Hong Kong Company Formation

Hong Kong is the world’s ninth largest economy and there are over 970 international companies established in the jurisdiction attracted by the fusion of the English common law legal system, the low tax regime and its historical trading links and unique access to the People Republic of China, the world fastest growing economy and biggest potential market. The Government fosters a pro-business environment and controls and disclosure requirements on businesses are minimal. Corporate tax on profits directly generated in HK is only 17.5%, Dividends are exempt from taxation and there are no withholding taxes. The company incorporation process is efficient and takes a few days.

Under the Special Administrative Region agreement China agreed that Hong Kong can maintain an independent taxation system free of intervention until 2047 and a high degree of autonomy in all matters except in foreign and defence affairs.

Hong Kong Company Registration Formalities

Corporate entities are governed by the provisions of the Hong Kong Companies Ordinance 1984. The private company limited by shares is the usual company type used by the international investor. It is relatively simple to establish a company. There are no onerous restrictions on trading other than the inability to undertake banking or insurance activities or to solicit funds or sell shares to the public.

The Articles of Association of a private company must restrict the right to transfer shares, must limit the number of members to fifty (excluding employees) and must prohibit any invitation to the public to subscribe for any shares or debentures of the company.

Every Company must register annually under the Business Registration Ordinance, the fee for which is about US$300.

Trusts

The concept of the Trust is recognized and it is comparable to the English Trust without the advantages of most jurisdictions in respect of confidentiality, minimal disclosure and registration requirements. Consequently the Hong Kong Trust is not normally a suitable instrument for an asset protection.

Taxation

There are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, and no annual net worth taxes. Tax is levied on income known as Salaries tax and employees and the self employed are required to make social insurance payments. There are also property taxes and stamp and estate duties.

Taxes are levied on business profits derived from a trade, profession or business carried out in Hong Kong, which differs from most jurisdictions which levy corporate tax on all worldwide income. The source of the income must be generated or derived in Hong Kong and tax is charged at the rate of 17.5%.

Stamp duty is payable on some types of transaction in Hong Kong, including most share transactions. Estate duty is payable on property situated in Hong Kong at the time of death, at rates up to a maximum of 15%.

Banking

Hong Kong has one of the largest representations of international banks in the world. There are three types of banks: licensed banks, restricted licensed banks and deposit-taking companies, which are authorised to take deposits from the general public. Only licensed banks and restricted licensed banks can be called banks. Confidentiality is protected by statute and banks are duty bound not to disclose customer details unless there is a suspicion of money laundering or other criminal activity. There are no exchange controls and money can be deposited and withdrawn without the payment of taxes.

Employment Law

The main labour ordinance is the Employment Ordinance which sets out the conditions of service in general employment and which includes provisions for paid holiday leave, sickness allowances and severance pay.

The Factories & Industrial Undertakings Ordinance aims to strictly regulate the employment practices of the "sweat shop economy" with which the territory has long been associated. Under the provisions of the Employees Compensation Ordinance injured workers can claim compensation for work related injuries. Most employment disputes come before the labour tribunal whose proceedings are conducted in Cantonese and are generally very informal.

Geography, People and Culture

Hong Kong is approximately 1,100 sq. km and comprises Hong Kong Island, Kowloon, the New Territories, and numerous small islands. The climate is tropical monsoon: cool and humid in winter, hot and rainy from spring through summer, warm and sunny in autumn.

The population was estimated at 6.8 million by 2002 and is one of the most densely populated areas in the world, with an overall density of some 6,250 people per square kilometre. The ethnic groups are Chinese 95% and 5 % others. Cantonese is the official Chinese language spoken by most of the population. English, also an official language, is widely understood. It is spoken by more than one-third of the population. Every major religion is practiced freely in Hong Kong. Literacy is high at 94%.

Immigration and Residency

The rules governing residence and employment visas are extremely complicated, and have become even more so since 1997. All Foreigners require visas to enter Hong Kong with the exception of British nationals who are allowed visa free entry for a period of 6 months

As a general rule, any person other than those having the right of abode or right to land in Hong Kong, must obtain a visa before coming to Hong Kong for the purpose of education, taking up employment, training, investment or residence. The Government operates a 'Supplementary Labour Scheme' under which it is possible to import labour. All applications have to be submitted to the Job Matching Centre of the Labour Department for initial screening to establish whether the wages and job requirements for the vacancies for imported workers are no less than those given to comparable local workers.

Legal and Political System

Following the return of sovereignty to China the constitution of The Hong Kong Special Administrative Region (SAR) is known as the Basic Law; by this law the Legislative Council has 30 members elected by functional or occupational constituencies, 24 directly elected members, and 6 elected by an election committee.
SAR is headed by Chief Executive Tung Chee Hwa who began his second five -year term on 1 July 2002, after his nomination by a selection committee established by the Basic Law. His selection was approved by China's State Council. The selection committee is made up of 800 Hong Kong residents from four constituency groups: commercial, industrial, and financial interests; professionals; labor, social services, and religious interests; and the legislature, the Chinese People's Political Consultative Conference, and the P.R.C. National People's Congress. Legislative Council elections were held in September 2000.

In July 2002, the Hong Kong Government implemented the Principal Officials Accountability System, which was designed to make the government more responsive to public concerns, and added a layer of 11 political appointees, directly responsible to the Chief Executive, to run the 11 policy bureaus. Three other senior civil service positions ' the Chief Secretary, Financial Secretary, and Justice Secretary'' were alsoconverted to political appointments, although without a change in personnel.

Economy

The official currency is the Hong Kong dollar (HK$) which is pegged to the United States dollar.

The free market economy highly dependent on international trade. Natural resources are limited, and food and raw materials must be imported. Imports and exports, including re exports, each exceed GDP in dollar value .The economy grew only 0.6% in 2001 because of the world economic downturn, the September 11 events, and sluggish domestic demand. Economic performance improved gradually in 2002, with real GDP expanding by 2.3% year-on-year. Strong external demand was responsible for the pick-up. However, domestic consumption and investment remained subdued due to near record unemployment and uncertainty about the future. Hong Kong enjoys a number of economic strengths, including accumulated public and private wealth from decades of unprecedented growth, a sound banking system, virtually no public debt, a strong legal system, and an able and rigorously enforced anti-corruption regime.

Hong Kong is a separate and active member of the World Trade Organization (WTO) and the Asia Pacific Economic Cooperation (APEC) forum, where it is an articulate and effective champion of free markets and the reduction of trade barriers. Hong Kong residents across the political spectrum supported China's accession to the WTO, believing this would open new opportunities on the Mainland for local firms and stabilize relations between its two most important trade and investment partners, the United States and China.

Legislation relating to offshore and non-resident business

If you require more information on any particular statute please contact us.

The Banking Ordinance 1964
The Basic Law
The Business Registration Ordinance
The Companies Ordinance 1984
The Drug Trafficking (Recovery of Proceeds Ordinance)
Employees Compensation Ordinance
Employment Ordinance
Estate Duty Ordinance
Factories & Industrial Undertakings Ordinance
The Inland Revenue Ordinance
The Limited Partnership Ordinance
Mandatory Provident Fund Ordinance
Occupational Retirement Schemes Ordinance
The Organized and Serious Crimes Ordinance
The Professional Accountants Ordinance
The Rating Ordinance
The Composite Securities and Futures Ordinance 2002
The Securities and Futures Commission Ordinance
The Securities (Insider Dealing) Ordinance
The Stamp Duty Ordinance
The Trustee Ordinance