Hong Kong is an Asian business hub, conveniently located close to Mainland China. It is one of the preferred locations for foreign investors who wish to open a company that will serve the ASEAN region and it offers clear business advantages, among which we can include a low tax regime, easy company formation, business flexibility and welcoming, international business climate.
The first step when choosing to start a business in the Special Administrative Region is selecting a business form that will serve the existing particular needs. In this article we list the main types of business entities, both corporations as well as partnerships or other forms, which can be used by local and foreign investors alike.
If you would like to receive more information about a particular business form, please do not hesitate to reach out to our team of lawyers.
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Choosing the right type of company
Investors who want to open a company in Hong Kong must first choose the right type of company according to their business needs. The choice will depend on a series of factors and investors should be well informed when making this decision. Each type of legal entity in Hong Kong has its own particularities and can be more advantageous for one business type or another.
Our lawyers in Hong Kong can help you with specialized counselling so that you can choose the right business form. Typically, the following factors are taken into consideration when choosing the company type in Hong Kong:
- the nature of the business;
- the size of the business;
- the available capital;
- the business needs.
Investors can take these needs into account when they draw up the business plan. Our team of lawyers in Hong Kong can assist you during the incorporation process, as needed.
There is no mandatory requirement for immigration to Hong Kong in order to open one of the types of companies described herein.
Are you interested in acquiring residency in Hong Kong after opening one of these types of companies? Our team of immigration specialists can also answer questions about the types of residence permits that allow you to remain in the HKSAR and their duration. The final, permanent residency, called the right of abode, can be applied for after seven years of lawful stay.
Legal entity types in Hong Kong
The four most common types of business forms in Hong Kong are:
- the limited liability company: the most commonly used business form, given its particular advantages, such as the fact that is has legal personality;
- the sole proprietorship: the simplest business form, does not separate the founder and the business, thus making the investor fully liable;
- the partnership: a means through which two or more investors can associate to form a business, while sharing profits;
- the branch or representative office: two of the ways in which a foreign company can start its business operations in Hong Kong; they allow for limited activities (in case of the representative office) or the same activities as the parent company (for the branch).
The limited liability company can be a private limited company, a public limited company or a public company limited by guarantee. Our lawyers in Hong Kong can help you incorporate any type of company and give you detailed information as to how each business type can be good for your business plans.
If you wish to relocate to HKSAR to open a company, our immigration lawyers in Hong Kong can answer your questions about visas and residence permits.
Limited liability companies in Hong Kong
A limited liability company in Hong Kong is a separate legal entity that has a legal identity separate from its members. According to its type, a limited liability company can be suited for small or medium sized businesses or for large corporations. Companies in Hong Kong need to be registered with the Companies Registry.
The private limited company in Hong Kong is one of the most popular business forms because the liability of its members is limited only to the amount of investment in the company and the member’s personal assets are not endangered if the company goes into bankruptcy. This type of company is suited for small and medium sized companies.
The public limited company is suited for larger businesses, as the number of shareholders can be larger than 50. These companies are usually listed on the Hong Kong stock exchange and thus hey have to observe different regulations for public disclosure of information.
The public company limited by guarantee does not require a minimum share capital and is thus preferred by some foreign investors. This is a type of company that has the highest degree of liability for its shareholders and it might be suited for charity businesses, clubs or societies.
The private limited company is the most commonly incorporated business form because of its advantages. Our team lists some of these below:
- Separate legal entity: as previously mentioned, the founders of the company are not personally liable for the debts and obligations of the business; they are only liable to the extent of the capital they invest in the business (and the laws in Hong Kong do not require a large minimum share capital for the private limited liability company);
- Good image: a corporation is better perceived by clients and other business partners, compared to a sole trader, for example; the LLC does offer a positive, credible image;
- Succession: the company does not cease its activities in the event of a change of the original founders (either through a withdrawal from the company or upon their death);
- Taxation: a limited liability company in Hong Kong enjoys a low corporate tax regime, as detailed below by our tax lawyers.
In addition to the advantages listed above, private limited companies can easily raise capital, should they required to do so. This can be accomplished by introducing new shareholders (for the private LLC) or by issuing more shares to the existing ones. Public limited companies also offers their shares to the public.
If you need help applying for an investment visa in Hong Kong, our team of lawyers can help you.
Trademark registration in Hong Kong is advisable for those companies that wish to distinguish themselves on the market. The needed registrations with the Hong Kong Intellectual Property Department can take place once the company is fully registered with the Companies Registry. Our team of IP Law attorneys can help you during the trademark application process
Sole proprietorships and partnerships in Hong Kong
The sole proprietorship is the simplest form of business in Hong Kong and also the easiest to set up. The business is owned and conducted by a single individual who is liable will all his or her assets. Because there is no distinction between the individual and the sole proprietorship, this type of business can be seen as a riskier one but it also has the great advantage of complete ownership.
Partnerships in Hong Kong are set up by two or more individuals who will run a business and will share the profits made. The general partnership is formed between individuals who become liable for the debts of the partnership. It is easy to set up and this type of business can benefit from the experience brought together by the founding partners. Unlike in a general partnership, in a limited partnership, not all of the members are fully liable for the debts of the business, the liability of the limited partner is only as extensive as the amount of the capital investment. The limited partner cannot manage the partnership.
Branches and representative offices in Hong Kong
Foreign companies can also open a representative office in Hong Kong. However, this business structure does not have legal capacity and may be used for a limited scope of business, such as promotional activities or market research. Some companies may find that this type of office is a suitable first step for testing the Hong Kong market, before opening a branch or a subsidiary here.
The branch is an extension of the parent company abroad. It is limited to performing the same business activities and having the same name. An important characteristic is that the branch is not a separate legal structure – the foreign company that opens a Hong Kong branch is fully liable for this branch’s debts and liabilities.
The alternative to the branch or the representative office is the subsidiary- a locally incorporated company (usually a private limited liability company) that is partly owned and controlled by the foreign company. Unlike the branch, the subsidiary can engage in different activities and shares all the characteristics of the business form under which it operates.
If the the representative agent appointed to oversee the activities of the branch is a foreign national, temporary residence is required. Our immigration lawyers in Hong Kong can answer your questions.
The taxation principles for the types of companies in Hong Kong
Taxation is another important issue when choosing the suitable business form. Locally incorporated companies are taxed on their income derived from Hong Kong and branches are taxed in the same manner as subsidiaries.
The following taxes apply in case of corporations in Hong Kong:
- Corporate income tax: 8.25% on the first HKD 2 million and 16.5% on the rest of the taxable profits;
- Withholding tax: 0% in case of dividend, interest and royalties payments;
- Social security contributions: 5% of the employees’ relevant income; our lawyers can give you more details about the minimum and maximum income levels;
- Real property tax: the standard rate is 15% of the net assessable value of the property.
Hong Kong does not levy a sales tax or a value-added tax. No payroll tax, capital duty, transfer tax or net wealth and inheritance taxes are in place.
Sole traders are taxed on their individual income. The personal income taxes in Hong Kong are 2% for a net chargeable income of up to HKD 50,000, 6%, 10% and 14% for income between HKD 50,001 and HKD 200,000 and 17% for income over HKD 200,000.
Hong Kong has signed more than 40 double taxation agreements that allow for beneficial measures.
If you want to know more about the advantages and disadvantages of each type of company in Hong Kong, you can contact our attorneys in Hong Kong, we will help you make the best business decision.
We can also answer your questions if you are interested in immigration to Hong Kong.