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Self-Employment in Hong Kong
Once you have chosen an officially approved name for your new company as well as its legal structure, you have to take the following steps to fully establish your business.
Incorporate Your Company
First, you need to incorporate your company and register it with the local tax office. You have to pay an incorporation fee (e.g. HKD 1,720 for a private LLC) and hand in various documents to register your business with the Hong Kong Companies Registry.
Foreign companies wishing to establish a branch office or subsidiary should hire a professional services firm to take care of this process. The same applies to foreigners who want to invest in a limited partnership. Using professional services is strongly recommended for establishing any sort of partnership. Sole proprietorships do not need to be incorporated, though.
After incorporating your business and dealing with the follow-up paperwork, you have to register it with the Business Registration Office so that the Inland Revenue Department (i.e. Hong Kong’s tax office) is informed about your company. Since February 2011, the Companies Registry and IRD have been cooperating in a one-stop application process. Incorporating your company will lead to an automatic application for an IRD Business Registration Certificate, so keep in mind that you may also have to pay the business registration fees when incorporating your company.
Getting a Bank Account and Office Space
You cannot open a company bank account before you have finished the incorporation and registration process. Most banks in Hong Kong require an initial minimum deposit of HKD 1,000-10,000. The Hong Kong Association of Banks can help you find the right bank. For the documents required to open a corporate bank account, please contact the bank of your choice.
Of course, you often have to provide a physical address to incorporate your Hong Kong business. However, this may not be your choice of office for actually running the company. So you will be looking for some decent office space once the initial paperwork is done. While rent is very high in Hong Kong, the excellent public transport system allows you to easily reach offices outside the central business district. If you want to rent office space, you need an agent to make proper arrangements. Small and/or new companies often use one of the many serviced or virtual offices available.
Certain types of companies require certain business licenses or permits in Hong Kong. These may for example be required for care homes, restaurants, retail shops, telecommunication companies, import/export firms, and financial service providers. You can check what specific license(s) you might need through the Business Licence Information Services.
You don’t need to take care only of your own visa and ID, but also sponsor that of your dependents as well as any potential employees. Moreover, you have to set up employment regulations for your employees. When setting employment standards, keep in mind that the Labor Department has introduced certain minimum standards for working conditions (Employment Ordinance).
As a self-employed Hong Kong resident or business owner, you have to pay different taxes. Unlike in many other countries, the tax system is relatively simple and easy to navigate. In general, there are three different kinds of taxes you may have to pay:
- Profits tax: The government of Hong Kong makes no distinction between residents and non-residents when it comes to liability in terms of profits tax. Every person or corporation carrying on a trade, business or profession has to pay taxes on all their profits. However, the profits must be derived from Hong Kong to be subject to taxation. In most cases where you have your principal place of business in Hong Kong, you have to pay corporate tax there as well. The tax rate is a flat 16.5% on all company profits.
- Property tax: If you receive any income through letting properties in Hong Kong, you will have to pay property tax too. This tax rate amounts to 15% of the rental income.
- Stamp duty: This tax imposes duty on certain types of documents mostly related to the transfer of stocks and shares or immovable property.
- Other kinds of tax: In Hong Kong, there is no VAT or sales tax, no capital gains tax, no dividend tax, and no customs and excise duty. However, if you employ other people, you may be responsible for the Hong Kong income tax directly withheld from your employees’ gross salaries or wages.
Contact the Inland Revenue Department to find out more about company taxes in Hong Kong.
It’s recommended to keep records of all business transactions or proof of income from property for the last seven years or more. In this case, you are well prepared for any questions concerning your company’s tax issues. You should also make sure to file an annual tax return, to keep proper accounting records, and to maintain all company documents properly. The Company Registry has detailed information on compliance requirements for businesses in Hong Kong.
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