Hong Kong Limited Company shall have its name with the words “Limited” in order to indicate that shareholders shall bear limited liability for future obligation.
A company may have English and/or Chinese company name. For Chinese company name, it shall be written in traditional Chinese characters.
The Hong Kong Companies Ordinance does not require the name of company has to relate to its scope of business, but nevertheless the company name should not be misleading people that the company is related to specific business such as bank, insurance company or Government bodies etc.
Nominal value (also known as “par value”) of shares is the minimum price at which shares can generally be issued.
Since the current Companies Ordinance effective in Hong Kong, all Hong Kong limited companies has retired the concept of par value for all shares. This provides companies with greater flexibility in structuring their share capital.
Under current Hong Kong Companies Ordinance, a company must hold an AGM in respect of each financial year of the company, instead of in each calendar year.
A company is not required to hold an AGM in the following circumstances:-
- Everything that is required to be done at the meeting is done by a written resolution and copies of the documents required to be laid or produced at the meeting are provided to each member of the company on or before the circulation date of the written resolution.
- A single member company is not required to hold an AGM.
- Dispense with the holding of AGMs by a written resolution or a resolution at a general meeting passed by all members.
- Dormant company.
Companies required to hold AGMs must convene as below schedule:
|Period||(1) Company limited by guarantee, or
(2) Private company that is not a subsidiary of a public company
|Any other company|
|Each financial year||9 months after the end of its accounting reference period||6 months after the end of its accounting reference period|
|First accounting reference period||No longer than 12 months||Same as Above||Same as Above|
|Longer than 12 months||(i) 9 months after the first anniversary of the company’s incorporation; or
(ii) 3 months after the end of that accounting reference period,
whichever is the later
|(i) 6 months after the first anniversary of the company’s incorporation; or
(ii) 3 months after the end of that accounting reference period,
whichever is the later
To comply with Employment Ordinance, an employer must inform each employee clearly the conditions of employment under which he is to be employed before employment begins.
Statutory benefits for employment in Hong Kong:
- Statutory Minimum Wage
- Mandatory Provident Fund (MPF)
- Employees’ Compensation Insurance
- Rest Days, Holidays with Pay and Paid Annual Leave
- Sickness Allowance
- Maternity Protection and Statutory Paternity Leave
- Severance Payment and Long Service Payment
Double taxation arises when two or more tax jurisdictions overlap – the country of source where the income is derived and the country of residence where the income is received, such that the same item of income or profit is subject to tax in each.
Since Hong Kong adopts the territoriality basis of taxation i.e. only income or profit sourced in Hong Kong is subject to tax, in generally speaking, income derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong with certain proof, and therefore, Hong Kong residents generally do not suffer from double taxation.
For any foreign tax paid on an income on turnover basis in respect of an income which is also subject to tax in Hong Kong, it is a tax deductible expense in Hong Kong. Businesses operating in Hong Kong therefore generally do not have problems with double taxation of income.
Besides, Hong Kong has established a Double Taxation Avoidance (DTA) network with more than 35 countries, which provide certainty to investors on the taxing rights of the contracting parties and help investors to better assess their potential tax liabilities on economic activities.
This provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas.
There are no withholding taxes on dividends, interest or collection of social security benefits in Hong Kong.
Regardless if the dividend income is from Hong Kong or overseas, and whether the dividend is paid resident or non-resident of Hong Kong, it is not taxable in Hong Kong.
Besides, dividends received from a corporation which is subject to Hong Kong Profits Tax is also excluded from assessable profits.
Hong Kong taxation system is simple and straightforward. There are no Capital Gain Tax (CGT), Value-added Tax (VAT) or sales tax in Hong Kong.
As capital gain incomes are not taxable in Hong Kong, capital loss expenses are correspondingly not allowed as tax deductions.
An offshore company (such as BVI, Cayman Islands, Samoa, Seychelles, Marshall Islands etc.) refers to a company that has been registered, established or incorporated outside the jurisdiction of its primary operations. The offshore company is generally not permitted to engage in business within the jurisdiction which it is incorporated.
Below are some important considerations while choosing the jurisdiction for your Company:
- Good reputation;
- Political and economic stability;
- Sophisticated corporate laws and its legal system; and
- Reliable means of communication.
In some offshore jurisdictions, it is mandatory to maintain company accounts.
As each jurisdiction has its own rules regarding accounting, and relevant laws and regulations might be enhanced from time-to-time, it is suggested always to keep the below documents for your Company:
- Company bank statements;
- Sales and purchase invoices;
- Contracts; and
- Loan documents etc.
Certificate of Incumbency is a Certificate issued by licensed professional in the jurisdiction.
It lists the names of current Shareholders as well as Officers and Directors authorized to enact legally binding transactions on behalf of the Company.
In addition to listing the names of the Officers and Directors of the Company, the Certificate of Incumbency generally also lists when the Officer or Director was elected or appointed.
This Certificate is commonly required by international banks for the purpose of opening a bank account.
A Certificate of Good Standing is an official document, issued by the Registrar of Companies in the Company incorporation country / jurisdiction, which shows the Company:
- Legally exists and is currently on the Register of Companies of the country / jurisdiction;
- Complied with all administrative requirements pertaining to is continued registration; and
- Has paid all required Government fees etc.
A Certificate of Good Standing may be required by:
- Government while applying for foreign qualification there or renew specific license / permit;
- Lenders when your Company is trying to obtain financing;
- Banks for certain transactions; or
- Potential business partners or investors.
Foreign Account Tax Compliance Act (FATCA) effective from 1 July 2014 is a US legislation that aims to prevent tax evasion by US tax residents.
It requires Financial Institutions outside the US to provide information for US taxpayers annually, which enhances transparency regarding the worldwide income and assets of US tax residents.
Examples of information provided to the US Government under FATCA:
- Personal details (e.g. name, address, US Taxpayer Identification Number (TIN) etc.)
- Financial details (e.g. account number, account balance / value etc.)
FATCA is mainly affecting both companies and persons who are US tax residents, including but not limited to:
- Any person living in US (green card holders are included)
- Any US citizen who not yet given up their US citizenship, including an individual born in the US but currently live in another country
- Any person staying significant number of days in the US (Please refer here for the Substantial Presence Test of IRS)
- US companies, US partnerships, US estates and US trusts
Please refer to this webpage of U.S. Department of the Treasury for the list of jurisdictions which signed FATCA with the US.
Common Reporting System (CRS), developed by Organization for Economic Cooperation and Development (OECD), is a new standard for implementing automatic exchange of financial account information (AEOI).
It is aimed at protecting the integrity of tax systems by obtaining a clearer understanding of financial assets held by their taxpayers in overseas financial institutions (e.g. depository institutions, custodial institutions, investment entities, specified insurance companies etc.).
There are over 100 jurisdictions committed to implement CRS, which requires the financial institutions located in participating jurisdictions to collect information (such as requesting the account holders to perform self-declaration of their tax residence), and report it to the local tax authority.
Examples of financial account information to be reported under CRS:
- Personal details (e.g. name, address, jurisdiction of tax residence, Taxpayer Identification Number (TIN), date and place of birth etc.)
- Financial account information (e.g. account number, year-end account balance or value, as well as gross amount of interests, dividends and sale proceeds of financial assets on annual basis etc.)
Please click here to get more information of the jurisdictions who joined CRS. It also provided the criteria for individuals and entities to be considered a tax resident.
Here is an example showing how the information of traditional holding company being exchanged to tax authorities under CRS or FATCA system.
The financial institutions are required to report the account and personal information to local tax authority and undergo information exchange with the jurisdiction of your tax residence, and thus, the information for both the holding company and subsidiary company will be ultimately flown to the tax authority of the jurisdiction of your tax residence.
It is a global trend and expectation to enhance the transparency and compliance. In response of this global trend, there will be significant change in the world of international tax planning.
Due to globalization, it is normal that companies operate business in multi-jurisdictions. Double taxation created when the same item of income or profit is subject to tax in each jurisdiction if two or more jurisdictions overlap.
With Double Tax Agreement, the Company is taxed based on the tax rules of that party as prescribed in the Agreement. Please refer to below cases for further information regarding Double Taxation Relief.
Company X is a Hong Kong limited company which is subject to profits tax in Hong Kong. It has a branch in Canada, where Comprehensive Double Taxation Agreements (CDTA) was signed between Canada and Hong Kong. The branch office is merely for purchase goods or merchandise.
Company X lodged tax returns in both Hong Kong and Canada, returning a profit for tax purposes of $10 million in Hong Kong.
According to Inland Revenue (Double Taxation Relief and Prevention of Fiscal Evasion with respect to Taxes on Income) (Canada) Order, no profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.
In such case, there is no profit generated by the Canada branch even though there is permanent establishment (e.g. branch office) in Canada and no tax is required to pay to the Government of Canada.
Benefit of setting up Hong Kong company under this situation include:
- Low corporate profit tax rate (16.5% on profits for corporations);
- Signed Comprehensive Double Taxation Agreements (CDTAs) with more than 35 countries (e.g. Canada, France, Spain, United Kingdom etc.; please refer to this webpage for the list of CDTAs concluded);
- Dividends received from corporation which is subject to Hong Kong Profits Tax is excluded from assessable profits; and
- No withholding tax on interest, dividends or collection of social security benefits in Hong Kong.
Company Y is a Hong Kong limited company and received royalty income from Japan, where Comprehensive Double Taxation Agreements (CDTA) was signed between Japan and Hong Kong on the avoidance of double taxation.
In the absence of CDTA, Hong Kong company or individual residents receiving royalties from Japan are subject to a current withholding tax at 20% in Japan.
Under Inland Revenue (Double Taxation Relief and Prevention of Fiscal Evasion with respect to Taxes on Income) (Japan) Order, if the beneficial owner of the royalties is a company or individual resident in Hong Kong, the tax so charged shall not exceed 5% of the gross amount of the royalties, as long as the royalty income does not satisfy both of the below criteria:
- The royalties arise through a permanent establishment (e.g. branch office) situated in Japan; and
- The right or property in respect of which the royalties are paid is effectively connected with such permanent establishment.
In case Company Y’s royalty income satisfied both criteria, such case will be classified as business profits, which the tax paid in Japan in respect of the same profits will be allowed as tax credit in Hong Kong.