For many people who conduct business, offshore companies have been an appropriate way for them to conduct their international business while living in another country. In Hong Kong, offshore entities have little tax requirements and do not have too many requirements for setup. However, though many privileges were given to these entities, they also had numerous restrictions. These restrictions limit their usefulness in some key ways. Here, we expand on the pros and cons of an offshore company in Hong Kong.
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What is An Offshore Company in Hong Kong?
An offshore company is defined as a company which is formed or incorporated in a different country to its primary stakeholders. Some features of an offshore company in Hong Kong include:
- Place of activity – it does not conduct its activity within Hong Kong. Any business activity commercial activity conducted in Hong Kong will be in contravention of local regulation.
- Information of the company – some basic information of the company will be made public. The directors, shareholders and some additional information will be registered with the Hong Kong Company Registry as public information.
(Click here to learn more about an offshore company in Hong Kong)
Check Our Hong Kong Labor Law Guide
Learn how the Hong Kong law is applied in all aspects and situations, from an employer and employee perspective
Pros of Setting Up a Hong Kong Offshore Company
There are a number of benefits to setting up such an entity in Hong Kong, depending on the purpose and needs of a business. Some of these pro’s include:
- No corporate tax – As the tax system is quite straightforward in Hong Kong, it offers certain privileges to these kinds of entities. As such, any income sourced from outside of Hong Kong is exempt from paying corporate tax. However even though your business will not be liable for corporate tax, as an individual you will still be liable to pay income tax on any income derived.
- Fast and easy setup – The process is made convenient as the setup process can be completed and submitted online. There are also companies and agencies that assist with the setup process, making it even more simple.
- Requirements – the requirements to setup this kind of entity are not as strict as it is with other kinds of entities in Hong Kong. There is not as much documentation nor special authorizations required in order to incorporate. Offshore companies are only required to have 1 shareholder and 1 director (who can be the shareholder as well).
- Excellent location – Hong Kong is well developed, has a stable legal system, and has an excellent geographical position. With well-developed infrastructure, Hong Kong is home to many professionals across different industries, as well as to the Asian headquarters of numerous multinational corporations.
Cons of Setting Up a Hong Kong Offshore Company
While there are many upsides to setting up an offshore business in Hong Kong, there are also a few downsides that you should be aware of before planning to setup this kind of business. The cons of setting up an offshore entity include:
- Limited functionality – as this type of entity cannot conduct commercial activities in Hong Kong, its scope of activity is restricted to outside the border. This limits the functions it can perform and if you wish to start operations in Hong Kong, you will have to look for an alternative way to operate legally.
- Cannot Employ Staff – due to this kind of structure not being able to operate commercially in Hong Kong, you cannot employ staff with this entity. This may make it difficult to manage the operation and organization of your business, often leading to entrepreneurs incorporating another kind of entity.
- Cannot hold Hong Kong shares – as a legal entity an offshore company cannot hold shares in a Hong Kong company. This is in line with the principle that an offshore company cannot generate any income in Hong Kong. Any commercial activity in Hong Kong, even holding shares, will require you to use a different kind of entity through which you can operate.
How To Setup a Hong Kong Offshore
Documents Required to Setup An Offshore Company
The following documents are the basic documents needed to setup this kind of entity:
- A passport copy.
- Copy of a document that can serve as proof of residence, which is no more than 3 months old. A bank statement or reference letter from your bank.
- An application form for the incorporation of a Hong Kong entity.
- Articles of incorporation.
- Copy of the resident card of the shareholders and directors.
- If the shareholder is a legal person (a company) a copy of the registration documents of the parent company.
**Additional documents may be required depending on the specific needs of the structure or upon request by Hong Kong authorities.
Process to Setup An Offshore Company in Hong Kong:
Select an available company name to register the company and get it approved by the Companies Registry in Hong Kong.
Submit all the required documents for incorporation through a licensed agency.
The agency will finalize the incorporation.
File the necessary documents with the Companies Registry. This will include:
- Notification of appointment of directors and secretary
- Notification of registered address
- Any other relevant documents upon request
Open a corporate bank account in Hong Kong.
Apply for a Business Registration Certificate with the Inland Revenue Department.
Ensure that you are eligible to file tax returns.
Alternatives To a Hong Kong Offshore Company
For those who are interested in setting up a different kind of entity or those who have their business needs change, there are better alternatives to an offshore company that ensure you remain compliant with local laws. Some of these alternatives include:
Professional Employment Organization
A Professional Employment Organization (PEO) may be the best option for those who wish to carry put commercial activities or hire staff in Hong Kong. It allows you to run your business operation, while they handle all the administrative needs of the business. They provide an entity through which your business can operate legally.
This option is best suited to those companies who are not intending to run a large operation in Hong Kong, but rather wish to hire only a few staff that will be taking care of the daily activities of the business. Learn more about a Hong Kong PEO here.
Incorporating a Limited Liability Company
For companies who see growth and wish to setup an entity that allows for long term growth, a limited liability company (LLC) may be a good option. An LLC is the most common type of business entity incorporated in Hong Kong and provides protection from the risks and liabilities of the business.
This option is best suited for those who see longevity in their Hong Kong operations. While still protected from the liabilities of the business, there are still more responsibilities and obligations than with an offshore company or with a PEO.
What Consideration Should Be Made Before Establishing an Offshore Company in Hong Kong?
There are a few considerations that should be made before spending time, money, and effort to incorporate this kind of entity:
- The purpose of your business – if you wish to conduct business in a place nearby such as mainland China or Japan, then having an entity like this could be useful. However, if you intend on expand your business over time to cover different regions, it may be best to look at other options that could allow more flexibility.
- The needs of your business – if your business needs just require you to manage the enterprise alone in Hong Kong, then an offshore company will be ideal. However, if you need to hire staff or expand your operation, it would not be possible to do so with an offshore company. You may then need to either incorporate a different type of entity or look for an alternative way to conduct your business.
- Additional considerations – other additional considerations you will need to look at are things like tax implications, where you wish to reside, privacy of your information, future growth of your operations etc.
Find the Right Partner in Hong Kong
INS Global is a global expansion solutions company that helps businesses setup in different regions. If you are considering expanding your business into Hong Kong through their PEO in Hong Kong services, or any other region, we can help you.
We are able to help you hire and pay staff in Hong Kong, recruit top talent, or handle the payroll of your staff. Whatever the needs of your business may be, get in contact with us and let us help you.
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