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General Information

Hong Kong on the south east coast of China and is a relatively small place, 1,098 square kilometres. Hong Kong is known to be one of the highly respected financial centres in the world. It is one of the world's busiest cities and its efficiency as a financial centre and as a hub for transacting business in Asia is world-renowned. Hong Kong is the leading Asian centre for both finance and commerce and ranks as the world's third largest financial centre after New York and London. There are over 135 licensed banks with over 120 foreign banks having representative offices in Hong Kong and a further 39 licensed deposit taking Finance Companies, all of which play an active role in the financing of international trade and commerce. It has an open economy with no import duties. Companies registered in Hong Kong are treated equally regardless of origins. No tax preferences are given.


The 2004 Index of Economic Freedom survey, issued by the Heritage Foundation, recently sited Hong Kong as the world's most liberal economy for the tenth year running.

Hong Kong has a remarkable business environment and this will last for the following reasons:

• The guarantees in the Hong Kong constitution, and
• The competitive business orientation of the Hong Kong people.

The guarantees in the Hong Kong constitution reflect decisions taken in the late 1970s and early 1980s when the Chinese leadership made a very conscious decision to provide for the concept of "one country, two systems". The constitution guarantees the essential features of the Hong Kong way of life and Hong Kong as a business centre. In particular

• the rule of law and an impartial judiciary
• the open market, with no import duties,
• the low, simple tax regime (no taxes are paid to Mainland China),
• the freely convertible currency; and
• the free flow of information.

Type of companies in Hong Kong:

There are two types of companies: limited companies and unlimited companies. Limited companies have their own legal status. The share holders' assets are "shielded" from that of the companies. The share holders' liabilities do not exceed the values of their shares. Unlimited companies include sole proprietorships and general partnerships. In an unlimited company, the owners have personal liability for all the business' debts and obligations. However, the most common form of business entity in Hong Kong is the private limited company, which limits the liability of the shareholders to the capital subscribed.

The registration of a private limited company

Name of the company: Hong Kong private limited companies must end with the suffix Limited or Ltd. Names such as Bank, Insurance, Assurance, Re-Insurance, Trust, Trustee, Savings, Royal, Asset management, Fund Management, Investment Fund, Building Society, Municipal, Chartered, Chamber of Commerce requires a license.

Memorandum and Articles of Association: A company is incorporated in Hong Kong by the submission of Memorandum and Articles of Association to the Registrar of Companies. Memorandum specifies the activities in which the company may engage and Articles of Association specifies the rules governing the internal management of the company. A Notice of Situation of Registered Office is also required to be filed within fourteen days of the date of incorporation. Business registration fee has to be paid to the Inland Revenue Department within 30 days after the date of anniversary of incorporation, and then each year thereafter. Government fee is HK$2,600.

Shareholders: A minimum of one shareholder is required which may be an individual or a corporate body. The details of the shareholders must be filed and appear on the public file but nominee shareholders can be used. Shares must be expressed in a fixed amount and "bearer" shares are not allowed. The share capital can be expressed in multiple currencies.

The share capital: There is no specific minimum capital requirement. The standard authorized share capital is HK$ 10,000 and the minimum issued capital is two shares of par value.

Directors: A minimum of one director is required and it can be a natural person or a corporate of any nationality. The details of the directors should appear on the register, but nominee directors can be used to preserve anonymity.

Company secretary: A private Limited Company in Hong Kong must also have secretary, who can be corporate body or individual resident in Hong Kong.

Registered office: Every company, registered in Hong Kong is required to have a registered office.

Taxation: Hong Kong has a territorial basis of taxation. Only local-source trading, property or employment income is taxed, and investment income is not taxed. The corporate profits tax rate is 16%; there is no capital gains tax, no withholding tax, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them. There are a number of full or partial exemptions from profits tax:

• Interest on a loan made available to the borrower in a foreign jurisdiction is not deemed Hong Kong source income and is therefore not taxable.
• An entity whose business is to grant rights to use a trademark, copyright, patent, know how or other types of intellectual property pays a flat profit tax of 1.6% (or 16% on 10%) of the payment received with all related expenses being non tax deductible. If the recipient of the payment is a related offshore licensing company the Hong Kong company must withhold and hand over 1.6% of the fee paid over.
• Income from the international operations of shipping companies is exempt from tax unless the ships are operating in Hong Kong waters or proximate to the same in which case only that proportion of income earned in Hong Kong is subject to local tax of 16%. Shipping profits meeting the conditions of the double taxation agreement with the USA are exempt from profits tax in Hong Kong.
• Dividend income received by a Hong Kong parent company from either a resident or foreign subsidiary is not deemed income in the holding company's hands and is thus not subject to an assessment to profits tax.
• Interest or capital gains made on qualifying maturity debt instruments are taxed at 8%
• The re-insurance of offshore risks is taxed at 8% of assessable profits
• Life insurance businesses are assessed at 5% of the value of the premiums arising in Hong Kong.
• For airline companies, irrespective of whether or not the company is managed and controlled from Hong Kong assessable profits are the proportion of income arising within Hong Kong (from the uplift of passengers and freight locally) to the proportion of worldwide income. Under a number of international aircraft double taxation agreements the government has agreed to include income arising abroad for taxation in Hong Kong where that income is exempted abroad under the agreement. Likewise profits meeting the conditions of the double taxation agreements are exempt from profits tax locally.
• The sale of goods on consignment from Hong Kong on behalf of a non resident is subject to a tax of 1% of the turnover without any deductions unless the non resident can produce accounts to show that he would have paid less profit tax than consignment tax in which case a normal rate of tax will apply .The selling of goods on consignment is deemed to be the equivalent of creating a permanent establishment.
• Profits remitted to a Hong Kong parent which represent the profitable disposal of its shareholding in a resident or non resident subsidiary are not assessed to tax in the territory both because the gains are capital gains and because (in the case of a non resident company) income arising outside the jurisdiction is exempt from tax under the principle of territoriality.
• The profitable disposal by a Hong Kong entity of foreign real estate is not assessed to tax in the territory both because the gains are capital gains and because of the principle of territoriality. This includes a disposal effected by means of the Hong Kong entity selling 100% of the shares in a company whose sole asset is the foreign real estate.
• The transfer by a Hong Kong entity of capital assets to a foreign or resident subsidiary or branch at market value and at a profit is considered a capital gain and thus does not attract tax in Hong Kong (unless the assets are classified as revenue assets).
• Rental income from foreign real estate is not assessable income in Hong Kong for profit tax purposes. (However depreciation & interest payments on loans made to finance the real estate tax are not deductible in the territory).
• Interest income received by a resident or non resident business entity on deposits lodged with a financial institution is exempt from profits tax (by way of exception if the deposit was made by a "financial institution" then any interest received by the financial institution is deemed trading income for profits tax purposes and taxed accordingly).

The following sources of trading income are exempted from profits tax;

• Interest received or capital gains made on the purchase, retention or sale of a Government bond issued under the Loans (Government Bonds) Ordinance;
• Exchange fund debt instruments;
• Hong Kong dollar denominated multi-agency debt instruments;
• Specified investment schemes which comply with the requirements of a government supervisory authority are exempt from tax. Specified investment schemes include investments in unit trusts and mutual funds.
• The repayment by a foreign subsidiary to its Hong Kong parent of the principal of loan capital or share capital is free of tax in the territory including where the repayment is by way of a capital reduction or a final dividend distribution in liquidation.

Audit and financial returns: Accounting records must be kept at the registered office address or elsewhere at the discretion of the directors. Every company must appoint an auditor who must be a member of the Hong Kong Society of Accountants and hold a practicing certificate. There is no requirement to file accounts with the Registrar; but they must be filed the tax authorities. Annual return is required to be filed to the Companies Registry within 42 days after the date of incorporation, and then each year thereafter.

Meetings: An annual general meeting must be held once in every calendar year and not more than 15 months after the last preceding AGM. The meetings need not be held in Hong Kong.