Hong Kong Company Incorporation, choose a category...
There are a number of different types of company formation to choose from. All of which are acceptable by immigration for the application of visas. For Rep' Offices and Sole Proprietor all that is required is a Business Registration Certificate issued by the Inland Revenue and can be done in an afternoon. For those that require the services of the Company Registration Department, allow up to ten working days.
Before committing to an entity in Hong Kong take professional advice from your accountant, lawyer or solicitor in your home country and take into account the broader implications of your business. You may also want to talk to professionals in Hong Kong to obtain a balanced view before you proceed.
If your intention is to open a business bank account, most banks will require a certified copy of the business registration application form. This can be made at the same time as the application for which there is a nominal fee and can be collected with the certificate.
To follow is a summary of each option high-lighting the key elements of each type of incorporation. If you have any questions at all feel free to CONTACT US or go to our blog, Establish Hong Kong.
This in my view is an excellent choice for those companies that wish to have a presence in Hong Kong without making a full commitment. For those exploring the market, looking to expand, possibly have some clients in Hong Kong and beyond but need to be here on a permanent basis. The entity cannot enter into contracts only buy limited services such as office agreements and utilities. Any sales would be with the overseas entity as with any costs, subsequently there are no accounts to file or company information. Immigration accepts these entities for the purposes of visa applications for staff under secondment.
Having a representative office on the mainland is an additional option for Hong Kong companies that are two years old or more. But there activates are limited and subject to quota in each respective province. It is possible to buy a two year old or possibly older HK company. But they are becoming increasinly rare, difficlut to source and significantly more expensive.
The China Rep' Office can enter into contracts, for example, hire staff, sponsor overseas nationals for visas and rent office space.
However, since it is the Hong Kong company that does the business in China and NOT the representative office, it does not attract corporation/profits tax in China. Local tax is payable in China by the representative office based on its monthly expenses level.
If you have a Repí Office and something goes wrong, you can enforce your legal rights in China.
If you plan to do business in Mainland China, providing goods and or services to mainland companies, you should consider the following. Register a Hong Kong company and use this Hong Kong Company to register again in China as a Wholly Foreign Owned Enterprise (WFOE), its legal status is a Limited Liability Company (LLC), the WFOE is 100% owned by Hong Kong company. Where the Hong Kong company is the holding company and the WFOE is a subsidiary. The WFOE can open one basic bank account and one overseas bank account that can have multi-currency facilities. Unlike the Repí Office the bank account can receive income earned in China and likewise pay its operational costs.
The WFOE needs to file monthly or quarterly financial statements to local tax authority, and pay tax on monthly or quarterly basis if in profit. Annually, the WFOE is required to appoint a Chinese auditor and obtain an audit report and file the audited financial statements and tax documents to local tax authority and pay annual tax that may be due. The profits tax rate is 25% of net profits. As the WFOE has paid monthly/quarterly tax amounts during 12 months over 4 quarters, only the excess in yearly basis over aggregate monthly/quarterly amounts is required to pay. If the company intends to pay all profits (after the company enterprises tax) as dividend to shareholders outside of China, it can provided that the company declares the profits as dividends and the shareholders have paid the dividend tax. The tax rate is 5% (on average) of dividends.
If you need to expand your business in China, you can apply for branch office in different provinces. For example, you have registered a company in Shenzhen, now you want to expand your business in Beijing, you can register a branch certificate in Beijing.
WARNING, you cannot issue VAT (Value Added Tax) invoices yourself to your customers, itís illegal in China and is a criminal offence to do so. You must have the appropriate tax certificate licenses.
Some overseas companies elect to open a branch in Hong Kong and treat it as an extension of the investing company. This opens up the possibility for reach across to the overseas company for any legal or creditor issues should they arise. Equally the possibility for securing funding increases for the new business increases using the established overseas business credit history. There are compliance issues in the way of annual returns and filing accounts.
This is the preferred choice of most SME's and individuals who don't want any personal liability. Changes now only require one Director and Company secretary for incorporation. One of the attractions of this kind of incorporation is that there is no reach across to the overseas company should the Hong Kong entity gets into any kind of difficulties. Your Accountant or incorporation company should present you with the "green box". A complete kit containing all the documents, Statutory and Share Certificate books, numerous copies of Memorandum & Articles of Association and company seal. Also company chops if you have elected to use them. As with the branch office there are ongoing compliance issues, filing of annual returns and accounts.
Using Chinese Resources through a HK Company on an informal basis offers no legal protection in China.
Hong Kong "off the shelf" companies are readily available, the main benefit is speed. With little notice you can have your company in 2-3 working days. The downside is that you use the name that came with the company. If you want to change the name you can but it takes two weeks, which in the first instance defeats the object of the exercise.
Coming into effect in March 2014 will be the amended Companies Ordinance. The Ordinance requires every private limited company to have at least one Director who is a natural person.
For companies that have existing nominee Directors a grace period of 6 months after the implementation of the new ordinanceallows those companies to comply with the new mandatory requirement. Those that fail to do so will be subject to penalties.
If your next stop is the bank to open an account, remember an appointment is required. This can be as much as three weeks in advance depending on the bank. Saying that, the company that is handling your incorporation for you, should make the appointment in advance, to avoid any unnecessary delays.
For those who are comfortable taking any risk of action being brought against them, this is a quick and easy option. As the name suggest you are solely responsible for the actions of the business. There is no limited liability to protect you and is treated differently for tax and compliance is less onerous. A Business Registration Certificate can be obtained from the Inland Revenue, but changes made now require the applicant to have a Hong Kong ID card. So for those who were considering this as an option for an Investment visa (starting or joining a company category) this is no longer possible.
These are for a group of up to twenty individuals who choose to capitalise, share any profits and take on the liability of the business personally. There is an agreement between the named individuals that sets out the terms of the partnership. This would include but not limited to, finance, how the business would be managed and what happens in the event when a partner leaves. These entities are treated differently for tax purposes and the compliance requirements are less.
Essentially this when two entities collaborate, provide resources in exchange for shares in the new entity. Once an agreement is in place the entity can be incorporated normally as a limited company. Again compliance issues have to be met.
This comes in the form of a blue certificate, issued by the Inland Revenue and is renewed annually. You can obtain a three years certificate after making a written request at least one month before your current registration expires and vice versa. The renewal notice will be sent to the companies registered address. When you have your certificate it should be displayed in your office in a prominent position along with your public liability insurance certificate. You will need the "BR" or more importantly the number on it when opening accounts or making enquiries. So make sure you have a few good quality photocopies to hand.