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If you want to set up a business in Hong Kong, you should first of all think of how to structure your business.
The common form of entities include private limited company, branch office (for overseas company), representative office, sole proprietor and partnership. The overview below assists you to decide which suits you most:
Private Limited Company A private limited company is the most common form of entity in Hong Kong. Though more expensive and with basic statutory compliance at set up, on annual (please refer to condensed fact sheet on the website) and at close down that one has to fulfill, the benefits outweigh the disadvantages:
1. A separate legal entity (can own property, enter into agreements, sue or be sued, etc.) with limited liability to shareholders. 2. 100% foreign ownership of companies is permitted. 3. Strong enduring structure/appetite in raising capital. 4. Transfer of ownership at ease as compared structures such as sole proprietorship and partnership. 5. Only Hong Kong-source income is subject to Hong Kong profits tax (16.5% on net profits after all expenses. To be in force in 2018: First HK$2 million (app US$256K) 8.5% on net profits; thereafter 1.5%). 6. No capital duty. No sales tax nor VAT. 7. No withholding tax on dividend distributions from a Hong Kong entity. 8. The company can be a tax resident in Hong Kong if managed and controlled in Hong Kong. 9. Comprehensive Double Tax Treaty benefits38 Tax Treaty Network in force:
Austria, Belarus, Belgium, Brunei, Canada, Czech, France, Guernsey, Hungary, Indonesia, Ireland, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, China, Malaysia, Malta, Mexico, Netherlands, New Zealand, Pakistan, Portugal, Qatar, Romania, Russia, Saudi Arabia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom, Vietnam. 13 countries in negotiation: Bahrain, Bangladesh, Cambodia, Cyprus, Finland, Germany, India, Israel, Macau, Macedonia. ,Mauritius, Nigeria, Turkey
It is possible to set up a wholly-owned subsidiary company in Hong Kong making the private limited company a desirable choice for overseas companies looking to set up here.
Branch Office (an extension of the foreign company) For foreign companies interested to establish its foothold in Hong Kong, a branch office could be the most easiest and cheapest option. A branch office is an extension of its foreign company i.e. not a separate legal entity. The parent foreign companies have to be fully liable for all the liabilities and debts of this Hong Kong branch vs as having a Hong Kong private limited company as the wholly-owned subsidiary which is a separate legal entity of its own. The financial statements of the parent must be lodged at the Companies Registry.
A branch of a non-resident company must appoint a resident individual or a company to represent it in its dealings with the tax authorities. The representatives may be held jointly and severally liable for the tax debts of the permanent establishments of non-resident entities, which they represent.
Representative Office A representative office is not considered a legal entity, i.e. it cannot enter into contracts, create invoices, etc. and is limited to non-profit making business activities such as marketing and research. The parent foreign company is fully liable for all obligation and debts of the representative office.
This structure is ,however, easy to set up, no compliance requirements such as audited accounts, tax filing. This is the best option for foreign companies wanting to explore the Asian market, gain some exposure, or simply carrying out activities such as research or recruiting representative staff.
Sole Proprietorship & Partnership A sole proprietorship can be a good choice intending to run a small low-risk business. It is easy to set up and to close down and there is no restriction as to the type of business (providing it is legal and legitimate business) but the business owner is 100% liable for all the debts of the business. Because of this, it is hard to find any investors or source financing. It is more for Hong Kong residents, as non-residents must rent an office and appoint local representative at the set up stage.
A partnership and a sole proprietorship are very similar, the main difference being that you must have at least two or more persons to set up a partnership. There are two types, a general and a limited partnership. The liability of partners in a general partnership is unlimited. While a limited partnership allows one or more partners to limit their liability to the amount they have invested in the business.
Which Option Suits You? Before you decide the type of structure, you may take into account of the following consideration:
1. how many founders. 2. whether you reside in Hong Kong or not. 3. what is the principal business activities. 4. the amount of risk to be involved. 5. what budget will you put for set up. 6. how do you intend to finance your business.
From risk exposure point of view, limited company is the safest option. However, for a Hong Kong resident who wants to initiate a small business to test out the market, a sole proprietorship may be the optimal structure as a start.
Need Assistance INTERSHORES has over 20 years of experience in corporate service and can assist you in choosing your preferred entity for your business goal, please do not hesitate to contact us at info@intershores.hk or by whasapp at (852) 6499 4686.
Whatsapp : (852) 6499 4686 Phone : (852) 2186 6936 Email : info@intershores.hk
Disclaimer: Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice.
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