Specifics of taxation of a legal entity in Hong Kong

The stringent requirements and restrictions of Chinese law are not applied in Hong Kong. Income tax is set at 16.5% in the territory of this city-state. However, the mandatory tax has recently been halved for the first HKD $2 mln.

In addition, a company that does not do business directly in the jurisdiction of Hong Kong can apply for the status of an offshore legal entity, which entails the abolition of the corporate tax.

Registration of a legal entity in Hong Kong

A private limited company is the most popular form of business registration in Hong Kong. All legal entities registered in the territory of the jurisdiction of Hong Kong must conduct business in accordance with the requirements and restrictions established by the Companies Ordinance.

They include the timely submission of the essential information about the company, its founders and shareholders, as well as about updating the information provided by the Company Registry.

Name of a legal entity in Hong Kong

The chosen company name must be unique. The uniqueness of the chosen name of the legal entity can be verified in the free online database of information about companies registered in Hong Kong. It is important to note that the name of the legal entity can be either in Chinese or English, or in both languages at the same time.

Company registration address and appointment of a company secretary in Hong Kong

Under the local laws, a real address is required to register a legal entity. However, a real office of the company in the territory of the jurisdiction of Hong Kong is not required. Therefore, many legal entities use virtual offices with a real legal address for the company registration.

The requirement to appoint a company secretary in Hong Kong significantly differs from similar requirements in the EU states. To a greater extent, the task of the company secretary in this jurisdiction is monitoring the compliance of a legal entity with the requirements of local legislation and preparing the essential reporting documentation. It is important to note that the secretary of the legal entity must be a resident of the jurisdiction of Hong Kong.

Documents required for registration of a legal entity in Hong Kong

It must be noted that the local legislation allows the same individual to act both as a director and a shareholder of a registered legal entity. The total number of shareholders cannot be more than 50, and each of them must submit the following documentation to the local registration authority:

notarized copy of the passport;

proof of residence at the specified address (registration or paid utility bills).

If paid utility bills are submitted as a proper confirmation of residence at the specified address, they must be not older than three months by the time the application for the company registration is submitted.

Personal information and telephone numbers of the director and shareholders of the legal entity must be submitted to the local registration authority, along with the information about the planned business activities.

Obtaining a business license in Hong Kong

Some types of business activities carried out in Hong Kong require compulsory licensing. For example, financial institutions, catering businesses, travel agencies, etc. cannot conduct their activities without obtaining special permits.

Licenses in Hong Kong are divided into two types: business licenses and permits related to intellectual property.

Obtaining a license in Hong Kong is mandatory for the following business sectors:

trade (wholesale and retail);

education;

financial services;

tourist services;

medicine and healthcare;

import or export of goods;

catering business;

organizational services, events;

recruitment;

IT and telecommunication services;

oil and gas business.

A company may need to obtain several permits in certain situations to carry out business activities.

The procedure for obtaining a license to carry out business activities in Hong Kong is simple, affordable, and fast, provided that all the necessary documents are collected and submitted.

Intellectual property rights in Hong Kong

Special requirements and restrictions in local laws are established for the protection of rights to intangible assets.

A Hong Kong company must obtain patents to conduct business activities related to the management of intellectual property and permits in the field of copyright, industrial design rights, and trademarks.

Registration of a trademark by a legal entity in Hong Kong

The following specifics must be considered when registering a trademark with a local government agency in Hong Kong:

trademark registration is possible only if the legal entity has a real intention to use it or it is already being used in the course of business;

trademark registration is possible if there is no high degree of similarity or absolute identity with another registered trademark;

upon registration, the trademark is subject to publication in the Hong Kong Intellectual Property Journal;

if a registered trademark is not used by a legal entity for 3 weeks or more, it is subject to withdrawal due to non-use.

Terms of obtaining and validity of licenses in Hong Kong

The process of obtaining licenses in Hong Kong can take from 2 months to 1 year. The obtained license is limited to 10 years. Upon expiration of this period, the license becomes invalid, and the company must obtain it again.

How can a company become an offshore legal entity in Hong Kong?

A legal entity may not pay income tax if it obtains the status of an offshore company in the jurisdiction of Hong Kong, subject to some mandatory conditions. The company must not have a real office in the territory of the jurisdiction, must not have suppliers and customers in Hong Kong, and the goods of the legal entity and all monetary transactions must originate outside the jurisdiction of Hong Kong.

This list of conditions is not exclusive, and the local tax authority decides to grant the legal entity the status of an offshore company based on the combination of custom circumstances in each specific case. It is important to note that obtaining such a status can take several months.

Costs of maintaining a legal entity in Hong Kong

The main costs of maintaining a company in Hong Kong include mandatory taxes and duties, the costs of the services of an auditor, secretary, and accountant of the company, and rental cost of an office for the legal entity.

Opening a corporate account in Hong Kong

There are advantages of opening a corporate account for a company with a Hong Kong banking institution:

it is a well-known financial center that supports monetary transactions with all other jurisdictions;

all transactions undergo operational processing;

Hong Kong banking institutions impose lower tariffs for servicing corporate accounts of legal entities than European banks;

multicurrency accounts are supported;

no currency control;

Hong Kong banking institutions are the best option when dealing with Asian partners.

However, it is rather difficult for a resident of a CIS country to open an account in a Hong Kong bank today. Most local banks will refuse to open an account due to the insufficient economic presence of the legal entity in the jurisdiction of Hong Kong. The companies without a real office in Hong Kong will also be refused.

It is important to note that personal presence is required when opening a corporate account. It is not possible to open an account remotely. Offshore organizations often pay attention to European banking institutions.

The following factors largely influence the choice of a particular bank:

1. Purpose of opening a corporate account. The banking institution is chosen based on how the legal entity is going to use the opened corporate account.
2. Range of banking services offered. It must checked it the bank provides all the services the company needs prior to opening a corporate account with a particular banking institution.
3. Cost of servicing the account and fees for banking operations. This is particularly relevant for foreign exchange banking operations. Some institutions set a fixed fee for conducting monetary transactions, while others charge a percentage of the transaction amount.
4. Type of business activities of a legal entity. A banking institution must be chosen depending on the specific type of business activity. The bank must be able to provide the range of services necessary for its implementation.
5. Bank jurisdiction. International relations between the jurisdictions of the corporate bank account and the registration of a legal entity are particularly important.
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