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By Vlad Cuc, specialist in company formation matters
The private limited liability company in Hong Kong is a type of company that has legal capacity and offers the protection of the personal assets belonging to the founders.
Investors who set up a private limited liability company in Hong Kong (LLC) in 2021 typically run small and medium-sized businesses. One important characteristic for this type of company is that it has a separate legal entity and its shareholders have limited liability: they are only liable for the debts of the company according to the amount of investment in the company’s share capital.
Investors who wish to open a company in Hong Kong in the form of an LLC should know that it must have at least one shareholder, a company director, and a secretary. The maximum number of shareholders for this type of company is 50 and there are no requirements regarding their residency. The company director can also be a shareholder. The shares are transferable only according to the specifications contained in the company’s Articles of Association. The shares cannot be traded publicly.
Investors who are interested in setting up a company in another jurisdiction, such as opening a private limited company in Singapore, we can put you in touch with our partners.
Another advantage of the limited liability company in Hong Kong is that there is no mandatory minimum share capital. Moreover, the existing capital is easy to raise. The company does not depend on changes in shareholders and continues its activities after the resignation, insolvency or death of a shareholder or director.
The LLC is a preferred business form by investors who are interested in setting up a small or medium-sized business. However, it is not the only available business form. Investors who wish to receive complete counsel on the types of companies can reach out to our team of Hong Kong company formation agents.
Hong Kong LLC characteristics
Investors who want to set up a limited company in Hong Kong are invited to read the main traits of this type of company in the table below:
Must be registered with the Companies Registry, according to the provisions of the Companies Ordinance
The shareholders of the company are only liable up to the extent they have invested in the company
Must have one director and one shareholder
The LLC in Hong Kong enjoys a low corporate income tax; there are no withholding taxes on dividends and interest and no VAT
The LLC enjoys a light taxation regime in Hong Kong, one of the main characteristics that are appealing to investors. The LLC, as a business structure, offers a professional and positive business image, compared to the partnership or the sole trader. What’s even more, the corporation, compared to the sole trader, can have an unlimited duration (or as otherwise specified in the Articles of Association) even in the event of the withdrawal or death of the shareholders. Business continuity and credibility are two important traits that investors take into consideration when opening a private LLC.
How to set up a limited company in Hong Kong in 2021
In order to open a LLC in Hong Kong, the investor must follow a few basic steps. The following documents need to be prepared and submitted:
-the Articles of Association;
-a completed incorporation form;
-a notice to the Business Registration Office.
-details about the share capital as well as about the shareholders;
-official English translations, when needed.
The business owner must choose a suitable company name that will not infringe any intellectual property rights. The applications for company incorporation are submitted to the Companies Registry in Hong Kong. Some general guidelines on company names are listed below by our Hong Kong company formation agents.
A company name application will be refused if: the name is identical to another one in the Index of Company Names, the Registrar considers that the use of the name would be a criminal offence or of the Registrar believes that the chosen company name is offensive or contrary to public interest. Some company names are not immediately subject to rejection, however they do need to be approved before they can be registered for use. These are the ones that can create the impression that the company is connected with the Government (the name will be allowed only when the company does have a connection to the government). Other situations in which special approval is needed is when the name contains certain words and expressions (such as savings, tourist association, trust or trustee, etc.) or when it is the same mane for which an indication for change was offered by the Registrar. Company names can be limited by other related laws, such as the banking law in Hong Kong which prohibits legal entities from using the word “bank” when the said company has not obtained the approval of the Hong Kong Monetary Authority.
Depending on the business field in which they operate, LLCs may need to obtain special permits and licenses. These documents can be obtained from the Trade and Industry Department. In general, business licenses can be distinguished by their type: for products or for services. Examples in the first category include those for selling antiques, watched and jewelry, beverages and tobacco, dairy, bakery and confectionary, leather and fir products, furniture, medicines and medical equipment, food products (a ;larger category that includes several other sub-categories according to the food type), toiletries and cosmetics, among many others. The types of services that require special licensing for LLC in Hong Kong are those for accommodation, construction, education, financial and insurance services, import and export, human health and social work, professional and business services, real estate, transport, storage and courier services as well as water supply and waste management services, among others.
The investor must open a bank account for the company incorporated in Hong Kong. The Certificate of Incorporation and the Business Registration Certificate can be issued either in electronic form (for online applications) or in hard copy. They both have the same legal capacity. Some businesses will also have to register with the Inland Revenue Department.
Some of the key issues to take into consideration when opening this business form are the following:
Set-up requirements: as previously mentioned, investors who open a company in Hong Kong in the form of an LLC need to follow a number of key steps; these are mandatory and the process is generally considered more complex than in the case of the sole trader, for example; however, this business form has its advantages.
Compliance: the LLC will need to observe the ongoing compliance requirements for taxation and reporting and inform the authorities on any changes within the company structure or details.
Closure: if the business is no longer profitable, or investors have other reasons to terminate it, the winding-up procedure is also one that is performed according to certain particular steps.
Others: the beneficial owners of the company are subject to disclosure requirements, meaning that their names will be publicly available with the Companies Registry.
Our agents specializing in Hong Kong company formation can provide more details on these issues as well as others related to incorporating an LLC. If you wish to incorporate this type of company in 2021, our team is here to help you each step of the way with the pre- and post-registration compliance requirements. If needed, we can begin to draft the incorporation documents before you arive in the city, once you send us the most important documents needed for LLC incorporation. Once you are in Hong Kong, we will guide you to register the LLC and obtain the needed special permits and licenses.
Additional information about an LLC in Hong Kong
As previously stated, private limited liability companies in Hong Kong need to observe the annual reporting and filing requirements. These refer to complying with the annual accounting filing as well as maintaining the records and documents at the company’s registered address (a local address that must be maintained throughout the company’s existence). Other mandatory requirements include appointing an auditor, except for the cases when this is not mandatory, renew the business registration certificate, hold an Annual General Meeting, obtain, maintain and renew the business licenses, as needed – for example, the license for financial activities issued by the Securities and Futures Commission. In addition to these, the company shall report any changes to its particulars. These are reported to the Companies Registry and many include a change of address, the number or names of the company shareholders and/or directors, changing the company secretary as well as modifying the value of the share capital. One of our agents who specialize in company formation in Hong Kong can provide complete details on the requirements for submitting these notifications.
Although it is an attractive business center, Hong Kong is not a location where investors can open offshore companies in the traditional sense. This is because the LLC is subject to making certain information available to the public at all times. In addition to this, the accounts must be audited on an annual basis.
Limited liability companies in Hong Kong are subject to a corporate tax. Our company formation consultants in Hong Kong can give you detailed information about the tax obligations for companies.
The LLC requires a more complex set up procedure, compared to the sole trader for example. What’s more, the founders of the company will need to observe the provisions for disclosing some information about the company, such as the identities of the directors, the capital of the company and other details, as requested by the Registry.
Regardless of the specific reasons or business decisions, sometimes companies are unsuccessful and their founders need to consider closing the business. A company can be stuck off the Register, a process simply called deregistration. There are certain conditions for this to be possible:
the deregistration needs to be agreed upon by all the members of the company;
the company must not have bad any business 3 months prior to the application;
the company has no significant liabilities and it is not involved in any legal proceedings;
the company does not have assets in the form of immovable property in Hong Kong;
a Notice of no Objection was obtained from the Commissioner of Inland Revenue.
Apart from observing these are the main conditions to deregister a company, the applicant is also required to pay a non-refundable fee and submit a special form. Investors should take note that dissolving a company through liquidation is a different process that takes place according to another set of procedures (mainly depending on whether or not the liquidation was initiated by the members or creditors or by the court).
Deregistered companies need to observe their tax and reporting obligations until they have been dissolved, otherwise they face penalties. In practice, the process can take approximately five months and the company is expected to observe the usual regulations during this time.
Deregistration can be an option for investors who wish to temporarily cease their business operation as this is a process that can be reversed. In practice, this means that a deregistered company can be restored if the owner makes an application to the Court of First instance. The business can be restored in about 2 months once the court order for this process can been issued. Investors who are considering this option are advised to seek proper assistance from our team of Hong Kong company formation agents.
Investors in Hong Kong have the option to apply for an administrative restoration of a local company. This means that a dissolved company may be restored by a director or a company member within 20 years of the dissolution date. This is a special process and it is subject to a set of specific conditions, such as the fact that the company must have been in operation and carrying out business when its name was struck off the Register. A special, non-refundable restoration fee applies. The restored company can keep its own name, if it has not since been claimed by another company. If this is the case, then the restored company has 28 days from the restoration to change its name.
When the business is facing bankruptcy, regardless of the reason, entrepreneurs can choose to wind-up the company. In these cases, it is advisable to seek professional help as the procedure can be a complex one, depending on the number of creditors. One of our agents who specialize in company formation in Hong Kong can also help you wind-up the company.
LLC taxation in Hong Kong
One of the main advantages of opening a private limited company in Hong Kong is that the company enjoys the low taxation regime applicable in this jurisdiction. Below, our team of Hong Kong company formation agents lists the rates for the Hong Kong corporate income tax:
-8.25% on the first 2 million HKD of assessable profits as from the year of assessment 2018/2019;
-16.5%: on the remainder of the assessable profits;
-7.5% and 15%: the rates applicable in the same manner as above but in the case of unincorporated businesses.
Other taxes for an LLC in Hong Kong in 2021 include social security contributions. Both the employer and the employee are subject to this and the mandatory regular contributions have a value of 5% of the employees’ relevant income. Real property tax has a standard rate of 15% of the net assessable property value. Stamp duty is imposed on certain documents (such as those for lease, sale or transfer of immovable property) and on the sale of Hong Kong shares (in which case it has a value of 0.2% of the value of the transferred shares).
If you would like to set up a limited company in Hong Kong, you should know that there is no withholding tax on dividends or interest payments made from a Hong Kong company to another resident or non-resident company. There is no payroll tax and no capital duty in Hong Kong.
The tax year is calculated from April 1 to March 31 the next year. The filing date for tax returns is usually one month after they are issued. A provisional profits tax for the current tax year is charged. Companies in Hong Kong do not have the option to file consolidated returns. The Internal Revenue Department (IRD) is the principal tax authority in the city and it is under the administration of the Financial Services and the Treasury Bureau.
Hong Kong has an expanding network of double tax treaties. These are useful for foreign companies that want to establish their presence in Hong Kong you can find out more from our company formation agents in Hong Kong. Limited liability companies can also benefit from tax deductions.
Statistics for company formation in Hong Kong
According to a set of statistics published by the Companies Registry, the LLC remains the most popular business form, as seen below:
- 10,700: the number of private companies in January 2019.
- 9,706: the private companies in Hong Kong in March, the same year.
- 10,370: private companies in June 2019 in Hong Kong.
- 9,662: private companies in Hong Kong in September 2019.
- 9,430: private companies in Hong Kong in December 2019.
By contrast, the number of public companies in January was six and in May 2019 it was eight. According to the same source, the total number of private companies in 2019 was 123,700.
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