Profit Tax Return (PTR), which is due 18 months after your Hong Kong offshore company formation. The IRD will review your application and supporting documents to determine eligibility for the tax exemption.

If your company has local sales or employees in Hong Kong, it is not eligible for this exemption and will be taxed at the standard 16.5% corporate income tax rate under Hong Kong tax law. 

Since the IRD does not provide detailed instructions, we recommend you engage a professional tax advisor who can help navigate the process.

Once the IRD grants your company offshore status, it will remain valid for 3 to 5 years. However, to maintain this status, annual audits may be required to demonstrate that your business operations continue to be conducted offshore.

As a registered Hong Kong business, your company must also fulfil ongoing obligations to remain compliant with Hong Kong law, including:

• Annual Return: File the Annual Return (NAR1 Form) within 42 days after the anniversary of the company’s incorporation.
• Business Registration Certificate Renewal: Renew your Business Registration Certificate (BRC) annually or every three years, depending on the option selected during registration.

Typically, the company secretary handles these compliance requirements and ensures the company remains up to date with regulatory changes.

Opening a business bank account in Hong Kong is essential for seamless cross-border transactions and for keeping accurate financial statements, especially for offshore companies managing overseas income. 

While traditional banks are a go-to option for corporate bank accounts, alternatives, such as virtual banks and non-bank fintech solutions like Statrys, also offer services tailored to the needs of international businesses, such as multi-currency business accounts.

If you’re using a company incorporation service, consider one that also assists with bank account opening to simplify the process.

The key is to check the specific requirements for opening a business account with each financial institution, as eligibility criteria and processes can vary. Some institutions may also require an in-person interview, which can be challenging for companies operating remotely

While there are many reasons why entrepreneurs around the world come to Hong Kong to establish an offshore company, this section will highlight some of the most common reasons.

Hong Kong’s strategic location in Asia has given it a well-deserved reputation as a hub for international trade and finance. Hong Kong companies are trusted and highly thought of, both internationally and in mainland China. 

While Hong Kong and mainland China operate distinct business registration systems, there is a free trade agreement between the two (the Closer Economic Partnership Arrangement, or ‘CEPA’), making import and export straightforward and one of the main advantages that offshore companies incorporated in Hong Kong can access. Businesses seeking suppliers in China for international trade will find Hong Kong ideal.

Furthermore, Hong Kong has free trade agreements with a range of other jurisdictions, including Australia, New Zealand, ASEAN, and many European countries. This gives Hong Kong offshore companies an almost unrivalled international ‘reach.’ The lack of foreign exchange controls makes operating in multiple currencies easy.

Finally, something worth mentioning is the Hong Kong government’s requirements for all companies, especially an offshore business, to be regularly audited. The reason being that they want to ensure compliant and legal finances, while drawing in people from all over the world with its low corporate tax. 

This is actually useful for international trade since you can send reputable, officially audited financial statements to your partners and clients, increasing your business’ credibility while leveraging the tax benefits of being an offshore business. 

Hong Kong’s corporate income tax rate, capped at 16.5%, is one of the lowest in the world, making it an attractive option for entrepreneurs operating in the Asia Pacific. Onshore companies are taxed at 8.25% for the first chargeable HKD 2 million and 16.5% for anything above that. Qualified offshore companies, as mentioned above, are exempt from tax on overseas profits.

Additionally, there are no capital gains taxes or indirect taxes such as Value-Added Tax (VAT) or Goods and Services Tax (GST). There is also no withholding tax on dividends or interest.

While these tax benefits often put Hong Kong on the list of tax haven countries, the government enforces strict regulations to combat financial crime and regularly audits offshore companies to ensure compliance.

As Hong Kong has no minimum amount of share capital (such as the 25,000 Euro minimum share capital required in Germany), it is common to set up a new Hong Kong company with just one share at a price of 1 Hong Kong Dollar. 

Furthermore, a competitive market for company secretaries, accounting, and audit services makes it easier to pay the ongoing costs of company administration in Hong Kong than in many other locations.

When considering an offshore location for your company, Hong Kong stands out. Its organised environment and well-thought-out system make it easy to form an offshore company. 

Nevertheless, entrepreneurs establishing their offshore companies in Hong Kong must diligently manage the legal, compliance, and banking prerequisites for smooth operation. Remember that to benefit from the 0% tax rate on foreign-sourced income, you must apply for offshore status with the Inland Revenue Department (IRD).

Neglecting these aspects could result in penalties and jeopardise your Hong Kong company's operations. Finding the right partner for your business is important to ensure a seamless company setup and ongoing compliance in Hong Kong.