A holding company is a type of company created not for the purpose of engaging in economic activities or providing services but for the purpose of purchasing and owning shares in other companies, which are thus controlled by it. Investors who are interested in incorporating for this purpose will often look for a jurisdiction that will allow them to incorporate easily and with a few simple steps. Moreover, it is an important advantage if the chosen place of incorporation has a low taxation regime.
The characteristics of a Hong Kong holding company are presented in this article by our team of specialists. Investors who wish to know more about the structuring principles for these companies or about how they are taxed and regulated can reach out to us for more details.
Located in the heart of the continent and very close to China and opening good opportunities for enterprisers wanting to expand in China, Hong Kong has a pro-business legislation and it is regarded as one of the greatest financial centers in the world. Hong Kong has brought changes and updated the Companies Law and today it offers one of the most modern sets of laws in the world.
As detailed below in this article, company registration in Hong Kong is simple and straightforward, an important advantage for investors who wish to incorporate a holding company in just a few days. In addition to this, the administration and legal systems are closely related to the English Common Law and foreign investors are allows full foreign ownership. There are no mandatory residency requirements and entrepreneurs who cannot be present in the country at all times can open a Hong Kong holding company by using a power of attorney to nominate someone who will handle the steps on their behalf, as needed.
How to set up a holding company in Hong Kong
Registering a holding company in Hong Kong is quite simple and it takes about five days to complete the incorporation procedure. Shelf companies are also available for registration in Hong Kong. Foreign investors will usually open subsidiaries or private limited companies that will operate as holding companies in Hong Kong. The requirements for a Hong Kong holding company are minimum one shareholder, a director and a secretary that must be a resident. There are no requirements for the share capital of a holding company in Hong Kong. Holding companies are employed by small to medium-size companies in Hong Kong.
Company formation in Hong Kong is a simple and straightforward process. The same steps that apply for other types of companies, that offer general services or products and are not used solely for owning shares, will also apply when opening a company intended specifically for this particular use.
Investors can open a Hong Kong company by following the following steps:
Choose a business form: this can be a private limited liability company as is has low incorporation requirements and it is easily incorporated.
Draw up the incorporation documents: these are the company’s constitutive documents, its Articles of Association; additional documents are to be presented for registration.
Register: the formal company registration is performed with the Hong Kong Companies Registry; a form will also need to be filled in and submitted, along with a registration fee.
Commence business: once registered, the company may start its activities; in this case, it will be related to the specific activities of the holding.
The advantages of Hong Kong holding companies
The first great advantage when incorporating a holding company in Hong Kong is the taxation system. Hong Kong does not apply the value added tax, sales tax or capital gains tax. Holding companies are required to pay a 16.5% corporate tax rate. Also, there are no withholding taxes on dividends and interests. Hong Kong has enforced double taxation treaties with 30 countries at the moment but negotiations with other countries also continue. Hong Kong also provides great capital raising opportunities for holding companies as it provides a stable financial market. Hong Kong has concluded investor protection agreements with some of the most powerful trading nations. Together with the ease of the incorporation process, the dissolution or redomiciliation procedures for holding companies will be just as facile for investors.
One important issue to take into consideration when doing business in Hong Kong, through a holding company or through a non-resident legal entity, is that there is a need to apply for a Tax Residence Certificate with the Inland Revenue Department. This is necessary in order to claim tax benefits and a Hong Kong holding company may be required to provide information about the place and management of the business. Some of the issues that may be relevant for this purpose can include whether or not the company has a local bank account, the fixed place of business (if applicable), the number of employees (if any in addition to the administrative officers) and if the Board meetings were held in Hong Kong. The principles that usually apply for non-resident companies can be extended to holding companies in some cases. Please remember that the Tax Registration Certificate is relevant for those companies that want to take advantage of the provisions included in the double taxation agreements signed between Hong Kong and other jurisdictions.
Our agents invite you to watch a short video about Hong Kong holding companies:
Foreign investments in Hong Kong
Hong Kong is an important business and financial center. In figures, the number of regional headquarters in 2019 was 1,541 and the number of local offices for companies was 5,009. The numbers were provided by the Census and Statistics Department. A set of different data, provided by the Companies Registry, highlights the evolution of the total number of local companies:
-Number of public companies in January 2019: 769;
-Number of private companies in January 2019: 1,383,608;
-Public companies in December 2019: 821;
-Private companies in December 2019: 1,364,591;
-The total number of companies that have remained registered in January 2019: 1,398,560.
-The total number of companies that have remained registered in December 2019: 1,380,185.
At the end of 2018, the total number of companies registered in Hong Kong was 1,400,950.
Opening a Hong Kong holding company can be advantageous for investors looking to set up a structure in the region. The low taxation regime, as well as the position close to Mainland China, are important considerations.
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