Hong Kong Company Limited by shares
The Hong Kong Companies Ordinance (Chapter 622) dictates the operational aspects related to establishing, maintaining and winding up a Hong Kong Company.
If the company limited by shares the liability of members is limited by the articles of association to the amount unpaid on the shares respectively held by them.
The articles of association of private company contain certain restriction such as a restriction a member’s right to transfer shares, limit the number of members to 50 (exclusive of any member who is current or past employee) and prohibit any invitation to the public to subscribe for any shares or debentures of the company
Every company must register with the Business Registration Office and pay a Business Registration Fee annually on its date of establishment.
Company name may be in English or Chinese and must include the word “Limited”. Company names containing words or expressions such as “trust”, “chamber of commerce” etc. will require prior approval of the Registrar before registration.
A company’s business scope is not restricted by the nature of its business. Normally a HK company could do any legal business unless restricted by other laws in Hong Kong, such as banking and insurance.
The minimum capital of a Hong Kong private limited company is HK$1.00.
Since the change of company law on 3 March 2014, a company’s issued share is no longer required to have a par value.
Every Hong Kong Company is required to have at least one shareholder. The shareholder can also act as a director. There is no restriction on residence and nationality.
A private company may have just one director. If the company has only one director, that director must be an individual and not a corporate director. In addition to individual director company can appoint body corporate to act as a director.
Secretary and registered address
It is mandatory for the Company in Hong Kong to appoint secretary. It can be individual or company and has to reside in Hong Kong.
In addition, the Companies Ordinance requires a company to have a registered office in Hong Kong to which all official communications and notices may be addressed.
An Annual Return, which includes the details of shareholders, directors and company secretary, is required to be filed and submitted to the Company Registry every year.
Financial reporting requirements
An annual audited financial statements signed by a Hong Kong Certified Public Accountant are required for companies incorporated in Hong Kong.
In addition, once in a year company has to file and submit Profits Tax Return to Inland Revenue Department. For a newly registered company, the first Profits Tax Return will be issued approximately 18 months after date of incorporation.
Taxation of Hong Kong Company
Hong Kong adopts a territorial basis for taxing profits derived from a trade, profession, or business carried on in Hong Kong. Profits Tax is only charged on profits which arise in or are derived from Hong Kong and is subject to 16.5 % corporate tax rate.
Even though a business derives its income from outside of Hong Kong it does not mean that the company is granted automatic tax exemption on its offshore profits. It should be known that any enterprise has to apply for offshore status in order to qualify for a 0% tax rate.
Apart from profits tax, there are also salaries tax and property tax (tax on property rental income) in Hong Kong, both of which could have implications for companies wishing to do business in Hong Kong.
The offshore status of Hong Kong Company
It must be known that In order to claim, that profits earned by Hong Kong Company are not subject to Hong Kong Profits Tax the Company must provide sufficient documentary evidence to the Inland Revenue Department (IRD) to justify their offshore profits tax exemption claim.
Therefore you are advised to keep all the correspondence for all transactions, faxes, emails, and telephone bills, memos of meetings, purchase orders, sales orders, and shipping documents.
There is no single determining factor for the Hong Kong Company’s success of offshore claim, but generally entities should be aware of the basic following needs when applying for offshore status:
- No operations office in Hong Kong
- No staff hired and working in Hong Kong
- No customers from Hong Kong
- No suppliers from Hong Kong
- Income contract not negotiated or concluded in Hong Kong
- Services agreements or sales/purchases invoices should avoid involving any Hong Kong parties
- The actual operations take place outside of Hong Kong