Forming Companies

Limited Companies / Incorporation of Hong Kong Companies

• Advantages
• Advantage of using Hong Kong Company to apply Representative Office ( RO ) in China
• Incorporation Requirement
• Incorporation Procedure and Required Time
  1. Tailor made company
  2. Ready made (Shelf) company
• Incorporation Cost
• Maintenance Requirement & Cost
• Comparison with BVI Companies
  1. Incorporation Requirement
  2. Purpose and Benefit
  3. Cost in incorporation, Maintenance and Cancellation
• Bank Account Opening
• Closing a Company - Method & Cost
• Company / Business / Share Transfer - how to & the cost

• Setup requirement
• Setup cost & annual maintenance
• Exemption from Business Registration Certificate fee

 Advantages

People form company to achieve different purpose, such as tax planning, risk diversification, investment, market entry etc.

Generally, Hong Kong companies are being used because of following advantages:

1. With British Legal System as background which is well adopted;
2. With English and Chinese as bilingual legal language;
3. With very low tax rate ( around 17.5% on net profit )
   • A Brief Guide to Taxes
4. Tax exempt for income not incurred in Hong Kong ( offshore income )
   • A Simple Guide on The Territorial Source Principle of Taxation
   • Success Story
5. Allow nominee shareholder and director structure - beneficiary owner's identity can be hidden from public company record;
6. With very stable social and political environment;
7. With very active and freedom in financial activities. No restriction in fund transfer to and from most part of the world;
8. Close to and with excellent relationship with Mainland China;
9. Being international center of information exchange and transportation hub;
10. Enjoy convenience of international banking system;
11. With huge supply of high quality manpower;
12. Save legal and government fee when transfer of asset is effected by transfer of shares of a company holding the asset, rather than transfer of the title of the asset directly;
13. Winding up of the HK Company is relatively low in cost and simple in procedure - this may happen due to change of investment strategy, change of business environment etc.

 Advantage of using Hong Kong Company to apply for RO

1. Diversify investment risk away from mother flagship company;
2. More easy to change ownership of China investment (change shareholding of Hong Kong Company effectively change the shareholding of China business);
3. The activity of the RO can be stopped completely by winding up of the HK Company - this may happen due to change of investment strategy, change of business environment etc;
4. Close relationship between HK and China makes application of RO setup easier and quicker.

For information about Representative Office (R ),
please refer to "China Company / Rep Office" Section.

 Incorporation Requirement

1. Minimum 1 Shareholder and Director is required;
2. Directors & Shareholders can be same person;
3. No nationality restriction for shareholders and directors;
4. Corporate shareholder and director is allowed and documents required include:
   • Certificate of Incorporation of corporate;
   • Memorandum & Articles of corporate;
   • Minutes of Directors approving taking up shares / directorship in the HK Company, and authorization of signatory;
5. Minimum subscribed share capital is HK$1 ;
6. Registered address in Hong Kong;
7. One Company Secretary and should either be Hong Kong resident or Hong Kong limited company;
8. Company name should not be same as those already in company register and can be

   • only English name or only Chinese name, or
   • English plus Chinese name

   For detail about company name restriction, please refer to [ F A Q ]

 Incorporation procedure and required time

1. Tailor made company
2. Ready made company ( Shelf company )

 Tailor made company

 Ready made company

 Incorporation Cost

 Maintenance Requirement & Cost

In Hong Kong, each company needs to file tax return on annual basis (In China, tax filing is on monthly basis).
Most clients will use 31/3 as fiscal year end (to be same as government but actually client is free to choose any other date).
Naturally, for small to medium business, accounting work and auditing work is done once a year as well.

Some of the key maintenance requirement of a Hong Kong limited company are :

1. Duty to Business Registration Office ( BRO )
   1. Renew business registration.
2. Duty to Company Registry ( CR )
   1. File annual return once a year even though there is no change during the year in the shareholding, director or other information of the company.
   2. During the year, file to the CR of any changes in the shareholding, directors etc, that need to be filed according to the Companies Ordinance. The information need to be filed and ready for public search in order to protect the interest of the company and the public.
3. Duty to Inland Revenue Department ( IRD )
   1. File tax return to the IRD:
      1. Profits Tax - once a year (Normally auditor's reported should be submitted together with tax returns);
      2. Salaries Tax (Employer Return) - once a year - to advise salary payment to employees;
   2. Maintain proper accounting books and records to produce financial statements for tax return filing for 7 years.
   3. Common misunderstanding
      1. Even a non-active company need to file tax return. It is the IRD to assess whether a company need to pay tax or no need to file tax return.
      2. Proper books and records need to be maintained in order to support any financial statements. IRD may ask how your accounting system works and how you keep your records. If it is not properly handled, IRD may be suspicious of the figures in financial statements. In certain situation, penalty or / and estimated assessment will be levied.

The service fee ranges from HK$2,000 for "Nil Business", HK$6,000 for "Small Business", or higher for higher volume of work.

 Hong Kong Company - Annual Maintenance Cost

 Comparison with BVI Companies

Generally, Hong Kong company is more suitable for doing business while BVI company is more suitable for asset holding. However as situation of client varies case-by-case, professional advice should be sought before making decision. Below comparison is highlight of certain areas and help client to consider using which type of company.

1. Incorporation Requirement
2. Purpose and Benefit
3. Cost in formation, maintenance and cancellation

 1. Incorporation Requirement

 2. Purpose and Benefit

 3. Cost in incorporation, Maintenance and Cancellation

 Closing a company - Method & Cost

There are several methods to close a limited company. However, they are not free for the choice of shareholders and directors. Specific conditions need to be met for the applicability of different method:

De-registration

This is the least costly way to bring a Hong Kong limited company to an end. The fee is HK$2,000 (including government fee of HK$420+HK$350 = HK$770) but some criteria applies :

• ceased business
• no outsider liability
• no outstanding liability to government, both in money and in document filing, e.g. tax return
• director to guarantee meeting criteria and keep record for future purpose

Winding up : There are different types of winding-up :

Members voluntary winding-up

Condition :

• Consent of and initiated by all members
• Financially solvent

Fee: from HK$20,000 (including government and disbursement of around HK$12,000)

Creditors voluntary winding-up

Condition :

• Approved and initiated by directors
• Financially in-solvent
• Not via court proceeding
• Liquidator appointed by directors or by creditors

Fee: from HK$20,000 (including government and disbursement of around HK$12,000)

Creditor Compulsory winding-up

Condition :

• Initiated by creditors
• Financially in-solvent
• Court proceeding
• Provisional / Liquidator appointed by court

Fee : Application fee payable to court around HK$10,000 plus service fee at discussion.

 Company / Business / Share Transfer - how to & the cost

Being a shareholder of a limited company, you can transfer your business in 2 different ways:

1. Transfer the shares of the limited company;
2. Transfer the business operating by the limited company.

Transfer of shares is always the simplest method and in most cases, the lowest in cost. For example, being a shareholder of HSBC (the Hongkong Bank and listed in Hong Kong Stock Exchange), you transfer your shares easily without the need of caring what HSBC is actually doing. The only thing you need to do is knowing the value of the HSBC you are transferring, because the stamp duty is based on this.

For a private limited company, you need to prove to the stamp office how much the shares is worthing. Usually, this can be done by the transfer agreement between buyer and seller, the audited financial statements or / and with a recent management account.

Stamp duty is charged at HK$1 per HK$1,000 of share value.

Transfer of share is a deal between shareholders.

Transfer of business is more complicated because your company will remain under your ownership. The transfer does not concern you as a shareholder. It is a transaction between your limited company and another company.

As situation differs very much in each specific case, it is advisable to contact us for detail suggestion. However, it is worthwhile to highlight that transfer of business need to comply with the law "Chapter 49 - Transfer of Business Ordinance" in order to protect the interest of both buyer and seller.