For a long time, Hong Kong has been an important part of world trade. It is a good place for businesses that want to set up the shop in Asia because it connects mainland China to the rest of the world. The city has a great financial system, a well-developed legal system, and a long history of being a good place to do business.
According to the World Bank, Hong Kong was one of the best places in the world to do business in 2023. That year, almost 400 businesses from other countries and the mainland chose to open or expand operations there, which shows that it is still a popular regional hub. The jurisdiction is also one of the easiest places for businesses to set up because the government is always working to make compliance easier and more in line with international standards.
Why Hong Kong is Different
There are many places that business owners think about when they want to incorporate in another country. These include Caribbean islands and European countries with low taxes. Hong Kong is different because it is both safe and tax-efficient. Hong Kong is different from many other offshore centers because it has:
- International recognition: people see it as a real financial center, not just a "tax haven."
- Strong infrastructure, such as up-to-date networks for banking, communication, and shipping.
- Having a strong common law system and clear corporate laws is what legal clarity means.
- Business flexibility: full foreign ownership is allowed, there are no exchange controls, and it's easy to start a business.
These things make Hong Kong a good place for business owners who want to do business in Asia or find a legal place to do business around the world.
The Offshore Profits Exemption applies to Hong Kong because it has a territorial tax system. This means that only profits made in Hong Kong are taxed in real life. The first HKD 2 million in profits are taxed at 8.25%, and the rest are taxed at 16.5%. The Offshore Profits Tax Claim says that income earned entirely outside of Hong Kong might not have to pay any taxes.
But this exemption doesn't happen on its own. The Inland Revenue Department (IRD) needs to see proof that businesses don't make any money in Hong Kong. Some common criteria are:
- No clients, contracts, or business deals that start in Hong Kong
- There are no people who work there, no offices, and no daily management.
- Directors shouldn't be there very often (if they stay too long, they could lose their offshore status).
The IRD might change the company's status to onshore if these conditions aren't met. This would mean that the company would have to pay all of its taxes.
Responsibilities to obey the rules and laws
There are a lot of tax breaks in Hong Kong, but running an offshore company means following a lot of rules:
- First filing is due in 18 months: The IRD sends a company its first Profits Tax Return about 18 months after it is set up. The business must now send in its first audited financial statements with its return.
- Then, every year, there are audits: Businesses have to send in audited financial statements and a Profits Tax Return every year after they file for the first time.
- Papers that back up: If authorities want to prove that profits come from outside the country, they may ask for letters, contracts, and bank statements.
- Getting ready on time: The first filing isn't due for 18 months after the company is formed, but it can take months to get the audits ready and get the bank confirmations. Businesses should get started as soon as possible.
Hong Kong is different from other offshore places because it has stricter rules. The trade-off is that banks, partners, and regulators around the world trust companies based in Hong Kong much more.
The steps to start a Limited Company in Hong Kong
To start a limited company in Hong Kong, you need to do these things:
- Document Submission: You need to send in copies of the directors' and shareholders' passports, proof of address from the last few months, and the name of the business you want to start.
- Registered address and company secretary: You need to find a local registered address and hire a corporate secretary who is licensed. Hong Kong law says that both are needed.
- Approval for incorporation—after the application is sent in, it usually takes two to five business days to finish.
- Paperwork for businesses: The company gets the Articles of Association, the Certificate of Incorporation, and the Business Registration Certificate after the application is approved.
Business registration fees (HKD 2,150 a year or HKD 5,650 for three years) and audit fees, which depend on how much money the company makes, are costs that happen all the time. It can be hard to do banking because most banks need original documents and proof of identity in person. This means that it takes longer to open an account than it does in other places.
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