Several entrepreneurs and investors are willing to set up their businesses overseas today. One of the beneficial locations to do business is in Hong Kong. According to the 2020 World Investment Report of United Nations Trade And Development, Hong Kong stands in the third position as a leading investment hub that generates foreign direct investments in Asia. Over the years, the economy of Hong Kong grew by 6.5%. This indicates a healthy business environment in the country.
The fast-paced business climate of Hong Kong and the willingness of firms to do business in the country make setting up a subsidiary in Hong Kong suitable. In addition, the country has a sturdy marketing and finance base, allowing you to expand your business in Hong Kong and explore the target audience.
The distributors and agents of Hong Kong can enhance your business’ sales not only in their own country but also in mainland China, Southern China, and Macau. Besides, the American Chamber of Commerce imparts its helping hand by providing various membership support. Considering all these factors, here is a detailed guideline for the incorporation of wholly-owned subsidiaries in Hong Kong.
What are the Types of Subsidiaries in Hong Kong?
Before setting up a subsidiary company in Hong Kong, you must know the different types of subsidiaries. Given below are the various business entities available in Hong Kong:
Business partnership
- It can be categorized into general partnership and limited partnership
- A general partnership holds the partners liable for profits, losses, and debts.
- A limited partnership has limited partners liable for their capital share, while general partners have unlimited liability.
- No requirement for a company audit
- Can gather capital from outside sources
Private limited company
- Suitable for small to medium-sized businesses
- Functions as a separate legal entity
- Cannot have more than 50 shareholders
- No requirement for minimum share capital
- Shares cannot be provided to the public
- Shareholders can be either corporations or individuals from other countries.
- A resident of Hong Kong can be the secretary of the company.
- Can have one director or more
- The company’s registered office must be situated in Hong Kong.
- Must pay a tax of 16.5% on profits
Public limited company
- Suitable for large business organizations
- Must have more than 50 shareholders
- Can sell shares to the public
- Traded and listed on the Stock Exchange of Hong Kong Limited
How to Set Up Subsidiaries in Hong Kong?
Setting up a subsidiary in Hong Kong is a simple process that requires less compliance and documentation. Learn how to set up a subsidiary business in Hong Kong here:
Step 1: Choosing a company name
- The first step of subsidiary company formation in Hong Kong is to pick a suitable and unique name. It can be either in English or Chinese or a combination of both.
- Take a look at the names of registered companies and choose a name that has no connection to the existing ones. Besides, the name should not offend people’s sentiments.
Step 2: Company name approval
- Next, get the company name approved by the registrar. Following this, you must register the company name with the Trade Marks Registry to use it as a trademark.
Step 3: Application for incorporation of the subsidiary for the foreign company in Hong Kong
- You can apply to the Company Registrar either online or offline.
- The whole process of incorporation does not take more than one week, provided all the documents are submitted correctly.
Step 4: Collecting certificates
- Once the incorporation is done, you must collect the certificates from the respective offices. These certificates include the Business Registration Certificate and the Certificate of Incorporation.
- Businesses must submit the application to the Inland Revenue Department to obtain the Business Registration Certificate.
- Ensure to get the Business Registration Certificate before beginning the company operations or within 30 days of its inception.
Benefits of Setting Up a Hong Kong Subsidiary
The benefits of a subsidiary company in Hong Kong are listed below:
- Businesses have complete ownership of their companies.
- Hong Kong holds a Closer Economic Partnership Arrangement to get facilities from the mainland market.
- The Hong Kong government promotes startups and provides financial incentives to support businesses.
- Hong Kong has a sound tax system with a 16.5% corporate income tax.
- Setting up a subsidiary in Hong Kong provides a strategic location to companies providing easy access to the global market.
Documents to Prepare When Opening a Subsidiary in Hong Kong
The document checklist for incorporation of foreign subsidiaries in Hong Kong is as follows:
- Article of Association of the company
- Notice of business registration office
- A company incorporation form filled with the following details:
- Company name
- Registered Hong Kong address of the company
- Description of business activities
- Details of shareholders, directors, and company secretary
- Liability of members of the company
- Number of shares
- Share capital registered for company incorporation
- Copy of passport and proof of overseas residential address for shareholders and directors living outside Hong Kong.
- Copy of Hong Kong identity card and residential address proof for resident shareholders and directors.
- Article of association and company incorporation certificate for corporate shareholders and directors
What Business Forms can Hong Kong Subsidiaries Take?
According to the Hong Kong government, foreign investors can set up a business partnership, public limited company, or private limited company. However, the private limited company is the most common entity with a separate legal entity.
Another convenient business form for subsidiaries in Hong Kong can be a business partnership. A business partnership company can be a general or limited partnership. The limited partners are not held liable for company debts. Besides, raising capital for the business does not affect the working and management of the business.
Hong Kong Subsidiary Laws
The subsidiary in Hong Kong has no relation with the parent company. So, the subsidiary company is held liable for managerial operations and compensation. According to the law, you can have the same name of the company as that of its parent organization.
The legal requirements include the following:
- The Companies Registry must approve the subsidiary name.
- The subsidiary company should have at least one director.
- It should have a company secretary.
- The shareholders of the subsidiary should be at most 50.
- The subsidiary company must have an auditor who is a resident and a member of the Hong Kong Society of Accountants.
Post Incorporation Compliance
The compliance for a foreign subsidiary in Hong Kong post registration is as follows:
Obtaining license and permit
Most businesses can operate freely in Hong Kong. However, some businesses need a license or permit from the Hong Kong government. You must get the license or permit registered within one month of the business’s operations. Obtaining these licenses and permits will not take more than eight weeks.
Bank account opening
To open a bank account in your company’s name, you must submit filled-up account opening forms, personal resumes, company registration documents, copies of passports of the company members, business agreements, a bank reference letter, and a bank statement for each member of the business.
Taxes on Subsidiaries in Hong Kong
According to the government of Hong Kong, companies here fall under a territorial tax system. This implies that taxes in Hong Kong are levied on the profits the business earns. This territorial taxation principle applies to both residents and non-residents.
For profit tax rates, Hong Kong has two options:
Single-tier corporate tax
Under the single-tier corporate tax system, corporations have to pay a tax of 16.5%. On the other hand, unincorporated businesses must pay a tax of 15%.
Two-tier profit tax
The two-tier profit tax system reduces the tax burden, especially for small and medium enterprises. Corporate businesses will have to pay a tax of 8.25% on the first HK$2 million of profits. On the contrary, the remaining profits will be taxed at 16.5%.
In the case of unincorporated businesses, the first HK$2 million of profits will be taxed at 7.25%, with a 15% tax rate levied on the remaining profits. This two-tier profit tax regime applies only to one entity that belongs to connected entities.
Tax Incentives for Companies Setting Up a Subsidiary in Hong Kong
The incentives for the taxation of foreign subsidiaries in Hong Kong include the following:
- Businesses can get tax concessions for trusts and mutual funds.
- Businesses can enjoy a 5-year write-off for spending on business premise renovation and remodeling.
- Businesses can get a complete write-off for machinery and plant expenditures and computer software and hardware.
- Exemptions from taxes on investments done after 22 June 1998. However, this investment must be made in an authorized institution in Hong Kong.
- Businesses manufacturing and dealing with environment-friendly products can get a 100% tax deduction on capital expenditure.
- By installing machines and apparatus that protect the environment, businesses can get a 100% profit tax deduction.
Other Important Considerations
Businesses have to pay their taxes by 31st March every year. The whole process of Hong Kong subsidiary incorporation may take months. So, have all your documents ready and ensure to comply with all the legal rules and regulations of the Hong Kong government. Not abiding by the rules may subject you to heavy fines.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Hong Kong?
While setting up a subsidiary in Hong Kong, it is necessary to have an in-depth understanding of the laws and legislations of Hong Kong. Here, you can collaborate with global EOR services like Multiplier.
We help you to employ talent in the country without setting up a subsidiary. This way, you can test new markets and set up teams in new countries at cheaper costs.