“…The Hong Kong / China tax double taxation arrangement has been widely considered and adopted for various tax and business reasons to structure foreign investments into China using a Hong Kong intermediary holding entity. In general, Hong Kong is generally viewed as the most effective gateway for investments into China due to geographical proximity, political and strategic considerations as well as its close business links with China.”
From a business perspective, setting up a private limited liability company is the most common choice for many businesses operating in Hong Kong. There are two general methods to incorporate a private limited liability company in Hong Kong.
A readily available “shelf” company (which has been incorporated but has never commenced business since incorporation) can be acquired and activated after completion of certain formalities. Alternatively, a brand new company can also be incorporated by going through the standard incorporation procedures.
A limited by shares or guarantee company may also be formed in Hong Kong, which are generally more commonly established by non-profit organisations.
There is no minimum capital requirement of Hong Kong companies.
Hong Kong company is required by law to have a company secretary. A company secretary is an officer of the company and is required to ensure the company complies with the Company Ordinance * to keep statutory records and information regarding the company’s affairs. The company secretary should coordinate and maintain the company minutes and also ensure filing of the annual return timely etc.
Apart from company secretary, every Hong Kong private company is required to have at least one shareholder. In some situations, it may be convenient to use nominee shareholder for records, holding shares in trust for the beneficial owner(s) for various reasons. Every Hong Kong private company must also have at least one natural person director.
A registered office is required to be maintained for the purpose of receiving correspondences and other official notices. The statutory records of the company are normally maintained at its registered office.
A company may be eligible to apply for this status if it has not entered into any relevant accounting transactions since the date of incorporation. Dormant company is exempt from the statutory obligations to hold annual general meetings, file annual returns and prepare audited accounts which are generally applicable to other Hong Kong companies.
If a company has not commenced business since incorporation and has no outstanding liabilities, or has ceased to carry on any business for more than three months and has no outstanding liabilities, it may be dissolved by going through the deregistration procedures in Hong Kong. The deregistration will normally include obtaining tax clearance, filing of application with the Company registry and publishing notices in government gazette.
Hong Kong adopts a territorial concept of taxation. Hong Kong profits tax (currently charged at 16.5%) is payable by every company carrying on a trade, profession or business in Hong Kong on profits arising in or derived from Hong Kong from that trade, profession or business.
Offshore profits derived outside of Hong Kong may not be subject to Hong Kong profits tax subject to proper planning and documentation.
Hong Kong tax year of assessment is from 1 April to 31 March every year. Tax return is to be filed before the filing deadline imposed according to the financial year ended date. Notice of assessment will be issued after the filing of tax return stating the amount of tax payable and the payment due dates. Subject to conditions, taxpayers may apply for objection or holdover of provisional tax before the statutory deadlines.
In addition, non-residents deriving proceeds from Hong Kong (e.g. royalties) may also be subject to tax in Hong Kong. Specific professional advice should be sought to ensure compliance of its tax obligations and explore opportunities in minimizing the tax liabilities thereon.
Income from employment, office or pension is subject to salaries tax at progressive rate to a maximum 15%.
Hong Kong has also entered into double tax arrangements with various countries. Such double tax relief should be fully explored and reviewed in order to avoid double taxation on the same income on a case by case basis.
The Hong Kong / China tax double taxation arrangement has been widely considered and adopted for various tax and business reasons to structure foreign investments into China using a Hong Kong intermediary holding entity. In general, Hong Kong is generally viewed as the most effective gateway for investments into China due to geographical proximity, political and strategic considerations as well as its close business links with China.
*A new Company Ordinance has been taken effect in Hong Kong since 3 March 2014 to provide a modernized legal framework for the incorporation and operations of companies in Hong Kong. The major initiatives of the new Company Ordinance are to provide measures for:
Please contact us if you wish to obtain further details or understand the impacts of the new Company Ordinance to your business.
This article is published for general reference only. Readers shall obtain specific tax advice on the subjected matter before taking any actions.