There are many reasons why entrepreneurs may be interested in setting up a company offshore: Tax advantages, low compliance costs, a supportive banking environment, and new trade opportunities are some of the most commonly cited reasons for doing so. Here we look at what entrepreneurs need to do if they wish to set up an offshore company in Hong Kong.
The most common company type 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 there, include:
- A low corporate tax rate
- 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?
Here we consider 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. This is because:
- There is no requirement for a local director (a common requirement in other countries)
- There is no requirement for a local shareholder (a common requirement elsewhere)
- There is no requirement for a director or shareholder to be present in Hong Kong at the time of formation
- There are a range of affordable options for local company secretary firms to carry out the administrative tasks related to the business
- 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 area between the two (the Closer Economic Partnership Arrangement, or ‘CEPA’), making import and export straightforward. 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 corporate income tax rates in the world (currently a maximum of 16.5 percent). Furthermore, if the company intends to hire employees, personal income taxes are also very low (with a current top bracket of 17.5 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 does not have any indirect taxes such as 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.
Hong Kong has no minimum amount of share capital (such as the 25,000 Euro minimum share capital required in Germany), and it is common to set up a company with just one share at a price of 1 Hong Kong Dollar.
Furthermore, a competitive market for company secretary, accounting, and audit services makes it easier to pay ongoing costs of company administration in Hong Kong than in many other locations.
2. 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, you could make this a wholly-owned subsidiary of your existing business
- Purchase a 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
- Enter into a joint venture with a local Hong Kong partner. 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.
3. How to register a Hong Kong offshore company
The process should proceed as follows:
- Get Hong Kong company name approval by application to the Companies Registry. It must be in either English or Chinese and will end with the word ‘limited’.
- Submit key documents to the Companies Registry, including:
You should allow 3-7 working days for the processing of an application to incorporate a Hong Kong offshore company.
After incorporation you should then do the following:
- File a range of documents with the Companies Registry. This includes submitting documents relating to the appointment of directors and company secretary, notification of registered address, and any other requested documents
- Open a business account. While it is not strictly compulsory to have a bank or business account as a Hong Kong offshore company, it is virtually impossible to carry out business there without one
- Register the business with the Inland Revenue Department. This is Hong Kong’s tax authority. This requires separate registration from the Companies Registry, and you will receive a business registration certificate valid for a certain period of time (usually 1-3 years).
- Acquire business licenses. Some business activities (such as financial services) require a special license. Make sure that you have the appropriate licenses for the activities you wish to carry out.
Setting up a Hong Kong offshore company
When looking for an offshore base for your company, it is hard to go past Hong Kong. An attractive business, tax, 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. A failure to do so risks penalties that could put your Hong Kong operations in jeopardy.