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What are the advantages of using limited companies to engage in commercial activities in Hong Kong?
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Limited companies are companies with limited liabilities. From a legal perspective, a limited company is a separate legal entity and thus has the capacity to institute proceedings against others or vice versa. Since the liability of shareholders is limited to the nominal value of their shareholdings, the maximum possible loss of the shareholders could only be the total sum of their investments. Generally speaking, the directors and shareholders of the companies are not personally liable for the debts of the company.
Where the investors prefer to adopt other forms, such as sole proprietor or partnership, to run their businesses, the liabilities of the investors are unlimited. The creditors can hence institute legal proceedings directly against the investors. Where the investors cannot repay the debts, the investors are forced into personal bankruptcy. Nevertheless, incorporating and running a limited company is comparatively more costly.
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| Q: |
What are the conditions of establishing a limited company?
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The new company ordinance permits the formation of company by one or more persons. Any person (natural or legal person) can at the same time be a shareholder, a director and also a secretary. If the secretary is an individual person, there are no restrictions on his nationality but he must reside in Hong Kong. There are no restrictions on the nationality and domicile of the shareholders and directors. The executive body of a company is its board of directors, responsible for the daily running of the company and implementing the decisions in the annual general meeting (AGM). The AGM is the highest body of a company. It must be held at least once a year and must not be held more than 18 months since the last AGM.
There is no upper limit of the capital of limited companies, but it must not less than 1 Hong Kong dollar.
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| Q: |
What can I do if I want to start business quickly?
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If investors wish to start business quickly and cannot spend time for establishing limited companies, they can acquire, through law firms, ready-made shelf companies that have not commenced business and thus have no liabilities or debts. The shelf companies have been registered in the Companies Registry and have acquired the Certificate of Incorporation. The fees are more or less the same as for fresh incorporation and the procedures can be completed in a few days. After the completion of the above procedures, the company must obtain a Business Registration Certificate from the Business Registration Office in order to engage in commercial activities.
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| Q: |
General information about taxation in Hong Kong
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The direct taxes of the government are profits tax, salaries tax and property tax.
Hong Kong operates a territorial basis of taxation under which only profits or income arising in Hong Kong are taxable. The current corporate profits tax rate is 17.5%. There is no tax on capital gains.
Salaries tax is imposed on income arising in Hong Kong from any office or employment. Tax payable is calculated on a sliding scale that progresses from 2% - 20%.
Property tax rate on 16% on rentals received less an allowance of 20% for repairs and maintenance. Corporations that pay profits tax on their rental income are exempt from property tax.
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| Q: |
How to incorporate a limited company in Hong Kong to engage in commercial activities?
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| A: |
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To form a limited company, 1 or more persons (natural and legal persons) may subscribe to the memorandum of association and submit the memorandum, together with other required documents, to the Companies Registry.
I. Registration of the Company:
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1. |
Choose an intended company name.
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2. |
Check the intended company name:
The applicants must go to the Companies Registry to check whether the intended company name is the same as one already registered. If yes, the intended company name must be changed.
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3. |
Submit required documents:
Registration requires the submission to the Registrar of the following documents:
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a) |
the memorandum of association of the intended company containing:
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the name of the company
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domicile of the company
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the capital of the company
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the signature of at least 1 persons described as 'subscribers' in the presence of a witness who attests the signature
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the number of shares taken up by subscribers
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b) |
the articles of association of the intended company establishing the rules of the company
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c) |
Statement of compliance on Incorporation of a Company (Form NC1A)
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4. |
Payment of the company registration fees to the Companies Registry
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Application Fee |
$1720 subject to a refund of $1425 for unsuccessful application
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Capital Fee |
$1 for every part of $1000 of share capital subject to a maximum fee of $30,000 per case (if the capital is below 1000, the capital fee payable is $1)
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Annual Return Fee |
$105 payable within 42 days of the registration
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5. |
Collect certificate of incorporation
Under normal circumstances the certificate of incorporation will be issued in about 6 working days. At this stage a company is basically incorporated. Since the company cannot engage in commercial activities, it is known as a 'shell company'.
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II. Business Registration:
A new business must be registered with Business Registration Office of the Inland Revenue Department within 1 month of its commencement.
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1. |
Submit the required documents
The applicant should submit form 1(b) together with a photocopy of the certificate of incorporation by post or by hand to the Business Registration Office.
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2. |
Pay the business registration fees and levies for insolvency fund and protection of wages to the Inland Revenue Department
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1-Year Certificates |
Fee |
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Fee |
$2000 |
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Levy |
$600 |
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Total |
$2600 |
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3-Year Certificates |
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Fee |
$5200 |
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Levy |
$1800 |
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Total |
$7000 |
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Documents |
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Extract of information on the Register |
$45 |
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Certified extract of information on the Register |
$45 |
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Certified copy of business/branch registration certificate |
$45 |
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Duplicate business/branch registration certificate |
$36 |
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3. |
Collect the business registration certificate
For applications over the counter, the certificate will be issued within 30 minutes of receipt of properly completed application. For applications by post, the certificate will be issued within 2 working days.
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| Q: |
How could an oversea company establish a branch office in Hong Kong?
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There are 2 common business forms for foreign investment in Hong Kong: registration of the branches, representatives or other offices of the overseas companies; incorporation of registered limited liability companies (subsidiary companies incorporated in Hong Kong). There are no controls on foreign direct investment by means of the regulation of foreign corporations that carry on businesses in Hong Kong and the choice between the above 2 methods are merely business decision.
I. Application of Visas
Foreign investors coming to Hong Kong for business must apply to the Immigration Department for visas at the applicants' local Embassy of the People's Republic of China. The issue of visas is completely under the discretion of the Immigration Department.
II. Registration of the Company
Part XI of the Companies Ordinance requires that a foreign company that has established a place of business in Hong Kong must register as an 'oversea' company with the Registrar within a month from the commence of business.
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1. |
Submit the required documents:
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a) |
the constitution of the foreign corporation
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b) |
Form F1
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the particulars of directors and secretary
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the particulars of one or more persons resident in Hong Kong to accept service of process on behalf of the company and to file annual returns
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the principal place of business in Hong Kong and in the place of incorporation
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the registered office in the place of incorporation
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c) |
the company's certificate of incorporation
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d) |
the latest accounts of the company
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2. |
Pay the company registration fees to the Company Registry
The amount of the fees is the same as the amount payable for the establishment of a limited company.
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3. |
Collect the certificate of registration
Normally the certificate of registration will be issued in about 14 working days.
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III. Business Registration
An overseas company that commences its business in Hong Kong before the registration with the Companies Registry has been completed can nevertheless apply for business registration within one month of such commencement.
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1. |
Submit required documents
The applicant is required to submit form 1(b) and a copy of the overseas certificate of incorporation by post or by hand to the Business Registation Office.
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2. |
Pay the business registration fee to the Inland Revenue Department
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3. |
Collect the business registration certificate
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1-Year Certificates |
Fee |
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Fee |
$73 |
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Levy |
$600 |
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Total |
$673 |
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3-Year Certificates |
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Fee |
$189 |
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Levy |
$1800 |
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Total |
$1989 |
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Documents |
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Extract of information on the Register |
$45 |
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Certified extract of information on the Register |
$45 |
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Certified copy of business/branch registration certificate |
$45 |
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Duplicate business/branch registration certificate |
$36 |
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4. |
For applications over the counter, the certificate will be issued within 30 minutes of receipt of properly completed application. For applications by post, the certificate will be issued within 2 working days.
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