Hong Kong is located in the South China Sea 100 miles south east of Guangzhou (formerly known as Canton). As of the 1st July 1997 under the Sino-British Agreement of December 1984 Hong Kong became a Special Administrative Region (HKSAR) of the People’s Republic of China. The Basic Law, which is the Constitution of the HKSAR, is intended to maintain the HKSAR and the PRC as separate governmental, legal and economic systems. This is known as the “One Country, Two Systems” concept. Hong Kong is governed by a Chief Executive, an Executive Council and a Legislative Council. The Chief Executive is voted in by an Election Committee of 1,200 individuals and members of the Executive Council are appointed by the Chief Executive. Half of the Legislative Council are elected by universal suffrage and the other half are indirectly elected. The Basic Law states that the ultimate goal is for the Chief Executive and all of the Legislative Council to be elected by universal suffrage but it remains to be seen when this will be implemented.
The legal system of Hong Kong is based on the English Common Law supplemented by locally enacted Ordinances. Under the Basic Law the UK court system and UK law, except that a local Court of Final Appeal has replaced the Privy Council in London, are guaranteed to remain in place for 50 years unless the matter in question involves a threat to PRC national security. There is now a bilingual legal system with Ordinances being translated into Chinese but English will continue to prevail. There is an excellent range of professional services available as Hong Kong serves as the major business centre for the whole of the Far East. This is unlikely to change in the foreseeable future.
The local currency is the Hong Kong Dollar which is freely interchangeable but has a pegged exchange rate against the US Dollar - US$1 is worth HK$7.8. Hong Kong has no exchange controls and is consistently voted as one of the easiest and most open places to do business.
One of the major advantages of utilising a Hong Kong company is that there is no immediate suggestion that the company is a tax avoidance vehicle as Hong Kong is a major trading entity in its own right. It is the world’s tenth largest importer and the world’s twelfth largest exporter and a substantial sum of the Hong Kong companies incorporated annually are local trading companies doing real business in the region.
Hong Kong has ratified 29 double taxation treaties and is negotiating a further 10 tax treaties.
It is possible to create a Hong Kong registered corporate entity in two different ways:- (1) by incorporating a new Hong Kong company; (2) by registering an existing foreign company in Hong Kong under Part XI of the Hong Kong Companies Ordinance. This latter procedure, although more expensive, can have substantial advantages and these are summarised later.
The Hong Kong Incorporated Company
A company incorporated in Hong Kong has the following characteristics:
Taxation - The rate of taxation is 16.5% on Hong Kong source income only. In practice this means that, with careful structuring, as long as a Hong Kong company is not actually doing business in Hong Kong it would normally be possible to arrange the affairs of the company so that no tax would be payable. Detailed advice on this aspect is available on request.
Shareholders - A minimum of one shareholder is required whose details are filed on the public register. Corporate shareholders are permitted and anonymity can be achieved by the use of nominee shareholders.
Directors - A minimum of one director is required and full details must be filed with the Public Registry. Currently corporate directors are permitted but as of early 2014 a Hong Kong Company must appoint at least one natural person as a director. There is no requirement for board meetings to be held within Hong Kong and directors may be resident anywhere in the world. As the director is legally responsible for compliance with the Hong Kong Companies Ordinance and the Inland Revenue Ordinance, in cases where we act as a director, an amount of US$2,500 (HK$20,000) will have to be deposited in order to guarantee such compliance. This amount may be returned when business operations cease and the company has been wound up in the manner required by law.
Annual Reporting - Hong Kong companies are required to file full audited accounts but small private companies meeting certain criteria may apply for “reporting exemption” and prepare simplified accounts and simplified directors’ reports. All Hong Kong companies must also prepare and file an annual return which gives details of the current directors and of the shareholders who have held shares in the company at any time during the year.
Timeframe - Incorporation of a Hong Kong company normally takes about 5 working days but ready-made companies are available for immediate use.
Restriction on Name and Activity - Names which suggest any connection to the UK head of state are generally prohibited and certain words which suggest specialist activity can only be used when the appropriate licenses have been obtained e.g. bank, insurance company and other specialist financial enterprises.
Local Requirements - As a matter of local company law the company MUST maintain a registered office address within Hong Kong and must also appoint a Hong Kong resident to act as company secretary. The secretary cannot be the sole director of the company. We would generally provide these services as part of the domiciliary service fee.
Contact us for our schedule of fees.
Diclaimer: The above is intented to provide a brief guide only. It is essential that appropriate professional advice is obtained. XpertAdvice will be glad to assist you in this respect. Please do not hesitate to contact us.