There are many reasons why entrepreneurs may be interested in setting up an offshore company: Tax advantages, low compliance costs, a supportive banking environment, and new trade opportunities are some of the most commonly cited reasons for doing so.
In this post, we look at what entrepreneurs need to do if they wish to set up a Hong Kong offshore company.
The most common company type to set up as an offshore company in Hong Kong is the private company limited by shares.
The specific advantages of doing business in Hong Kong and setting up this kind of company in this jurisdiction, include:
- A low tax jurisdiction with a very reliable tax system
- No foreign exchange controls
- Smooth access to market opportunities in mainland China
- Streamlined company incorporation requirements
- A reputation as a world center for e-commerce, financial services, banking, and business account management.
What are the benefits of incorporating an offshore company in Hong Kong?
When you incorporate an offshore company, there are different benefits that you can come across. In Hong Kong, the benefits may just be more than you expected with an offshore company.
In this section, we take a look at the main reasons given by businesses for incorporating an offshore company in Hong Kong.
Straightforward and streamlined company registration processes
Hong Kong is one of the easiest places in the world to set up an offshore company, very attractive for international business. This is because:
- There is no requirement for the company to have Hong Kong resident directors (a common requirement in other countries) as Hong Kong adopts a policy that favors offshore companies set up by foreign investors.
- There is no requirement for the company to have Hong Kong resident shareholders either (a common requirement elsewhere) foreign entrepreneurs do not need to partner with a local resident to process a Hong Kong company setup.
- There is no requirement for a director or corporate shareholders to be present in Hong Kong at the time of formation, the incorporation of the offshore company can be done remotely
- There is no requirement for a local physical address for the new Hong Kong company, a registered address notification is enough for the authorities, it is a very common practice to use the registered address at your company secretary´s office
- There is a wide range of affordable options for local company secretary firms to assist with the tasks related to the compliance of the business, you can visit our page Company Secretary in Hong Kong - Appointment, Role, & Duties if you want to know more about their role
- The key regulatory authorities for offshore companies, the Companies Registry, and the Inland Revenue Department are efficient and can process applications very quickly.
International trade links
Hong Kong has 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.
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 unrivaled international ‘reach’. The lack of foreign exchange controls also makes it easy to operate in multiple currencies.
Hong Kong has one of the lowest tax rates for companies around the world. Currently, a maximum of 16.5% for corporate income tax, making Hong Kong's low tax jurisdiction one of the most attractive to entrepreneurs that conduct business operations in the Asia Pacific.
Furthermore, if the company intends to hire employees, individual income taxes are also very low (with a current top bracket of 17 percent).
It is also worth noting that Hong Kong is not considered a ‘tax haven’, and will not be affected by the OECD’s new 15 percent global minimum corporate tax rate (as it is already above the minimum).
Hong Kong's tax system does not have any indirect taxes such as the Valued-Added Tax (VAT) or Goods and Services Tax (GST), such as those that apply in the UK, the European Union, Australia, or New Zealand. Additionally, there is no withholding tax on dividends and interests.
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.
What are the main options for Hong Kong offshore company registration?
The main options for establishing a private offshore company limited by shares are:
- To incorporate and register a new Hong Kong offshore company yourself. If you already have a company overseas or in Hong Kong, the already existing company can be the shareholder of your new entity.
- Purchase an existing Hong Kong company better known as ‘Hong Kong shelf company´. This is a company that has already been set up and registered and is sitting ‘dormant’, available for someone to buy and begin trading.
The Hong Kong shelf company is a very convenient option when is necessary to speed up the operation of Hong Kong companies and skip the waiting for the delivery of the certificate by the Hong Kong companies registry. You can enquire your company secretary to help you acquire a Hong Kong shelf company.
- Enter into a joint venture with partners that are Hong Kong residents. You could become the majority shareholder of a special-purpose company alongside a local business. This could be particularly useful if you wish to trade in the region and seek local business expertise.
How to register an offshore company in Hong Kong?
The process for Hong Kong incorporation should proceed as follows:
- Verify the availability of the company name with the Companies Registry. The company name can be in either English or Chinese and will end with the word ‘limited’
- Decide the share capital structure of your company, who will be shareholders and the shares each one of them will hold
- Decide who will be the director, this person is the administrator of the company
- Submit business documents to the Companies Registry, including the Incorporation form NNC1
You should expect to receive a reply from the Hong Kong Companies Registry in about 3 to 7 working days from the date of filing the incorporation documents of the Hong Kong offshore company.
If you're searching for a company secretary, check out our Company Secretary Review where you will find a service provider that suits your needs.
Once the Hong Kong offshore company is incorporated you will receive the certificate of incorporation from the Companies Registry.
As for the Business Registration Certificate, you must register within one month from the incorporation of your new Hong Kong offshore company.
Now the Inland Revenue Department has set the "One-stop company and business registration service" when an applicant presents the incorporation forms with the Companies Registry will be considered to have made the application for the Business Registration certificate at the same time, saving time for applicants.
After the company incorporation, you should prepare internal documents of the company and chops. These company documents are for internal control and regulation and include:
- Articles of Association of the company
- Shares certificates
- Company chart
- Significant Controler Register records
- Company stamps
- Business license if applicable
If you are performing a Hong Kong incorporation with a service provider like a Company Secretary or a law firm, most of their incorporation services include the preparation of these documents, maintaining company records, and helping with the ongoing compliance requirements.
Open a business account or a bank account
Hong Kong is a top financial center not only in Asia but also all around the world. The city has a wide variety of service providers between traditional banking, virtual banks, and payment solutions that can provide a local corporate bank account or business account for companies incorporated locally.
However, each institution has a specific niche of the market they serve and internal requirements for account application that can vary from one institution to another. For example, some banks will require a minimum deposit when you open a bank account. If you wish to learn more about the process of how to
You can visit our page about opening a business account in Hong Kong to learn more about the process of how to open a business account and know more about the different options available for offshore companies.
Offshore status from the Inland Revenue Department
It is very common to confuse the term offshore company in Hong Kong.
The offshore status is granted by the Inland Revenue Department to companies that have foreign-sourced income, meaning that no trade o business should be performed in Hong Kong and the source of the gains of the company has an origin overseas, allowing the company to be taxed at 0% for Profit Tax.
It is commonly considered that the mere fact of incorporating a company remotely will grant the company in Hong Kong the automatic right to be classified as an offshore company by the Inland Revenue Department and have access to the Profit Tax rate of 0%.
When presenting a case to the Inland Revenue Department companies must prove their source of income comes from jurisdictions outside of Hong Kong. The applicant must present supporting documents that explain their operation, and the information must satisfy the authority criteria.
For example, a company performing international business sourcing in China and selling overseas. Is very common that Chinese suppliers invoice to the Hong Kong company through another company in Hong Kong, in this case, the source of the income might be considered from Hong Kong and the company most likely will not be granted the offshore status.
When looking for an offshore base for your company, it is hard to go past Hong Kong.
An attractive system and compliance environment make offshore company formation straightforward.
However, any entrepreneur setting up their offshore company in Hong Kong needs to ensure that they are on top of the legal, compliance, and banking requirements for operating there. Failure to do so risks penalties that could put your Hong Kong company's operation in jeopardy.
Finding the right partner for your business and setting up a company the right way is key for your company to thrive and comply in every possible scenario.