Setting up a business in Hong Kong offers several advantages for investors - including its strategic location, low taxes, well-developed infrastructure, and strong legal framework. Whether you're an entrepreneur looking to expand your international presence or start a new business, this comprehensive guide will walk you through the process of establishing your business in Hong Kong.
Selecting the most suitable approach for entering or expanding in the market demands careful deliberation of factors such as the intended investment scale, the nature of business activities, tax implications, and legal obligations.
This guide will explore the various choices for businesses seeking to enter the Hong Kong market. We will provide an overview of entity types, requirements, and procedures, highlighting key factors to ensure a company's successful establishment.
Additionally, we will offer guidance on the steps involved in opening a bank account, managing intellectual property rights (IPR), and the procedures for business closure should that become necessary.
New arrangement for Business Registration Office public search service
The Business Registration Office now offers a convenient digital service called "Online Application for Business Registration Documents and Duplicate Business Registration Certificate" through the GovHK (www.gov.hk/br).
This transformation marks a significant shift from the conventional paper-based application process for public search services in Hong Kong. It empowers applicants to submit their requests using desktop computers or mobile devices at their convenience, regardless of location. This online approach ensures speed and efficiency and aligns with eco-friendly practices, reducing environmental impact.
Here's a list of the available documents for online business registration applications:
- Electronic extract of information from the Business Register.
- Certified extract of information from the Business Register.
- A certified copy of a valid business/branch registration certificate.
- Duplicate of a valid business/branch registration certificate.
You also can save and print the electronic records according to your specific needs once you successfully apply for an electronic extract of information from the business register or a duplicate of a valid business/branch registration certificate in a PDF format.
Choosing a corporate structure
Hong Kong’s Companies Ordinance recognizes several types of companies, including limited and unlimited companies with share capital.
The type of business entity that must be established will depend on the business plans. Whether the company is a profit or non-profit, as well as if it intends to raise capital via investment, will all factor into the decision when choosing the mode of setting up in Hong Kong.
Below we summarize the types of entities, their purpose as well as pros and cons:
3 Types of Enterprises Summary
Private limited company
To conduct its business operations independently means that the company's assets, debts, and earnings remain distinct from those of its shareholders and directors.
Public limited company
The main objective of a public limited company is to earn profits.
company limited by guarantee
Charities, societies, clubs, and non-profit organizations primarily chose this entity to generate funds for humanitarian causes.
It is the most flexible business entity. A sole proprietor is usually responsible for carrying all the company's risks and liabilities.
Each partner is held responsible for the debts and liabilities of the company to continue operating the business and distribute earnings.
Limited partners have their liability confined to the extent of their capital contribution to the partnership, which means they are not permitted to participate in the business's decision-making process.
A Hong Kong-based company can be legally formed without a physical presence, allowing for remote operations with no physical office or on-site staff.
Offshore companies offer enhanced flexibility and substantial cost savings, thanks to their more relaxed regulations and reduced operational expenses. Conversely, onshore companies enjoy heightened legitimacy in the eyes of Hong Kong authorities and seamless access to the local market. The choice between opting for an offshore or onshore company fundamentally hinges on a business owner's specific requirements and the objectives they aspire to accomplish.
Company set up process
Once the appropriate corporate structure for your business is selected, the necessary registration and compliance procedures must be followed to set up the business. It is advisable to consult with legal and financial experts in Hong Kong to ensure that the chosen structure aligns with business goals and that all legal requirements are met. Additionally, staying informed about any regulatory changes is crucial for maintaining a successful business presence in Hong Kong.
Selecting a company name
Before diving into the process of incorporating a company in Hong Kong, the first step is to secure approval for your chosen company name. This is a crucial initial requirement that must be satisfied before moving forward with your business registration.
Registering an office address
To register a Hong Kong company, you must provide a local Hong Kong address as the registered address for the company. This address must be a physical location and cannot be a PO Box.
Appointing key personnel
Selecting and appointing key personnel is pivotal in ensuring your business's growth and sustainability. We outline the key roles and considerations when appointing essential individuals in your Hong Kong business.
Directors are responsible for the overall management and decision-making within the company. They play a crucial role in setting strategic direction and overseeing daily operations.
Requirements: At least one individual director, no maximum limit. Directors can be of any nationality and do not need to be residents of Hong Kong. However, they must be at least 18 years old and have no history of ongoing orders of bankruptcy or malpractice.
Shareholders are the owners of the company. They hold shares in the business, which typically represent their ownership stake and financial interest in the company's success.
Requirements: A Hong Kong private limited company can have one shareholder or up to 50 shareholders. There are no residency restrictions for shareholders; they can be individuals or companies of any nationality.
The company secretary is responsible for ensuring the company complies with all statutory requirements and maintains its statutory books and records. They also handle various administrative duties.
Requirements: Appointing a company secretary is mandatory. If the secretary is an individual, they must ordinarily reside in Hong Kong. If it is a corporate entity, it must have its registered office or a place of business in Hong Kong.
Designated Representative (DR)
The DR is responsible for reporting concerning the Significant Controllers Register (SCR) to local authorities upon request. This role is particularly important after a regulatory amendment in 2018, which mandates creating and maintaining this register for most companies.
Requirements: It is mandatory to have a minimum of 1 designated representative. The position can be filled by either individual directors, Hong Kong’s local employees, professional bodies like lawyers, TCSP licensees, or auditors registered in Hong Kong.
Minimum capital requirements
While there is no minimum capital requirement, businesses must specify an authorized share capital in the Articles of Association. Typically, for small and medium-sized enterprises (SMEs) and startups, companies set their authorized share capital at a nominal amount, such as HK$10,000 (US$1,200) or even as low as HK$1 (US$0.12)
While there isn't a specific mandated minimum, certain businesses might opt for a higher paid-up capital to enhance their credibility and financial resilience, especially when engaging with financial institutions, suppliers, or clients, considering this factor when evaluating the company's reliability.
Obtaining a business registration certificate
A Business Registration Certificate (BRC) is an essential document issued by the Business Registration Office, and it plays a pivotal role in the operation of a company in Hong Kong. The certificate is obtained by completing form IRBR 37 and any other mandatory forms for different business entities.
Here are the key aspects of the BRC:
- Purpose: The BRC is an official record of a company's essential details and is a mandatory requirement for conducting business in Hong Kong.
- Application Requirement: Any business operating in Hong Kong is legally obliged to apply for a BRC within 30 days of commencing operations. Failure to do so can result in penalties.
- Updates and Changes: If there are any alterations to the business's details, such as a change in address or nature of business, the Business Registration Office must be notified within 30 days. This ensures that the registry is kept up-to-date.
- Information Displayed: A BRC contains crucial information, including the business name, nature of the business activities, registered business address, type of business, the date when business operations commenced, the certificate's expiry date, and a unique certificate number.
The Business Registration Certificate is a vital document that legally authorizes a company to operate and provides key information that helps regulatory authorities and the public identify and understand the nature of the business. Compliance with BRC requirements is essential for smooth and lawful business operations in the region.
Other considerations to set up a business in Hong Kong
How can I choose the right entry model for Hong Kong?
Start With the Right Plan and Support. As with any foreign country, Hong Kong’s setup requirements, options, and processes are unique, and establishing a legal entity requires the various costs of such an investment time and can bear other investment risks. Once investments are made, reversing strategies can be more challenging, so a company must avoid missteps from the outset.
A business' chance for success would do better with:
- Well-defined business scope;
- Informed and guided business model;
- Selection of business partners or suppliers to work with;
- Options for initial service lines, products, and pricing models; and
- Options to set up in suitable locations and more.
Obtaining practical experience and insights in the market can significantly help in these areas and help position an enterprise for success in Hong Kong. Besides researching this Doing Business in Hong Kong guide thoroughly, it is advisable to leverage professional assistance for further guidance with pre-market entry, investment decisions, entity setup, and all business, operational, and financial factors that will arise along the path to achieving your investment objectives. In this respect, the contributors of this guide are available to provide this expertise via the Chat or Contact us link buttons.
How can I protect my intellectual property?
Recognizing the significance of safeguarding intellectual property rights, the Basic Law, which serves as the mini-constitution of the Hong Kong Special Administrative Region (SAR), explicitly outlines in Articles 139 and 140 the SAR's responsibility to independently formulate effective policies and legal safeguards for intellectual property.
Considering this context, Hong Kong has formulated a comprehensive set of intellectual property laws. Therefore, Hong Kong ranked 16th according to the Intellectual Property Rights Index 2022. The country is also a major global IP trading hub.
Hong Kong recognizes several different classes of IP, including:
- Trade secrets;
- Plant variations;
- Domain names; and
- Layout designs of integrated circuits.
IPR must be registered with the appropriate agencies and authorities to be enforceable in Hong Kong.
How do I open a bank account?
Opening a bank account in Hong Kong is often a vital first step to establishing a business presence. However, financial regulations in the SAR have been tightened to combat the city's designation as a tax haven.
Investors need help producing the required documents and conditions for maintaining fixed deposits. Many banks are expected to impose a monthly charge for failing to maintain a balance above a certain minimum amount.
Foreign investors need to understand the procedures and documents required. The internal practices of the bank may vary from one to another,
How can I close a business in Hong Kong?
Closing a business is a significant decision, and in Hong Kong, it involves a structured process known as winding up. Company deregistration is also a common closing method employed by private and public companies limited by guarantee.
A company in Hong Kong may wind up by:
- The company can initiate voluntary winding-up in Hong Kong, regardless of its financial health. This process consists of two types:
- Members' (Shareholders') Voluntary Winding-up: The company calls its shareholders to a general meeting and passes a special resolution for winding-up. An application to the Court may follow if needed.
- Creditors' Voluntary Winding-up: Similar to members' voluntary winding-up, a meeting of creditors is also convened, and a liquidator may be nominated during this process.
- The High Court of the Hong Kong Special Administrative Region can order compulsory winding-up under certain circumstances:
- The company is unable to pay a debt of HK$10,000 (US$1,200) or more.
- The Court deems it just and equitable to wind up the company.
- The company passes a special resolution for compulsory winding-up.
Creditors, shareholders, or the company itself can file a winding-up petition. Legal aid may be available for eligible applicants.