Once you have decided that you wish to incorporate a company in Hong Kong, what are the next steps?
In this guide we set out, step by step, the key requirements that need to be met in order to incorporate a company and do business in Hong Kong.
Incorporating a Private Limited Company in Hong Kong
There are several forms of business classification available in Hong Kong, with the most popular options being sole proprietorship, partnership or company incorporation. It is also possible, in some cases, for businesses registered outside Hong Kong to operate there via a representative office or branch office.
Over 99 percent of companies incorporated in Hong Kong are ‘private companies limited by shares’. This is the kind of company incorporation we are focused on in this Guide. They can be distinguished from ‘private companies limited by guarantee’ (no share capital is required, but this registration is limited to non-profit organizations), and ‘public companies limited by shares’ (a large company with more than 50 shareholders, and registered on the Hong Kong Stock Exchange).
The advantages of setting up a Hong Kong limited company are clear:
- Limited liability. This business form separates the legal personality of the owner/owners from the business itself, and protects them personally in the case of business failure;
- International reputation. The limited company is the most popular form of incorporation in all major economies including the USA, UK, Canada, Australia and Germany. This means they are seen as an inherently trustworthy corporate form for international business.
- Ease of establishment. Hong Kong limited companies do not require that the shareholders or directors are Hong Kong resident, nor do they require significant amounts of share capital.
The Basic Requirements for Company Incorporation
Here we set out the the basic requirements and things you should know about before incorporating in Hong Kong. All these requirements are stated or derived from the Hong Kong Full Companies Ordinance (the ‘Companies Ordinance’).
Note, alongside the Companies Ordinance all companies operating in Hong Kong need to ensure that they follow any other applicable laws (e.g., companies employing locals must follow the Employment Ordinance, Minimum Wage Ordinance, Mandatory Provident Fund Schemes Ordinance and Employees' Compensation Ordinance).
1. Determine the Company Name
You need to choose a company name before that company can be incorporated. Potential names can be checked with the Hong Kong Companies Registry to ensure that they have not already been used. This is crucial for both public accountability purposes (so people know which company they are dealing with), and in order to protect the trademarks/intellectual property of existing companies.
In order for a company name to be valid, it must be written with either English or Chinese words, or a combination of the two. Note, it cannot contain a combination of English and Chinese characters.
The name must end with the word ‘limited’ or its Chinese equivalent. This will be added automatically by the Companies Registry.
While not a legal requirement, this is the point at which many companies consider establishing a domain name for their new company.
2. Establish the Shareholders and Members of the Company
The shares in a company are the fractional ownership interests of those who establish the company. A new company in Hong Kong must establish an appropriate number of shareholders. For a private limited company, there must be at least one shareholder and a maximum of 50.
Importantly, unlike in many other jurisdictions, there are no residency or nationality requirements for shareholders. It is perfectly acceptable for shareholders to live overseas. Furthermore, there is no requirement that the shareholder be a natural person — companies (including foreign companies) are perfectly acceptable.
Once the shareholders are registered they become the members of the company.
3. Name the Initial Directors
Every private limited company must have at least one director who has overall control and oversight of the company. There is no maximum number of directors.
It is the director/directors who appoint all employees of the company (if there are any). Ultimately, it is the director/directors who are responsible for compliance.
It is a requirement that directors be over the age of 18, but it is not a requirement that they be Hong Kong resident, that they be shareholders, nor that they be employees of the company. Note, at least one director must be a natural person, and where a company is a director, one of the directors of that company must be a natural person.
4. Appoint the Company Secretary
The company secretary is the company’s official representative, and has the crucial responsibility of maintaining all record-keeping and corporate compliance in Hong Kong.
The company secretary cannot be the sole director of a Hong Kong company, but they may be a director if there is more than one director. The company secretary need not be a natural person, nor a shareholder/member of the company, and it is quite common for professional company services firms to be appointed as the company secretary.
Read more about this important role at What is a Company Secretary in Hong Kong?
5. Set Up the Registered Company Address
Every Hong Kong company must have a Hong Kong address as the registered address. This must be a physical address, and not a post office box number. It is important to know that most companies in Hong Kong usually start with their company secretary's address if they are considered an offshore company registered in Hong Kong.
6. Pay the Share Capital
Many jurisdictions have hefty share capital requirements that must be met at the time of incorporation. For example, in Germany, the minimum requirement for a limited company (the ‘GmbH’) is €25,000.
There is no minimum requirement for share capital in Hong Kong, only a requirement that at least one ordinary share be issued to one ordinary shareholder. By convention, companies pay $1 per share (which may be in Hong Kong dollars or another currency).
Note, ‘bearer shares’ are not permitted in Hong Kong (i.e., shares which need not be registered and require only the passing of a physical document for transfer).
7. Consider Tax Compliance Obligations
One of the most attractive features of setting up a company in Hong Kong are the low tax rates. The corporate tax rate is one of the lowest in the world at 8.2 percent for the first $2000 earned, and then 16.5 percent thereafter.
Hong Kong also has low personal income tax rates ranging from 2 to 17 percent.
It is worth noting also that Hong Kong only taxes on a territorial basis and does not tax individuals on profits earned outside of Hong Kong.
Finally, Hong Kong has a simple taxation system. It does not have the capital gains taxes, goods and services taxes (GST), nor value added taxes (VAT) that are common in other jurisdictions.
8. Gather the Necessary Documents
At the time of registration of the company, a range of documents must be submitted to the companies registry. This includes:
- A certified copy of the ‘articles of association’ for the company. This document sets out a range of required particulars, including company name, shareholders, share capital and declarations of limited liability as set out in sections 81 to 85 of the Companies Ordinance. Note that ever since the new Companies Ordinance came into force, submission of a ‘memorandum of association’ is no longer required
- For non-resident directors and shareholders, a certified copy of their passport and overseas residential address
- For Hong Kong-resident directors and shareholders, a copy of proof of residential address and a Hong Kong identity document
- For corporate shareholders and directors, a certified true copy of that company's registration documents (e.g., their own ‘articles of association’).
- A duly completed incorporation form replicating many of the particulars set out in the company’s articles of association.
9. Maintain Ongoing Compliance
The company ordinance of Hong Kong requires that all companies maintain and prepare financial records and statements. The balance sheet and profit-and-loss statement of the company must be audited by a CPA, and presented to the shareholders within 18 months of incorporation and at least once in every calendar year.
In addition to financial statements, an annual return must be filed every year for a limited company, setting out the particulars of company officers and directors and paying the registration fee.
In most cases, it is required that the company hold an ‘Annual General Meeting’ (AGM) for the shareholders each year.
Statrys Can Complement Your Hong Kong Company Incorporation
To take advantage of the many benefits of incorporating a company in Hong Kong, businesses need to take into account the key legal requirements for incorporation. While it is generally much easier (and cheaper) to set up a company in Hong Kong than in other jurisdictions, it is important to do this in full compliance with the requirements set out in the Companies Ordinance and other laws.