Company registration in Hong Kong

General information

Hong Kong is the largest business center in Asia and the wealthiest city in China. It offers attractive taxation as well as top-tier commercial, financial, and legal services.

Hong Kong accommodates every type of business, whether it is import, export, online sales, international trade, or other types of intangible services. The tax rate on business activities for foreign entities is 0%.

Economically and politically stable, Hong Kong enjoys well-deserved recognition. This region maintains its autonomy in the issuance of its currency, the HKD (Hong Kong Dollar).

Company registration in Hong Kong – summary of key information

Company registration in Hong Kong: What you should know

• Public Company Registry: Hong Kong has a public registry of commercial companies.
• Territorial Tax System: The tax system is territorial in nature – only income derived from business activities within Hong Kong is taxed, while income from outside Hong Kong is not.
• Legal System: The legal system is based on common law.
• Mandatory Accounting: Accounting is mandatory, and an annual financial statement must be prepared and submitted.
• Opening a Bank Account: Opening a bank account in Hong Kong is not as simple as it may seem; an economic justification is required.
• Tax Haven Status: Hong Kong is considered a tax haven by Poland, yet it is still used for conducting business, for example, with China.
• Anonymous Company Ownership: A company in Hong Kong can maintain anonymity by using nominee shareholders and directors.
• Remote Company Formation: Establishing a company in Hong Kong can be done remotely, without the need for a notarized power of attorney or going through a lengthy legalization process.

Company registration in Hong Kong – Frequently Asked Questions

Company registration procedure

Establishing a company in Hong Kong involves the following steps:

1. Checking the availability of the chosen company name with the Companies Registry.
2. Drafting the Articles of Incorporation and the company’s memorandum.
3. Filling out the registration application.
4. Submitting the documents to the Companies Registry.
5. Obtaining the registration certificate.

Company registration in Hong Kong: Shareholders

A minimum of one shareholder is required to establish a company. The maximum number of shareholders is 50. Foreign shareholders and nominee services are permitted.

Company registration in Hong Kong: Management

The management of a company in Hong Kong is overseen by a director, who can also be a shareholder. A company secretary is also required; if the secretary is an individual, they must be a resident of Hong Kong. If the secretary is a company, it must have a registered address in Hong Kong.

Company in Hong Kong: Registered office

A company in Hong Kong must have a registered address within the territory of Hong Kong, which will appear on official company documents and postal records. It is possible to use virtual office services, including a dedicated phone number.

Company registration in Hong Kong: Timeframe

The time required to establish a company is approximately 3 business days.

Company registration in Hong Kong: Capital

There is no minimum capital requirement.

Company registration in Hong Kong: Taxes and finances

Hong Kong’s tax system is based on the territorial principle, meaning that income derived from sources outside of Hong Kong is not subject to taxation. As a result, individuals, corporations, partnerships, and trusts are liable for income tax only on their income sourced from within Hong Kong (excluding income from the disposal of so-called capital assets, such as fixed assets).

Many of the taxes commonly found in Poland or other European Union countries do not exist in Hong Kong. There is no VAT, no capital gains tax (commonly known as the “Belka tax”), no tax on interest income, no stamp duties, and no inheritance tax. Additionally, there are no social security contributions, and there is no minimum wage. Earnings are regulated purely by the supply and demand of labor.

In Hong Kong, only profits that originate from within the territory are subject to income tax. Profits derived from other sources are not taxed. While the principle is clear, its application in specific cases can sometimes be contentious.

Taxation of company profits in Hong Kong

Hong Kong has adopted a territorial basis for the taxation of profits derived from trade, professional practice, or business activities conducted in Hong Kong. Profits tax is levied only on profits that are earned in or derived from Hong Kong.

In other words, if a person conducts business in Hong Kong but earns profits elsewhere, those profits are not subject to tax in Hong Kong. Unlike Hong Kong, most countries tax worldwide income, including profits derived from offshore sources.

Company registration in Hong Kong: Conditions for income tax liability

According to the Inland Revenue Department’s regulations, a person is subject to income tax under the following conditions:

1. Conducts trade, practices a profession, or engages in business activities in Hong Kong;
2. Earns profits from trade, professional practice, or business activities; and
3. The profits arise in or are derived from Hong Kong.

The first two conditions are straightforward. The third requires further elaboration. Let’s explore the basic principles for determining the source of profits.

Company registration in Hong Kong: Basic principles for determining the source of profits

Over the years, courts have deliberated on the issue of the source of profits. The following principles have emerged from court decisions:

• The Facts Matter: The location of profits is a practical matter based on the facts. No universal rule can be applied to every scenario. Whether profits arise in or are derived from Hong Kong depends on the nature of the profits and the transactions that generate those profits.
• Actions Taken Test: The primary principle is to examine what actions the taxpayer undertook to earn the profits and where these actions were carried out. In other words, the correct approach is to identify the operations that generated the relevant profits and determine where these operations took place. The source of profits must be attributed to the taxpayer’s activities that led to their creation, not to the operations of other members of the taxpayer’s group.
• Prior or Incidental Activities: Significant activities do not constitute the entirety of the taxpayer’s business. The focus is on identifying the geographic location of the transactions that generated the taxpayer’s profits, as opposed to prior or incidental actions related to those transactions.
• Location of Decision-Making: The place where decisions concerning investments and business activities are made daily is just one of the factors to consider when determining the source of profits. However, it is not usually the decisive factor.

Company registration in Hong Kong. Gross Profit from Transactions

The distinction between profits earned in Hong Kong and offshore profits is made with reference to the gross profits derived from individual transactions.

Company registration in Hong Kong. Overseas presence of the company

A company can operate abroad, thereby generating profits outside Hong Kong. However, the mere absence of a business presence abroad does not automatically mean that all profits from operations in Hong Kong are invariably generated in or derived from Hong Kong.

Nevertheless, in most cases where the primary place of business is in Hong Kong and the company has no presence in foreign markets, the profits earned by that company are likely to be subject to income tax in Hong Kong.

Company registration in Hong Kong. Contracts for the purchase and sale of goods

The determining factor for the location of profits from trading goods is generally the place where the purchase and sale contracts are executed. “Execution” refers not only to the legal fulfillment of the contract but also includes negotiation, agreement, and the fulfillment of the contract’s terms.

Following the Court of Appeal’s decision in the case of Magna Industrial Co. Ltd. v. CIR, it is clear that a broader approach is necessary. The correct method is to consider all relevant operations conducted to generate the profits, not just the purchase and sale of goods. In the Magna Industrial Co. Ltd. v. CIR case, the Court of Appeal noted:

“Of course, the issue of purchasing and selling goods is important, but there are other questions: for instance, how were the goods purchased and stored? How were orders obtained? How were the orders handled? How were the goods shipped? How was financing arranged? What was the method of payment?

How relevant facts are considered

When considering relevant facts, the nature and quality of actions are far more significant than quantity. The cause and effect of actions in relation to the profit achieved are the decisive factors. Facts not directly related to the trading activities, such as renting office space, hiring staff, or setting up an office, are considered irrelevant when determining the location of profits.

If purchase and sale contracts are executed in Hong Kong, the profits are subject to taxation in Hong Kong. If these contracts are executed outside of Hong Kong, the profits are not subject to taxation in Hong Kong.

If a purchase or sale contract is concluded in Hong Kong, the initial presumption is that the profits are taxable in Hong Kong. However, other relevant facts will need to be examined to determine the source of the profits.

In cases where a sale is made to a Hong Kong customer (including sales to a Hong Kong office acting on behalf of a foreign client), the sale contract is considered executed in Hong Kong.

If the conclusion of the sale and purchase contract does not require travel outside Hong Kong and is conducted within Hong Kong via telephone or electronic means, including the internet, the contract is considered to have been executed in Hong Kong. Profits from trading activities are either fully taxable or fully exempt from taxation; no apportionment is applied.

Place of production

The source of profits in the manufacturing industry is the location where the products are made. Profits from the sale of goods manufactured in Hong Kong are fully subject to taxation in Hong Kong.

If goods are partially manufactured in Hong Kong and partially outside Hong Kong, the portion of profits related to the production of goods outside Hong Kong will not be considered as arising in Hong Kong. The place where the manufactured goods are sold is irrelevant.

Manufacturing Under a processing or assembly agreement with a mainland China entity

Hong Kong companies are typically involved in two types of trade arrangements on the mainland: contract processing and import processing. In the case of contract processing, the relationship between the parties is governed by a processing agreement, which outlines the rights and obligations of the Hong Kong company and the mainland processing enterprise.

The Hong Kong company is responsible for supplying raw materials and machinery without compensation and providing technical know-how, while the mainland processing enterprise provides the factory facilities, tools, and labor. In return for processing services, the Hong Kong company pays the mainland subcontractors.

The legal title to the raw materials and finished goods remains with the Hong Kong company. Strictly speaking, the mainland processing enterprise is a separate subcontractor distinct from the Hong Kong company, so the question of profit allocation for the latter should not arise.

The Inland Revenue Department considers the operations of the Hong Kong company on the mainland as supplementary to its activities in Hong Kong. Typically, a 50:50 profit allocation is assumed for the activities carried out by the Hong Kong company on the mainland.

In import processing arrangements, the manufacturing activity is conducted by a Foreign-Invested Enterprise (FIE) based in mainland China, affiliated with the Hong Kong company. The Hong Kong company sells raw materials to the FIE and repurchases the finished products from the FIE.

The Hong Kong company engages in trading raw materials and finished goods, while the FIE produces the finished goods. The legal title to the raw materials and finished goods is transferred to the FIE and then back to the Hong Kong company.

The Inland Revenue Department holds that the profits earned by the Hong Kong company from trading activities conducted in Hong Kong cannot be attributed to the manufacturing activities of the FIE operating on the mainland.

The source of the profits from the trading activities should be attributed to the operations of the Hong Kong company where they originated. No proportional profit allocation is applied.

Manufacturing conducted by an independent subcontractor in mainland China

In cases where assembly work is outsourced to various contractors on the mainland, with numerous, low-value, and short-term job sites, and the Hong Kong company has minimal involvement in the assembly work, the production on the mainland is not considered to be conducted by the Hong Kong company.

Given that the Hong Kong company does not engage in any manufacturing activities outside of Hong Kong, its profits should be fully subject to profits tax without any proportional allocation.

Company registration in Hong Kong: Sales or purchase commissions

When a business earns a commission by supplying products to buyers or providing appropriate means to suppliers for products ordered by clients, the activity leading to the commission income is a business arrangement to be enforced between the principals.

The source of income is the place where the agent performs their actions. If such actions are carried out in Hong Kong, the income is sourced in Hong Kong.

Factors such as the location of the principals, how they are identified by the agent, and the location of ancillary activities before or after the commission is earned are not generally significant in determining the source of commission income.

If the commission income is earned by a person conducting business in Hong Kong, but the actions leading to the commission are performed entirely outside of Hong Kong, the commission is not subject to taxation in Hong Kong.

Company registration in Hong Kong: Other profits

Below are some examples of tests used to determine the source of major types of other business profits:

Company registration in Hong Kong: Profit and cost allocation

When profits are derived from manufacturing activities or service provision involving significant operations both within and outside of Hong Kong, profit allocation is proportional.

In cases involving contract processing, a 50:50 profit split is commonly used, taking into account the contractual terms imposed on the parties involved. However, in cases where proportional allocation is applied, the principle used will depend on the specific circumstances of the case.

When applying profit allocation, the issue of allocating indirect costs may arise. In short, when these expenses contribute to both the profits generated in Hong Kong and the offshore profits, they should be apportioned in proportion to the ratio of Hong Kong profits to offshore profits relative to total profits.

Company registration in Hong Kong: Tax rulings

To ensure the correct application of the territorial principle, the Inland Revenue Department issues tax rulings regarding the source of business profits for profits tax purposes. This service is subject to a fee.

Company registration in Hong Kong. Additional Information

General compliance requirements and annual financial reporting for Limited Companies in Hong Kong

Company registration in Hong Kong: Basic ongoing compliance requirements

A Limited Liability Company (Limited) registered in Hong Kong must meet the following requirements:

• Local Registered Address: The company must have a local registered address (P.O. boxes are not accepted).
• Company Secretary: The company secretary must be a resident of Hong Kong (either an individual or a legal entity).
• Directors: The company must have at least one director, who must be an individual (either a resident or a foreigner who is at least 18 years old).
• Shareholders: The company must have at least one shareholder (either a legal entity or an individual who is at least 18 years old, resident or foreigner).
• Auditor: The company must appoint an auditor unless the Hong Kong company is “inactive,” meaning no transactions occurred during the reporting period for that year.
• Notification to the Companies Registry: The company must notify the Hong Kong Companies Registry of any changes regarding the registered address, shareholders, directors, company secretary, share capital, etc., and adhere to the following requirements and deadlines:
  • Change of Registered Address: Notify the registry within 15 days of the change.
  • Change in Company Secretary or Director: Notify the registry within 15 days of the appointment, resignation, or change.
  • Changes to Details of Secretary or Director: Notify the registry within 15 days of the changes.
  • Change of Company Name: Submit Form NNC2 within 15 days of passing the resolution for the name change.
  • Passing of Resolutions or Special Resolutions: Notify the registry within 15 days of passing the resolution.
  • Change in Location of Accounting Records: Notify the registry within 15 days of the change.
  • Allotment of Shares: Notify the registry within one month of the allotment or capital increase.

Company registration in Hong Kong: Annual Costs and Compliance Requirements

• Annual Fees: Pay the company’s annual fees one month before the due date.
• Annual General Meeting (AGM): Convene the first AGM within 18 months of the company’s registration. Subsequent AGMs should be held annually, with intervals between AGMs not exceeding 15 months. Company directors must prepare and present the company’s financial statements (e.g., profit and loss statement and balance sheet) in accordance with Hong Kong’s Financial Reporting Standards (FRS). Directors must be prepared in connection with the annual financial reports.
• Financial Reporting Compliance: Meet the requirements and deadlines for submitting financial statements as per the Companies Registry and local tax authorities.

Company registration in Hong Kong. Essential documents for company operation

A company must possess the following documents at all times:

• Certificate of incorporation
• Memorandum and Articles of Association
• Minutes of AGMs and any board meetings
• Accounting records
• Company seal
• Share certificates
• Registers of shareholders and directors

Company registration in Hong Kong. Licenses and record-keeping

• Licenses: Obtain all necessary licenses (if applicable).
• Accounting Records: Maintain proper and detailed accounting records for the company. All accounting documents must be retained for a period of 7 years. Failure to meet these requirements may result in financial penalties. If the company’s accounting records are kept overseas, confirmations of the filing of annual returns (PTR) or statements must be retained by the local company secretary in Hong Kong.

Company registration in Hong Kong. Required financial documents

Business records and accounting books must include:

• Receipts/invoices confirming the company’s transactions, income, and expenses
• Core documentation such as accounting vouchers, bank statements, invoices, receipts, and other relevant accounting records
• Documentation supporting the company’s assets and liabilities
• Records confirming cash flows in the company (inflows and outflows)

Company registration in Hong Kong: Annual financial reporting requirements and deadlines

Both local companies registered in Hong Kong and foreign companies listed in the local register of foreign entities (e.g., subsidiaries or branches of foreign companies) are subject to the regulations regarding the submission of annual financial reports to the Inland Revenue Department (IRD) and the Companies Registry. The requirements are as follows:

Company registration in Hong Kong: Filing annual financial statements with the companies registry

A Limited Liability Company registered in Hong Kong is required, according to the regulations set by the minister responsible for commercial companies, to file annual financial statements signed by the company’s director and secretary or another authorized company representative. Dormant companies, which have no transactions during the reporting period, are exempt from this obligation.

The relevant financial statement must be prepared in a specific format, including the company’s details such as the registered address, information on shareholders, directors, resident secretaries, and other company representatives, etc.

The annual financial statement must be submitted once a year (except in the year of the company’s registration) within 42 days of the anniversary of the company’s registration.

Failure to submit the statements within the deadline may result in higher annual renewal fees, financial penalties, and proceedings before the tax authorities.

Company registration in Hong Kong: Filing annual financial statements with the inland revenue department (IRD)

In accordance with local company laws, every company registered in Hong Kong must file a Profit Tax Return (PTR) along with an audited financial statement prepared by a professional auditor.

The IRD sends notifications to companies regarding the filing deadline for tax returns on April 1st each year. For newly registered companies, the relevant notification is sent within 18 months of the entity’s registration. Companies are required to file the tax return within one month of receiving the notification.

It is possible to request an extension of this deadline if necessary. Failure to meet the deadline indicated in the notification may result in financial penalties or proceedings before the tax authorities.

The following documents must be submitted with the annual tax return:

• Balance sheet, auditor’s report, and profit and loss statement for the reporting period;
• Tax computation showing how the assessable profits or losses were calculated.

Company registration in Hong Kong: Directors’ responsibility

The responsibility for meeting compliance requirements rests with the company’s directors. Non-compliance can result in fines or even tax proceedings. It is recommended to use the services of a professional firm to ensure adherence to Hong Kong’s statutory regulations and requirements.