Company formation in Hong Kong

Before deciding to set up a new company in Hong Kong, read the information below to understand the characteristics of a Private Limited Company (LTD):

Shareholders: at least one shareholder with any citizenship or residency, can be an individual or corporate entity.

Director: at least one director with any citizenship or residency, can be an individual or corporate entity.

Company Secretary: local company secretary is required (individual resident of Hong Kong).

Minimum Share Capital: minimum of HKD 1 of the share capital.

Legal Address: it is mandatory when registering a company in Hong Kong.

Liability: the liability of members is limited by the articles of association to the amount unpaid on the shares respectively held by them.

Accounting: Hong Kong companies are required to maintain proper accounting records, which should reflect the financial position of the company and explain its transactions.

Hong Kong's corporate tax system is called profits tax and follows a flat rate and territorial principle.

Starting in the 2018 period, the Hong Kong government introduced the two-tier tax system, allowing companies to have a preferential tax rate for a set amount of profit:

• companies with profits under the first HKD 2 million cap get a concessionary tax rate of 8.25%;
• any remaining profits above HKD 2 million will be taxed at 16.5%.

For Hong Kong profits tax purposes, corporate residency is not relevant in determining the taxability of an entity except in a tax treaty context. Under the domestic tax law of Hong Kong, the decisive factors for taxability are:

• whether a company is carrying on a trade, profession, or business in Hong Kong;
• whether profits are derived from such trade, profession, or business;
• whether profits are arising in or derived from Hong Kong.

If a company is established within Hong Kong, but the profits are made entirely from outside its borders, the business owners can apply for a special status to access a rate of 0% on profits tax.

Hong Kong does not impose income tax based on an individual’s total income. Instead, the three main types of income derived by individuals are taxed under different income taxes:

• business or trading profits are taxed under profits tax;
• income from employment, office, or pension is taxed under salaries tax;
• rental income from immovable property is taxed under property tax.

Salaries tax:

A person’s residence, domicile or citizenship is not relevant in determining liability to Hong Kong salaries tax under the domestic law.Levied on net chargeable income (assessable income less personal deductions and allowances) at progressive rates ranging from 2% to 17%, or at a flat rate (maximum rate) of 15% on assessable income less personal deductions, whichever calculation produces the lower tax liability.

Profits tax:

Business profits with a Hong Kong source derived by individuals are taxable under profits tax irrespective of whether they are residents. Under the two-tiered profits tax rates regime, the rate of tax for the first HKD 2 million of profits of unincorporated businesses is reduced from 15% to 7.5%. The remainder of the profits continue to be taxed at the normal rate of 15%.

Property tax:

Property tax is charged to the owner of any land or buildings (except government and consular properties) in Hong Kong at the standard rate of 15% on the net assessable value of such land or buildings. Net assessable value of a property is the consideration payable to the owner for the right to use the land or buildings less rates paid by the owner and a 20% notional allowance.

Hong Kong does not have a value-added tax system.

Double taxation avoidance agreements in Hong Kong: Armenia, Austria, Bahrain, Bangladesh, Belarus, Belgium, Brunei, Cambodia, Canada, Croatia, Czech Republic, Estonia, Finland, France, Georgia, Guernsey, Hungary, India, Indonesia, Ireland, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, Macao SAR, Mainland China, Malaysia, Malta, Mauritius, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom, Vietnam.