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About Hong Kong Limited Company

Hong Kong company laws are mainly based on British common law. Hong Kong is known as a well-regulated low-tax commercial center rather than a tax haven.  Hong Kong’s profits tax, salaries tax and property tax are levied at different tax rates. The inheritance tax system was officially abolished in 2006.  Companies are only taxed on all profits earned in Hong Kong.  Companies that conduct purely offshore transactions are not required to pay taxes.  To operate a business in Hong Kong, it is inevitable to incorporate a Hong Kong limited company.  In addition, a growing number of foreign companies doing business with China and Chinese companies doing business with foreign companies have incorporated Hong Kong limited companies because of foreign exchange control or tax issues.

 

Method of Incorporating a Limited Company:

- Incorporating a new limited company which customers can provide their favorite company name.  The fastest time for establishment is 1 working day.

- Customers who purchase a ready-made limited company can select a suitable company name from our list of ready-made companies.  The entire procedure only takes 2 working days.

 

The Purpose & Advantages of Establishing a Company:

 

-         The incorporation of a limited company in Hong Kong can improve the company’s image and international status, and increase the confidence of customers and business partners in your company.

-         With Hong Kong as a point of contact with the outside world, you will capture global trade opportunities, one step ahead of competitors, explore new business opportunities, and expand your business

-         Incorporating a company in Hong Kong does not require a Hong Kong Residence ID card, nor to be living in Hong Kong.  There is no need of transferring funds to Hong Kong, nor come to Hong Kong personally for handling all the procedures for company incorporation.

-         Open a corporate bank account in a Hong Kong bank and transfer funds freely which makes doing business with foreign companies more secure.

-         The Hong Kong Inland Revenue Department levies taxes based on the principle of geographical origin.  Business income and profits in China or foreign countries are not subject to corporate profits tax in Hong Kong.

-         Incorporating a Hong Kong limited company does not require capital verification, the registered capital can be increased at will, and there is no restriction on the funds in place.

-         The company’s business scope has very few restrictions, and wide sectors of business scope are allowed, such as newspaper publishing, cosmetics, medicine, auctions, groups, import and export, colleges, food, etc. can be registered and operated.

-         The main uses for mainland Chinese or foreigners to incorporate a company in Hong Kong are international trade, book publishing, international finance, international image, and investment promotion.

-         Favorable for foreigners to apply for an investment visa to come to Hong Kong.

 

The Structure of the Limited Company:

A limited company must be registered with the Hong Kong Companies Registry to become a corporate entity; if the application is approved, please download or collect the Certificate of Incorporation and Business Registration Certificate.

A limited liability company is an incorporation that limits the amount of liability, it is established in accordance with the provision of the Companies Ordinance (Cap. 622) of the Hong Kong Laws. Its organizational structure must have at least one shareholder, one director as a natural person, and one Company Secretary.  Their identities can be overlapping.

For example: Party A and Party B jointly form a limited company, they are both investors and business operators of the management company, in this case they are the shareholders and directors of the company.  On the other hand, one of them can serve as the Company Secretary at the same time.

Note: The two shareholders and directors do not have to be Hong Kong residents; but the Company Secretary must be a Hong Kong Identity Card holder or a Hong Kong corporate entity (ie, a Hong Kong limited company).

 

Comparison of Limited Company with Sole Proprietorship and Partnership:

Before considering operating a business, investors have to consider which business model to operate: Sole Proprietorship, Partnership or Limited Company.  Factors to be considered include: the size of the company, risks, number of shareholders, tax filing arrangements, etc.  The following is a comparison of the characteristics of Sole Proprietorship, Partnership or Limited Company:

 

 

Sole Proprietorship

Partnership

Private Limited Company

Number of Shareholders

1 person

2 people or more

1 person or more

Legal Status

No independent, legal status, only can own assets and sign contracts in the private name of the proprietor

No independent legal status, only can co-own assets and sign contracts in the name of partners

It is a legal entity with independent legal status.  The company can own assets and sign contracts

Debt Liability

The proprietor has unlimited liabilities.  If the company is insolvent when the company ends, the proprietor must take full responsibility and have a chance of bankruptcy

All shareholders, with the exception of limited partners, have unlimited liability

All shareholders have limited liability, limited to their capital contributions.  If the company ends up insolvent, it only needs to be liquidated without involving individuals

Fund-raising Ability

Low borrowing capacity, and only funded by the proprietor

Multiple partners contribute capital and have higher borrowing capacity

Funded by multiple shareholders and is easier to be trusted by banks

Annual Tax

No audit is required.  The government levies a 15% profit tax on net profits, and private expenses are not deductible (including the salaries of the proprietor and the spouse)

Same as Sole Proprietor company

Annual audits are required and submitted to the Inland Revenue Department, where the government imposes a net profit tax of 16.5% (8.25% for the first HK$2 million profit if a two tiered profit tax rate is elected), which all normal expenses incurred by the company are deductible (directors' remuneration can be deducted from the company and converted into personal income tax)

Other Information

Annual Business Registration/Levy (B.R. Fee) HK$250 (effective from April 1, 2019)

Same as Sole Proprietor company

In addition to paying the Business Registration fee, an annual return and HK$105 registration fee are required to be submitted to the Companies Registry

* It is easier for a Limited Company to reduce taxes.  For example, director's benefits including housing, medical care, transportation, etc., can be deducted from the company's expenses, but in Sole Proprietorship and Partnership Companies, such expenses are treated as private expenses and are not subject to tax deduction. * The Limited Company separates its investment and management operations, with shareholders and directors performing their respective duties, and the day-to-day responsibility for the operation of the company rests with the directors, while the shareholders are responsible for the capital contribution.  If the directors make mistakes, shareholders are not responsible.

 

Management of the Limited Company:

The Limited Companies handled by our company are Private Limited Companies registered in Hong Kong.  Their incorporation and operation must comply with the contents of the Companies Ordinance (Cap. 622) of the Laws of Hong Kong, and customers can browse the relevant ordinance on the Government's web pages from the Internet:

https://www.elegislation.gov.hk/hk/cap622

 

Every year, Limited Companies have to submit documents to two government departments as follows:

Companies Registry

All newly appointed or dismissed directors, secretaries, registered addresses, registered capital and changes in shares must be declared to the Companies Registry. (As the limited companies are disclosed, all company information can be searched by the public)

On the other hand, the limited company is required to submit an annual return within 42 days of the company incorporation anniversary date each year to provide up-to-date company information, and at the same time, the limited company is required to pay a registration fee of HK$105. If the payment is overdue, the maximum fine can be up to HK$50,000 and the maximum daily fine is HK$700. The responsibility lies with the directors (if you choose our Company Secretary Service, we will notify our customers of the relevant matters one month prior to the filing date to avoid unnecessary losses to our customer).

 

The Inland Revenue department

A Limited Company has to file tax returns to the Inland Revenue Department on an annual basis, and it is the responsibility of the Directors. If the limited company fails to submit the auditor's report and tax return within the specified time, the Inland Revenue Department will assess your company. The directors shall take the initiative and process the limited company's account as soon as possible in order to avoid overpaying unnecessary taxes. The first audit period is 18 months after the establishment of the Limited Company (common financial year end dates of a limited company are 31 March or 31 December).  When you receive a letter or tax return form from the Inland Revenue Department, you should also notify our company or the relevant auditor to conduct the audit work.

In addition, the limited company is required to pay an annual Business Registration fee to the Business Registry of the Inland Revenue Department.

 

Annual General Meeting

Limited Company has to hold an Annual General Meeting every year.  For a newly formed company, an AGM should be held within the period of 9 months after the first anniversary of the company’s incorporation or 3 months after the end of that accounting reference period, whichever is the later. Subsequent AGMs should be held within 9 months after the end of its accounting reference period. The main function of which is to review the company's accounts and discuss issues such as dividend distribution and other important decisions of the company.

 

Accounting Accounts and Business Records

In accordance with the guidelines of the Inland Revenue Department, any person operating a business in Hong Kong (regardless of whether they operate as a Sole Proprietor or a Limited Company) must keep relevant business records and income expenditure documents on their income and expenses in order to determine their profit assessment, and the records must be kept for at least seven years; with the maximum fine for offenders being HK$300,000.

 

Directors' Remuneration

Under normal circumstances, the shareholders of a Private Limited Company also act as directors, so shareholders may withdraw their salaries directly from the company in the form of a director's remuneration to reduce the higher rate of profits tax payable by the company (Please note that a Limited Company is an independent entity, and its profits need to be calculated independently for profit tax, and the tax rate is also higher, currently 16.5%).

On the other hand, directors may use the residence or allowance provided by the company to reduce their assessment income.  For details of this tax arrangements, please contact one of the staff of our company.

 

Reporting Remuneration Paid to an Employee

Any company with an employee (including a director), the company must declare the employee's full name, address, employment start date and terms of employment to the Inland Revenue Department within 3 months of his or her appointment. If the employee will leave Hong Kong for more than one month or leave the company, the employer shall notify the Commissioner in writing of the expected date of departure or resignation of the individual.

 

All of the above information is for reference only, as Hong Kong laws and government fees will be revised from time to time.  If you have any questions, please feel free to call our company hotline at: +852 2830 9999.

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