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    SETTING UP A HOLDING COMPANY IN HONG KONG

    Nowadays, a plethora of companies and business owners from all over the world are setting up Hong Kong holding companies. 

    WHY IS HONG KONG A POPULAR PLACE TO SET UP COMPANIES?

    Hong Kong has long been recognized as one of the greatest places to start and manage a business. The main reason for this is that it performs well in areas that are crucial to a company’s existence. As a result, many company owners and investors are opting to start and establish their operations in Hong Kong. There are various reasons and benefits to setting up a holding company in Hong Kong, let’s take a closer look at it.

    THINGS NEED TO BE CONSIDERED BEFORE SETTING UP A HOLDING COMPANY IN HONG KONG

    Among the things that you will need to be aware of when setting up your holding company in Hong Kong are as follows: –

    • A minimum of one shareholder, one director, and one company secretary are required. They can’t be the same individual. You can be a shareholder but not the company secretary if you are the sole director. As a result, you’ll require at least two workers.
    • The company secretary must live primarily in Hong Kong if he or she is a natural person. If the secretary of the company is a corporate body, the address of its primary registered office would need to be in Hong Kong. 
    • When forming your holding company, there are no share capital requirements.
    • The procedures that apply to regular companies will also apply to holding companies.

    WHAT ARE THE STEPS IN SETTING UP A HOLDING COMPANY IN HONG KONG?

    If you have made up your mind and you’re wondering to yourself, ‘how exactly do I register my holding company?’, we have prepared a brief guideline for your reference. 

    Steps
    1.
    Visit the official Hong Kong Companies Registry website, click the ‘Forms’ tab, and choose a business form. This can be a private limited liability company since it has low incorporation requirements and is simple to set up.
    2. Compile the incorporation documents, which are the company's constitutive documents, the Articles of Association. Do note that further documents are to be submitted for registration purposes.
    3. Proceed with the registration process. The Hong Kong Companies Registry handles official company registration. A form must be filled out and submitted, along with a registration fee.
    4. Business operations may now commence. Once registered, the firm can begin operations that are associated with the holding's specialised activity.

    As stated above, this is just a brief guideline to give you a basic understanding of how you can register your holding company in Hong Kong. 

    The actual process is more complex as it will require a lot of technical details that need to be filled out accurately. 

    Relin Consultants is a professional firm providing company incorporation services. Allow us to guide you by sending us an email at enquiry@relinconsultants.com.

    REQUIREMENTS FOR SETTING UP A HONG KONG HOLDING COMPANY

    Business structure

    A private limited company is the ideal legal structure for a holding company in Hong Kong. This kind of business is simple to start up and offers a number of advantages, such as restricted liability and tax effectiveness. On the other hand, as a foreign corporation, the applicant may want to consider forming a subsidiary company.

    Incorporation documents

    Entrepreneurs must submit the following documents when registering a corporation in Hong Kong:

    • The laws and regulations regulating the corporation are outlined in the articles of association. When a company is incorporated, such documentation needs to be submitted to the Companies Registry.
    • An incorporation form, either NNC1 or NNC1G depending on whether the business is limited by shares or not.
    • Form IRBR1: Notice to Business Registration Office

    Registration fee

    After submitting the necessary paperwork to ACRA, pay the registration charge. The registration charge for local private firms with share capital is HK$1,545 for the electronic form and HK$1720 for the paper version. The registration fee will vary depending on the type of business entity.

    A Certificate of Incorporation will be given to the company once the registration money has been paid. This document serves as evidence that the business was legitimately incorporated in Hong Kong.

    Annual return notice

    In Hong Kong, a holding company must submit an annual return to the Companies Registry. Within 42 days of the anniversary of the company’s return date, the annual return must be submitted.

    AFTER REGISTRATION REQUIREMENTS FOR THE HK HOLDING COMPANY

    Opening a bank account

    A holding company needs to submit a number of paperwork to the bank in order to create a bank account in Hong Kong.

    Refer to Corporate bank account opening Hong Kong for more information.

    These records include the shareholders’ agreement, the articles of association, and the company’s certificate of incorporation. The beneficial owners of the company must also be disclosed to the bank.

    ADVANTAGES OF SETTING UP A HONG KONG HOLDING COMPANY

    • Tax benefits – Hong Kong offers a low tax rate of 16.5% for corporations. Additionally, Hong Kong has a territorial tax system, which means that only income derived from Hong Kong is taxable, providing a tax-efficient structure for holding companies.
    • Access to China – Hong Kong is strategically located next to China, making it an attractive location for companies looking to expand their business into the Chinese market. Hong Kong also has a favorable double taxation treaty with China.
    • Easy company setup – Setting up a Hong Kong holding company is relatively easy and straightforward. It can be done in a matter of days with minimal paperwork.
    • Favorable legal system – Hong Kong has a well-established legal system based on the common law, which provides a stable and reliable environment for businesses.
    • Efficient banking system – Hong Kong has a highly developed banking system that is efficient and easy to use. This makes it easy for businesses to manage their finances and conduct transactions.

    DISADVANTAGES OF SETTING UP A HONG KONG HOLDING COMPANY

    • High operating costs – Hong Kong is a relatively expensive place to do business. The cost of renting office space, hiring staff, and other expenses can be high, which can impact the profitability of the holding company.
    • Limited market – Hong Kong has a relatively small market compared to other Asian countries, which may limit the potential for growth for the holding company.
    • Limited protection for intellectual property – Hong Kong’s legal system provides limited protection for intellectual property, which may be a concern for some businesses.
    • Limited substance requirements – Hong Kong has limited substance requirements for holding companies, which may make it more difficult to demonstrate economic substance and comply with anti-tax avoidance regulations.
    • Political instability – Hong Kong has experienced political unrest in recent years, which may create uncertainty for businesses operating in the region.

    WHAT DO I HAVE TO LOOK OUT FOR WHEN OPENING A HOLDING COMPANY IN HONG KONG?

    Before you visit the Hong Kong Companies Registry website and register your holding company, there are a few things that you should look out for. It might not be the most ground-breaking of issues, but we would advise you to consider it nonetheless.

    A holding company or non-resident legal entity must apply to the Inland Revenue Department for a Tax Residence Certificate.

    This is done so that you can claim tax breaks. You may be asked to supply information about your business’s location and what it does. Among the examples are: –

    • Does the company have a bank account in the country?
    • The fixed location of the company.
    • The number of workers that the company employs.
    • Whether board meetings were held in Hong Kong or not

    You will need the Tax Registration Certificate if you want to take advantage of the benefits associated with the double taxation agreements between Hong Kong and other jurisdictions.

    ENSURING YOUR HOLDING COMPANY COMPLIES WITH LOCAL LEGISLATION.

    You will not be on the radar of the Organisation for Economic Cooperation and Development’s (OECD) base erosion and profit shifting (BEPS) program as long as your holding company is not simply aiming for a tax benefit and is not deficient in commercial operations. The organization seeks to prevent firms from being formed only for the purpose of receiving a tax break.

    FAQs

    What is a Hong Kong holding company?

    A Hong Kong holding company is a type of company that is established in Hong Kong for the sole purpose of holding and managing investments in other companies.

    What are the benefits of setting up a Hong Kong holding company?

    The benefits of setting up a Hong Kong holding company include tax benefits, access to China, ease of company setup, a favorable legal system, and an efficient banking system.

    What are the requirements for setting up a Hong Kong holding company?

    The requirements for setting up a Hong Kong holding company include appointing a company secretary, having a registered office in Hong Kong, and filing annual returns and tax returns with the Hong Kong Inland Revenue Department.

    How long does it take to set up a Hong Kong holding company?

    It typically takes around 7-10 business days to set up a Hong Kong holding company.

    What are the costs associated with setting up a Hong Kong holding company?

    The costs associated with setting up a Hong Kong holding company include government fees, legal fees, and accounting fees. The total cost can vary depending on the complexity of the company structure and the services required.

    Do I need to have a physical presence in Hong Kong to set up a Hong Kong holding company?

    No, it is not required to have a physical presence in Hong Kong to set up a Hong Kong holding company. However, a registered office address is required.

    Can a Hong Kong holding company conduct business activities in Hong Kong?

    Yes, a Hong Kong holding company can conduct business activities in Hong Kong, subject to compliance with local laws and regulations.

    How is a Hong Kong holding company taxed?

    Hong Kong has a territorial tax system, which means that only income derived from Hong Kong is taxable. The current corporate tax rate in Hong Kong is 16.5%.

    What is the purpose for a holding company?

    A holding company is a parent business entity—typically a corporation or an LLC—that does not manufacture, sell or perform any other commercial operations. Its objective, as the name suggests, is to own controlling stock or membership interests in other corporations.

    How does a holding company earn income?

    Holding companies profit when the businesses they own profit. Consider a holding corporation to be an investor. When you buy a stock or mutual fund, you’re expecting that the value of your investment will rise or that dividends will be paid that you may use or reinvest.

    Can a foreigner set up a holding company in Hong Kong?

    A foreigner has total rights to serve as an individual director and shareholder of a company in Hong Kong. It is not necessary for a local resident to do so.

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