Hong Kong Companies and Hong Kong Trusts

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Hong Kong offshore business entities are increasingly becoming commercial vehicles by entrepreneurs throughout the world. Often time, Hong Kong is referred to as an offshore tax haven because of its investor friendly international business climate, favorable system of taxation and numerous tax incentives geared at stimulating private enterprise. Such an environment for Hong Kong offshore business entities encourages local entrepreneurship as well as foreign investors to consider Hong Kong as a domicile and potential market for business.

Some of the factors which work in the favor of Hong Kong offshore business entities and domestic companies include the level playing field which exists for both local and foreign businessmen in terms of taxation given that tax rates and incentives are neutral, the absence of restrictions of foreign ownership of Hong Kong offshore business entities and free trade benefits that are available to Hong offshore business entities under various free trade agreements and the CEPA (Closer Economic Partnership Arrangement).

Hong Kong companies are generally treated as resident or non-resident companies for tax purposes given that taxes in Hong Kong are applied based on the country in which a company is managed and controlled and source of income. As a result, Hong Kong companies are relieved from tax on offshore income, profits and on activities that would otherwise have been taxable if undertaken in Hong Kong as long as the beneficial owners do not reside in Hong Kong, income is sourced and management and control occur outside of Hong Kong’s jurisdiction.

Hong Kong companies which operate offshore are thus tax exempt entities, and as such can be considered Hong Kong offshore companies. However, since there is no ‘formal’ offshore regime established various corporate structures which can be incorporated and registered in Hong Kong can be used as offshore companies in order to conduct international trade. Currently, the corporate tax rate for Hong Kong companies is set at 16,5% after having been reduced from 17,5%. A further decrease to 15% is expected to be implemented as Hong Kong seeks to maximize competitiveness as an international business center and investment hub.

All Hong Kong offshore and onshore business entities are required to register with the Business Registration Office at the Inland Revenue Department and annual registration certificates must be obtained upon payment of renewal fees. Registration Certificates are obtainable at a special discounted rate if obtained for a three year period. Once a Hong Kong company begins to operate, registration must be done within one month.

Hong Kong Offshore Business Entities

  • Hong Kong Offshore Companies
  • Hong Kong Trust
  • Hong Kong Branch
  • Hong Kong Partnership
  • Hong Kong Limited Partnership
  • Hong Kong Representative Office

Hong Kong Offshore Companies

Main Features:

  • Hong Kong companies are defined by the Companies Ordinance (Cap 32)
  • Local and offshore Hong Kong companies can be incorporated as companies limited by shares, limited by guarantee or unlimited companies
  • Hong Kong companies are permitted to issue a variety of shares, with the exception of bearer shares
  • Separate legal entity from the beneficial owners
  • Required to have no less than one shareholder
  • May appoint a nominee shareholder
  • No maximum capitalization, however, the usual share capital is set at HK$10,000 split into 10,000 shares of HK1.00 per share
  • Hong Kong companies must file annual audited accounts
  • A Hong Kong company must acquire a registered address in Hong Kong
  • A corporate secretary must be appointed; may be of natural or juridical personality
  • Corporate secretaries are required to reside in Hong Kong
  • Hong Kong shelf companies can be acquired
  • Meetings can be held overseas
  • Company licenses are to be renewed on an annual basis
  • Companies with limited liability are usually used and most recommended as Hong Kong offshore companies

Hong Kong Trust

Main Features:

  • Hong Kong trusts are very similar to trusts established in English jurisdictions
  • Can be used as onshore or offshore trusts depending on the legal owner’s country of residence
  • Except if business is undertaken in Hong Kong by the trust, there is no demand to file annual accounts or financial statements
  • Hong Kong offshore trusts can be legally established in Hong Kong and do necessarily have to be registered
  • Hong Kong offshore trusts are based on the Trustee Ordinance which is based on the English Trustee Act of 1925, which means that this ordinance has not been updated or changed and thereby may not provide the features of modern day trusts which are used for privacy and to protect assets

Hong Kong Branch

Main Features:

  • Hong Kong branches are capable of benefit from of the credit rating of the parent company
  • The establishment of a branch in Hong Kong does not make that entity separate legal entity from the parent company
  • The parent company of a Hong Kong branch is referred to as an ‘overseas company’ in Hong Kong

Hong Kong Partnership

Main Features:

  • Hong Kong partnerships are defined by the Partnership Ordinance
  • Usually referred to as ‘firms’ in Hong Kong
  • A Hong Kong partnership is defined as the relation established between two or more persons to undertake common business interests
  • Partners are all responsible for liabilities and obligations
  • Partnerships are normally used for trade within Hong Kong and are not recommended as Hong Kong offshore companies because of corporate structure

Hong Kong Limited Partnership

Main Features:

  • Hong Kong Limited Partnerships are defined by the Limited Partnership Ordinance
  • May not comprise more than 20 partners
  • Partners are divided into general and limited partner; the former whose liability is unlimited to the debts and obligations, the latter whose liability is limited to the value of unpaid shares
  • Limited partners are prohibited from withdrawing their share capital whilst the partnership is in operation

Hong Kong Representative Office

Main Features:

  • Hong Kong representative offices are usually set up to explore Hong Kong before fully establishing a Hong Kong company and commencing operations
  • As a result, Hong Kong representative offices are not permitted to engage in trade for profit
  • Used mainly for correspondence and promotional purposes
  • Once effective transacting begins to generate income, the representative office is required to be incorporated as a Hong Kong branch or limited liability company.
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