Newsletters

• How to incorporate a limited company in Hong Kong
• Characteristics of Hong Kong tax system
• How to calculate profits tax in Hong Kong
• Double taxation agreement with China

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How to incorporate a limited company in Hong Kong

It is easy to incorporate a limited company in Hong Kong. Every company must be incorporated with name in English or Chinese or both English and Chinese. Limited companies must end their names with the word "Limited". The proposed name of the company should not be the same or too similar to a name already appearing on the index maintained by the Company Registry. Then, articles of association are printed and present to the Companies Registry. Within six working days after application, a Certificate of Incorporation will be issued by the Companies Registry. Shelf (ready-made) companies are available for instant use if a company is required urgently.

A registration fee of HK$1,720 should be paid. Effective from 1 June 2012, capital duty currently levied on local companies was abolished.

Within one month of the commencement of business of the company, a Business Registration Certificate must be obtained from the Inland Revenue Department.

According to the Companies (Amendment) Ordinance 2003 which became operative on 13 February 2004, it permits the formation of a limited company by one or more shareholders. It also permits a limited company to have at least one director. Directors should have attained the age of 18 and should not be an undischarged bankrupt. Every limited company must have a Secretary. A sole director of a company shall not also be the secretary of the company.

A notice of situation of registered office should be submitted to the Companies Registry within 14 days of incorporation of the company.

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Characteristics of Hong Kong Tax System

• No tax on capital gain or dividends, no interest tax
• Corporate profits tax rate of 16.5% is the lowest in the region
• Simple tax regime and legislation offer certainty to taxpayers
• Only profits sourced in Hong Kong are taxable here
• Losses allowed to be carried forward for setoff against future profits without time restriction.

　

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How to calculate profits tax in Hong Kong

A person who carries on a trade, profession or business in Hong Kong is chargeable to Profits tax on his profits from that trade, profession or business which arise in or derive from Hong Kong. The tax residence of a person is generally irrelevant for profits tax purposes.

Whether or not a person is carrying on a trade, profession or business in Hong Kong and whether or not income or profits have a Hong Kong source is a question of fact. The mere carrying on of business in Hong Kong is insufficient for a person to be subject to profits tax. The general rule is that profits are sourced where the operations which essentially give rise to the profits take place. The application of this territorial concept has given rise to numerous disputes between taxpayers and the Inland Revenue Department (''IRD''). In March 1998, the IRD issued a revised Departmental Interpretation and Practice Notes No. 21 on the "Locality of Profits" indicating the IRD's views on source of income under different situation. From April 1998, the IRD has provided an advance ruling service on the source of profits.

The assessable profits are computed by taking the profit or loss disclosed in the company accounts and adjusting this for tax purposes. The adjustments would typically include the disallowance of accounting depreciation, and substitution of tax deductible capital allowances. Other disallowance of expenses include domestic or private expenses, expenditure of a capital nature and tax paid under the Inland Revenue Ordinance.

Dividends are generally not subject to profits or withholding tax.

　

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Double taxation agreement with China

In order to minimise double taxation of cross-border activities between China and Hong Kong, the arrangement for the avoidance of double taxation was entered into between China and Hong Kong in February 11, 1998.

The profits of a Hong Kong enterprise are taxable only in Hong Kong unless the enterprise carries on business in China through a permanent establishment.

Employment income derived by a Hong Kong resident providing services in China is exempt from individual income tax in China provided that the taxpayer stays in China for a period or periods not exceeding 183 days in the calendar year concerned.