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General Information

Hong Kong is situated on the south east coast of China. The land area comprises a number of islands and a part of the Chinese mainland covering a total of 1,092 sq. km. Population of Hong Kong amounts to 7,303,334 (July 2002 est.), most are Chinese (95%).

The official languages are Cantonese Chinese and English. Hong Kong has a literacy factor of 92.2%.

On 1 July 1997 Hong Kong became a Special Administrative Region of the People’s Republic of China pursuant to the agreement signed by China and the UK on 19 December 1984. In this agreement the "one country, two systems" formula was introduced in accordance with which China's socialist economic system will not be imposed on Hong Kong and Hong Kong will enjoy a high degree of autonomy in all matters except foreign and defence affairs for the next 50 years.

The Constitution is intended to maintain Hong Kong and the People’s Republic of China as separate governmental, legal and economic systems. The head of state is the same for both China and Hong Kong and is the President of China. Executive power in Hong Kong is vested in the Chief Executive and the Executive Council consisting of thirteen members. Legislative power is represented by the unicameral Legislative Council having 60 seats. Judicial power rests with the courts of Hong Kong with the Hong Kong Court of Final Appeal being the final appellate court in the Special Administrative Region.

Hong Kong ranks as the world’s third largest financial centre after New York and London. Hong Kong has a bustling free market economy highly dependent on international trade. Natural resources are limited, and food and raw materials must be imported. The currency of Hong Kong is the Hong Kong Dollar which is officially pegged to the US Dollar (USD1 = HKD 7.8).

Hong Kong’s legal system is based on English common law. The principal corporate legislation is the Hong Kong Companies Ordinance, based mainly on the law of the United Kingdom.

Incorporation in Hong Kong

The type of company for international trade and investment is the private company limited by shares, which is incorporated pursuant to the Hong Kong Companies Ordinance (Cap. 32).

Hong Kong companies may engage in virtually any legal business, but must obtain licences for some regulated activities including banking and insurance activities, investment advisory and money lending.

Hong Kong companies must maintain a registered office address within Hong Kong and must also appoint a secretary resident in Hong Kong. A registered agent is not required.

Incorporation Procedure

The first step in formation of a Hong Kong company is to prepare a Memorandum and Articles of Association of the proposed company, to sign relevant forms specifying the company’s subscribers, directors and secretary details and then submit these to the Companies Registry.

The Memorandum and Articles of Association of the company must be subscribed to by at least two subscribers and for at least one share each. After incorporation the subscribers become shareholders of the company. The Memorandum establishes the basic structure of the company and states its name, objectives, the amount of share capital and division thereof into shares of a fixed amount, and any other matter affecting the basic existence of the company.

The Articles of Association govern relations between various members of the company. They deal with the procedures for calling meetings of shareholders, passing resolutions and transferring shares.

The Companies Registry can decline any name, which is similar or identical to an existing company name or suggests any connection to the Government or implies royal patronage. The following words require additional consent or licence: asset management, assurance, bank, building society, Chamber of Commerce, co-operative, fund management, imperial, investment fund, insurance, mass transit, municipal, reinsurance, royal, savings, tourist association, trust, trustee and underground railway. The suffix “Limited” must be used to denote limited liability.

Once the Companies Registry issues a certificate of incorporation, the company must obtain a Business Registration Certificate from the Inland Revenue Department.

A Notice of Situation of Registered Office is also required to be filed within fourteen days of the date of incorporation. It should be noted that the Certificate of Incorporation, the annual Business Registration Certificate and the corporate seal of each company should be kept in the Hong Kong registered office.

Share Capital and Shareholders

There is no minimum requirement for authorised or paid-up capital for Hong Kong companies. Usual authorised share capital is HKD10,000.00 divided into 10,000 shares of HKD1 each. The shareholders’ liability is limited only to the paid-up capital, which usually equals HKD 2. Share capital can be denominated in currencies other than Hong Kong dollars. Bearer shares and no par value shares are not permitted.

Hong Kong companies must have at least two shareholders, individual or corporate, resident in Hong Kong or not. There is a public shareholders register in Hong Kong and full details of shareholders (names, addresses, and occupation) appear on public file. Anonymity can be retained by using nominee shareholders. In this case, the ultimate beneficial owner of the shares is not required to be disclosed to the authorities.

Directors of Hong Kong companies

Management of Hong Kong companies is undertaken by directors. The minimum number of directors is two and they can be natural persons or bodies corporate, residents of Hong Kong or not. Again, full details of directors (names, residential addresses and passport details) are filed with the public directors’ register.

Hong Kong companies must also appoint a secretary who can be individual or corporate, but must be resident in Hong Kong. The secretary is responsible to the Companies Registry for administrating the company’s statutory records.

Annual reports and payments

Every Hong Kong company must hold an annual general meeting within 18 months of incorporation and at least once every calendar year thereafter to receive accounts and appoint officers. Meetings of shareholders and directors can be held either in Hong Kong or abroad pursuant to the directors’ or shareholders’ resolution.

Each year the company registered in Hong Kong must prepare and file with the Companies Registry an annual return which gives details of the current directors and shareholders who have held shares in the company at any time during the year. Annual return must be filed with the Companies Registry within 42 days of the annual general meeting of the company. In case of non-compliance, the Companies Registry may strike the company off from the Register.

In addition, every company must annually prepare and submit its audited accounts to the Inland Revenue Department (accounts must be audited by a locally qualified auditor). This requirement is obligatory, irrespective of whether or not the company had any dealings. In such case, a “negative tax-return” must be prepared which does not need to be certified by an auditor. Annual return filing fee is USD 50. In case of non-compliance, the Inland Revenue Department may take criminal court proceedings against the company.

Every year each company must pay a business registration fee of approximately USD 350 which is due by the 15 th day of the next month from the company’s date of incorporation. If payment is not made within 3-4 months, penalties will apply.

Taxation of Hong Kong companies

There are three main direct taxes in Hong Kong: profits tax, salaries tax and property tax. Hong Kong does not impose any payroll, turnover, sales, value-added or capital gains taxes.

Hong Kong profits tax is only levied on income and profits derived from a trade, profession or business carried on in Hong Kong, i.e. the principle of Hong Kong profits tax is based on the source of income rather than on tax residency. Income sourced elsewhere, even remitted to Hong Kong, is not subject to Hong Kong profits tax. Profits tax is currently levied at the rate of 17.5%.

Hong Kong companies make two payments of profits tax during the tax year. The first payment consists of 75% of the provisional tax for the current year plus 100% of the final payment for the preceding year. The second payment equals 25% of the provisional tax for the current year. The timing of payments is determined by assessment notices, sent generally during November to April of the tax year.

Tax returns are issued to taxpayers by the Inland Revenue Departments on 1 April, the day after the tax year ending on 31 March. Generally, a tax return should be completed and returned within one month of issue accompanied by relevant audited financial statements.

Hong Kong has no double tax treaties with any country (except a limited treaty with the USA relating to shipping matters only and with China regarding Hong Kong residents working in the mainland). However many countries provide their companies with unilateral tax credit relief for the tax paid in Hong Kong. Hong Kong does not tax on the principle of world-wide income.

 

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FAQ
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Portfolio of Laws
- BVI - Trustee (Amendment) Act, 2003

- Cayman Islands - The Companies Law (CAP.22) - (2002 Revision)

- Cyprus - The Income Tax Law of 2002

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