Are you looking for a legal entity that can be used for research purposes? Then, an offshore holding company is the right choice for you. Now, what is a holding company? A holding company is nothing but an entity that is used to hold the assets of an existing company. It can be used as a parent company for making management decisions, to streamline industries, or just to reduce risks. Hong Kong has become one of the best jurisdictions for establishing this entity. Why? Because it offers unparalleled advantages like a stable economy, a business-friendly environment, and much more. In this article, we will talk about the essential aspects that you need to remember before setting up your Hong Kong holding company.
Laws Governing International Holding Companies in Hong Kong
While establishing a venture, it is crucial to keep the laws and regulations in mind. The following are the Hong Kong holding company requirements that you should follow:
Companies Ordinance (Cap. 622)
This ordinance governs the incorporation, management, and operation of all Hong Kong business setups, including holding companies. It also outlines registration, shareholder meetings, directors' obligations, and annual returns. This ordinance allows the formation of private companies limited by shares, a structure most commonly used for holding companies. This is the official structure for a private limited company in Hong Kong.
Inland Revenue Ordinance (Cap. 112)
The Inland Revenue Ordinance (Cap. 112) governs different taxes. These include tax regulations, including Hong Kong's territorial tax system, which is a tax applicable only to incomes sourced within the jurisdiction. Holding companies are subjected to low corporate tax rates and also no capital gains tax, withholding tax on dividends, or value-added tax. Holding companies may need to get a Tax Residence Certificate from the Inland Revenue Department for tax benefits under double taxation agreements with other jurisdictions.
Securities and Futures Ordinance (Cap. 571)
The Securities and Futures Ordinance (Cap. 571) applies only to holding companies that manage financial investments or subsidiaries in the financial sector. It regulates financial activities and ensures transparency and compliance with securities laws.
Foreign Exchange Regulations
This law states that the government does not control foreign exchange, leaving you with ample Hong Kong business opportunities. Due to this law, it is easier to tap into multiple industries with no restriction on remitting profits from investments, repatriating capital, and the amount sent as funds to people outside the jurisdiction.
Economic Substance Regulations
Although Hong Kong does not have any specific economic substance rules, any international holding company in Hong Kong must comply with the general standards set by The Organisation for Economic Co-operation and Development (OECD) for Base Erosion and Profit Shifting (BEPS). The goal of the Economic Substance Regulations in Hong Kong is to ensure that companies claiming tax benefits from foreign-sourced income have an economic presence in the territory. The regulations are part of the efforts to comply with the international standards for tax transparency and anti-harmful tax practices. The Foreign Source Income Exemption (FSIE) regime closely ties the regulations, exempting specific types of foreign-sourced income from Hong Kong’s profits tax. In order to qualify for such an exemption, companies must satisfy the economic substance requirements.
Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615)
Hong Kong follows international standards of anti-money laundering (AML) and combating the financing of terrorism (CFT). Holding companies are obligated to follow the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and should ensure transparency in ownership. The ordinance requires financial institutions and designated non-financial businesses and professions (DNFBPs) to conduct proper due diligence with their customers. It also requires that entities covered under the act report suspicious transactions, if any, to the Joint Financial Intelligence Unit.
By now, you should have become familiar with the legal requirements for holding companies in Hong Kong. Now, let's understand the different authorities that govern the incorporation of a Hong Kong holding company.
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Authorities: Formation of a Holding Company in Hong Kong
The following are the authorities responsible for business incorporation in Hong Kong:
Companies Registry
The Companies Registry is the central authority for incorporating and registering offshore holding companies in Hong Kong. Its primary role is to register company names and integrate new companies. The Registry also maintains statutory documents such as annual returns, directors' information, and financial statements. It is responsible for holding company records and making the information public.
Inland Revenue Department (IRD)
The Inland Revenue Department (IRD) enforces tax laws under the Inland Revenue Ordinance (Cap. 112). It manages corporate filing assessment and exemption. It deals with matters concerning profits tax, property tax, and stamp duty. The IRD is also responsible for maintaining the tax responsibilities of holding companies and processing their claims under Hong Kong's Double Taxation Agreements (DTAs).
Hong Kong Monetary Authority (HKMA)
The Hong Kong Monetary Authority (HKMA) regulates financial and banking activities in Hong Kong. Its primary functions are to ensure financial stability and oversee the banking system. The HKMA also supervises the flow of funds in and out of the jurisdiction. Therefore, it becomes imperative for Hong Kong holding companies with banking or financial interests to follow the HKMA regulations.
Trade and Industry Department (TID)
The Trade and Industry Department (TID) oversees Hong Kong's trading relationships with all its trading partners. It promotes international trade and enforces trade regulations. For an international holding company, TID manages matters concerning international trade, especially for holding companies conducting cross-border business. It is also responsible for coordinating Hong Kong's participation in global trade organizations, such as the World Trade Organization (WTO).
Now, the biggest question on your mind must be: What are the Hong Kong company setup costs? There is no individualized answer to this question, but we can give you a rough idea.
Hong Kong Company Setup Costs
The cost and the duration taken for registering your holding company in Hong Kong depend mainly on the type of business activities your company will engage in. But if you choose to avail yourself of our services, we can help you complete your offshore Hong Kong company formation within 1-2 days at a minimum cost of $2,320. Our experts will not only help you understand how to register a holding company but will also assist in choosing the correct Hong Kong corporate structure.
Why Choose Us?
At Business Setup Worldwide, we have more than 8 years of experience in company formation and offer a multitude of other services. Our team of experienced and dedicated professionals can make establishing a Hong Kong holding company accessible and hassle-free. Contact us today, and our experts will guide you every step of the way.
