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Overview (September 1999) - International Law Office

International Law Office

Company & Commercial - Hong Kong

Overview (September 1999)

October 05 1999

Forms of Business Enterprise
Principal Legislation
Legal Issues
Foreign Company Branches

This overview of Hong Kong company and commercial law is a summary of the law and general requirements in connection with the setting up and maintenance of Hong Kong private companies and Hong Kong branches of foreign companies. This overview should not be viewed as a substitute for detailed legal advice in individual cases.


A foreign company may carry on business in Hong Kong by either incorporating a Hong Kong company or registering a branch in Hong Kong. (The process by which a Hong Kong company is set up is the same whether the incorporator is a foreign company, a Hong Kong company, an individual or other legal entity.) The relevant government authority is the Registrar of Companies (the Registrar).

Some of the issues that arise in connection with doing business in Hong Kong (eg, registration with the taxation authorities), involve similar considerations whether the business is to be operated as a separate Hong Kong company or as a branch. Accordingly, these issues are covered below in general terms.

Other issues (eg, the method of registration), differ greatly depending on whether the company wishes to incorporate a Hong Kong company or register a branch and these issues are dealt with separately.

Branch or subsidiary
The differences between a Hong Kong branch and a Hong Kong subsidiary of a foreign company stem from the fact that, unlike a branch, a subsidiary is an entity that is entirely separate from its parent. The business activities available to a company in Hong Kong are generally not dependent upon whether the company is locally incorporated and there is little practical difference between operating a branch and a subsidiary in respect of profit computation. The rate of tax levied on profits is the same for local and foreign companies and dividends are not subject to separate taxation in Hong Kong.

The usual reasons for preferring a subsidiary include the following:

  • The parent company will not be liable for the debts of its subsidiary. Its legal liability will be limited to the amount of any unpaid issued share capital and its potential loss will therefore be limited (in the absence of a guarantee or other security) to the value of any assets it contributes by way of capital to the company;

  • Only that information that relates to the subsidiary must be filed with the Registrar and kept up to date;

  • A subsidiary is not required to file its accounts on the public record whereas in some cases a foreign company must do so;

  • The presence of a branch in Hong Kong makes it more likely that the parent company may be sued in Hong Kong even in connection with matters unrelated to its business operations in Hong Kong;

  • It is usually simpler and more cost effective to set up a Hong Kong company than it is to set up a Hong Kong branch;

  • Where the constitutional documentation in relation to the parent company is not in English or Chinese, it will not have to be translated if a local company is incorporated, whereas in the case of a branch it will; and

  • It is not necessary to arrange for certified copies of documents to incorporate a Hong Kong company whereas certified documents are required to establish a branch.

On the other hand, the usual reasons for preferring a branch instead of a subsidiary include the following:

  • There may be tax advantages under the tax laws of the place of incorporation of the parent, in particular, in relation to the treatment of any losses which the Hong Kong operation may incur in its first few years;

  • A branch can often rely on the credit of the parent company;

  • If business operations are terminated in Hong Kong, the lengthy liquidation process required for a Hong Kong company can be avoided and any capital can simply be remitted out of Hong Kong;

  • A Hong Kong company can only reduce its issued capital with the consent of the court;

  • Share repurchases by Hong Kong companies in some cases will require the consent of the court;

  • No stamp duty (except in relation to land or shares in Hong Kong companies owned by the foreign company) will be payable on any transfer of the Hong Kong business operated by a foreign company, whereas stamp duty will generally be payable on any transfer of shares in a Hong Kong subsidiary company;

  • No duty is payable in Hong Kong on the authorized (or issued) share capital of a foreign company with a Hong Kong registered branch; and

  • The ongoing maintenance expenses involved with a branch can be lower than those involved with a subsidiary, in particular, as Hong Kong law does not require the separate audit of a branch.

Business registration
The Business Registration Ordinance requires that every business in Hong Kong register with the Business Registration Office within one month of incorporation or registration, even if business operations have not yet commenced. This is effected by the issuance of a business registration certificate in respect of each location from which the business is conducted. The certificate must be displayed on the premises. A business registration certificate is valid for one year from the date of commencement endorsed on the certificate, unless an election has been made for an expiry date of three years.

Registration with the Business Registration Office amounts to notification to the Commissioner of Inland Revenue (the Commissioner) that a business, which may be subject to the payment of profits tax, has been established. It does not mean that any actual profits tax liability exists or is acknowledged.

All Hong Kong companies and foreign companies that have branches registered in Hong Kong are deemed to be carrying on business in Hong Kong and must register under the Business Registration Ordinance.

The particulars registered with the Business Registration Office are available for public inspection and any change in the registered particulars must be notified to the Business Registration Office within one month.

Registration of charges
Both Hong Kong companies and foreign companies with Hong Kong branches must file (usually within five weeks) with the Registrar the particulars of any registerable charge (i) given by the company over its assets or (ii) existing over assets acquired by the company.

Generally, charges requiring registration include floating charges and charges over land, ships, goodwill, book debts, trademarks and patents. Foreign companies are only required to register charges over relevant assets located in Hong Kong or which come into Hong Kong.

All companies are required to keep a register of charges over their assets (whether they are registerable charges or not) containing short particulars of the assets charged and the amount secured. In the case of foreign companies, this is limited to assets located in Hong Kong or which come into Hong Kong. Further, all companies are required to keep copies of registered charges. The register of charges must be open for inspection by anyone whereas copies of registered charges are open for inspection by members and creditors only.

Charges requiring registration that are not registered are generally void against a liquidator of a company in a winding-up and against other creditors. For this reason a person taking the benefit of a charge will usually take steps to ensure that the charge is registered if this is required.

Additional licences and consents
Certain businesses may not be carried on in Hong Kong without a specific licence or other consent to do so from the relevant regulatory authority, in addition to the corporate requirements set out in this article. These businesses include banking, deposit-taking, money-lending, securities and commodities dealing and advising, leveraged foreign exchange trading and insurance. Before commencing any of these businesses, specific professional advice should be obtained.

The Companies Ordinance and the Protection of Investors Ordinance contain extensive provisions in relation to the issue and distribution of prospectuses in Hong Kong concerning shares in or debentures of companies, whether the company is registered in Hong Kong or not.

Forms of Business Enterprise

The following are the principal forms of business enterprise in Hong Kong:

  • public company;

  • private company;

  • general or ordinary partnership;

  • limited partnership;

  • unit trust;

  • branch (ie, overseas company with established place of business in Hong Kong); and

  • sole proprietorship.

A private company limited by shares is the type of business enterprise most widely used by foreign enterprises in Hong Kong.

Principal Legislation

The principal legislation governing the forms of business enterprise in Hong Kong is as follows.


  • Companies Ordinance (Ch 32, Laws of Hong Kong)
  • Bankruptcy Ordinance (Ch 6, Laws of Hong Kong)
  • Inland Revenue Ordinance (Ch 112, Laws of Hong Kong)
  • Business Registration Ordinance (Ch 310, Laws of Hong Kong)
  • Stamp Duty Ordinance (Ch 117, Laws of Hong Kong)


  • Partnership Ordinance (Ch 38, Laws of Hong Kong)
  • Limited Partnership Ordinance (Ch 37, Laws of Hong Kong)
  • Business Registration Ordinance (Ch 310, Laws of Hong Kong)
  • Inland Revenue Ordinance (Ch 112, Laws of Hong Kong)
  • Societies Ordinance (Ch 151, Laws of Hong Kong)


  • Companies Ordinance Part XI - Establishment of Place of Business in Hong Kong
  • Business Registration Ordinance (Ch 310, Laws of Hong Kong)
  • Inland Revenue Ordinance (Ch 112, Laws of Hong Kong)

Legal Issues

Companies incorporated in Hong Kong can be public or private and can be limited by shares or by guarantee. Most companies limited by guarantee are set up by non-profit organizations and most public companies are listed on the Hong Kong Stock Exchange.

The appropriate vehicle for a business that wants to limit its liability, obtain private funding only, or generate financial returns for its shareholders is a private company limited by shares. The great majority of companies in Hong Kong are private companies limited by shares and, accordingly, this overview is limited to a discussion of private companies except where indicated otherwise.

A private company is a company that in its articles of association restricts the right to transfer its shares, limits the number of its members to 50 (excluding employees), and prohibits any invitation to the public to subscribe for any of its shares or debentures.

The liability of each member of a company is limited to the amount (if any) unpaid on the shares held by that particular member. Accordingly, if the company becomes insolvent and is wound up, the shareholders stand to lose only their agreed investment in the company. They need not make any further contribution to meet the company's liabilities.

The ongoing maintenance obligations relating to a Hong Kong can be divided into annual obligations and those that arise when there has been a change in relation to the corporate structure and other matters. Where a company becomes dormant, it will not be necessary for the company to comply with these annual obligations.

Any person who purports to enter into a contract in the name of or on behalf of a company that has not yet been incorporated will be personally liable for that contract. The company may ratify the contract after incorporation (in which case the individual will no longer be personally liable).

Requirements. The incorporation of a private company in Hong Kong requires at least two shareholders (who subscribe their names to the memorandum of association of the company). There may be registered with the memorandum of association, articles of association signed by the subscribers to the memorandum. After the constitutional documents are filed with (and a statutory declaration and the prescribed capital fee are submitted to) the Registrar, the Registrar will issue a certificate of incorporation certifying the name and the date of incorporation of the company. The certificate of incorporation is deemed to be conclusive evidence that the statutory requirements have been met.

Name. A company can be incorporated with any name (except for names which are the same as existing company names). The Registrar may require a company to change its name because (i) the name is so misleading as to the nature of the company's activities that it is likely to cause harm to the public or (ii) it is too similar to another organization's name.

A company may be incorporated with either an English name or a Chinese name or both. Where a company is incorporated with both English and Chinese names so that both appear on the certificate of incorporation, the two names together constitute the full formal name of the company. This means that both names should be used on the company's seal and in all documents.

Shareholders. Every company must have at least two registered shareholders although all the shares can be under the beneficial ownership of the same person or company. As mentioned above, two persons must subscribe to the memorandum of association and in this way they become the first shareholders of the company upon its incorporation. There is no requirement that a shareholder be resident in Hong Kong. Any legal entity can be a shareholder in a company, including a company, receiver, liquidator or sole proprietor.

There is no maximum number of shareholders for a public company. However, the maximum number of shareholders of a private company is 50. This does not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were and continue to be members of the company.

Memorandum of association. The memorandum of association may include, among other things, the objects and powers of the company. As a company is deemed to have the capacity and the rights, powers and privileges of a natural person, a detailed description of a company's objects and powers does not generally have to be included. Shareholders may choose to set out the company's objects and powers if they want to limit them. As the exception to the general rule, companies incorporated to promote charitable and similar objects, and which have been authorized to dispense with the use of the word 'Limited' in their name, must provide a description of their objects and powers.

The articles of association are the regulations (or by-laws) of the company. They normally follow a standard form, incorporating the regulations contained in Table A of the Companies Ordinance or a more detailed version that excludes Table A and contains all the regulations in the articles themselves, or a combination of the two. To the extent to which specific articles (regulations) are not registered with the Registrar, the provisions of the articles of association in Table A will apply.

Articles may include a wide range of special provisions to meet individual situations, such as special classes of shares and pre-emption rights on the transfer of shares.

Initial share capital. The amount of a company's initial authorized share capital, the number of shares and the par value of each share must be stated in the company's memorandum of association. There is no requirement for shares of a private company to be paid-up. Five per cent of the nominal value of each share of a public company must be paid-up on issue if an offer is made to the public for subscription. The authorized share capital is the maximum amount of share capital that the company may issue.

There is no minimum authorized capital required (except for trust companies and companies wishing to engage in banking or insurance). As a capital fee is payable on authorized (and not issued) share capital, unless there are particular reasons for a high initial authorized capital, most companies are incorporated with a fairly low authorized capital (which is increased later as the company's need for capital grows). It is common for companies to start with an authorized capital of HK$1,000 or HK$10,000 divided into shares of HK$1 or HK$10 each. The capital can, however, be denominated in any currency. There are no legal prohibitions on a company having a multi-currency capital structure, although in practice this can be quite cumbersome.

The share capital may be divided into different types or classes of shares, including preference shares. A company may also have shares with different nominal values or carrying differing rights.

At least two subscriber shares must be issued upon the incorporation of a company (one to each of the subscriber shareholders), but the balance of the authorized capital may be issued and paid-up in accordance with the company's capital requirements.

Shares may be allotted for cash, services or other consideration such as the transfer of property. The issued share capital may be issued at par value or may be partly paid-up or paid at a premium. If a company's articles of association permit, shares may also be issued as redeemable shares.

Registered office. Each Hong Kong company must have a registered office in Hong Kong to which all official communications and notices (including service of process) may be addressed. The address of the registered office of a new company must be filed with the Registrar from the day on which a company begins to carry on business or within 14 days after the date of incorporation of the company, whichever is earlier.

Post-incorporation matters
Directors. Hong Kong companies must have at least two directors. The directors of unlisted companies need not be resident in Hong Kong. A listed company is required by The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the Listing Rules) to have at least two executive directors ordinarily resident in Hong Kong. Anyone who is over the age of 18 may, subject to certain exceptions, be appointed as a director. Corporate directors may be appointed in the case of a private company, unless the company is a member of a group of companies of which a Hong Kong listed company is a member.

Appointment of directors is determined by a company's articles of association and is usually done by general meeting though in some cases by the board of directors.

The particulars of the directors of a company (which as a matter of practice includes alternate directors) must be filed with the Registrar within 14 days of their appointment.

Directors must disclose to the other members of the board as soon as possible any material interest, direct or indirect, which they may have in any contract or proposed contract with the company which is significant in relation to the company's business. If a director fails to do so, that director may be accountable to the company for any profit he/she makes from that contract. In certain circumstances the contract may also be voidable at the option of the company. The articles of association may also contain provisions restricting the ability of a director to vote or be counted in the quorum at a meeting of directors in relation to a contract in which that director is interested.

Where a general interest exists (eg, where the director is a director or shareholder of other companies), it is common for a general disclosure to be made at the first meeting of the directors after the appointment of the relevant director.

A director may normally be removed by a special resolution of the company even where there is an agreement, or there is a provision in the memorandum or articles of association, to the contrary. The removal of a director under this statutory power entails certain procedures designed to allow the director to make representations against the proposed removal. The articles of association may also expressly provide for the removal of directors in other ways. Removal of a director contrary to an agreement with the company may give rise to a claim by the director against the company.

Issuing shares. The issuing of new shares in a company is a three-stage process involving the allotment by the directors of the shares to particular persons and then the issuance of the shares to such persons after the entry of the relevant particulars into the company's register of shareholders.

Allotments of shares, other than allotments pursuant to offers to existing shareholders proportionate to their existing holdings, may only be made with the prior approval of the shareholders in general meeting. This approval may be given either in relation to a particular allotment or to allotments generally. In either case this shareholder approval expires (if not previously revoked by the company in general meeting) when the next annual general meeting of the company is held or ought to be held.

A return of allotment of shares, disclosing the members and their shareholdings, must be filed with the Registrar within eight weeks of the date of the allotment. If this time limit is not met, the Registrar will usually refuse to accept the return of allotments for filing and an application will have to be made to the court for leave to file the return out of time.

Someone other than the registered holder may be the beneficial owner of shares. In the case of a private company, it is not normally necessary for the identity of the beneficial owner to be revealed to the company or to any authority or to be a matter of public record. However, a subsidiary is required to state in its accounts the name of its ultimate holding company.

Secretary. Each Hong Kong company must have a secretary who is resident in Hong Kong. The secretary of a listed company (or of a company within a group of companies that includes a listed company) must be an individual. Qualifications are required for secretaries of listed companies and these are set out in the Listing Rules. The particulars of the secretary must be filed with the Registrar within 14 days of his/her appointment. The secretary's responsibilities include keeping a register of the company's members and directors, charges, and minutes.

Auditors and accounts. A Hong Kong company must keep proper books of account and have the accounts audited annually by Hong Kong registered auditors. It is advisable for the auditors to be appointed as soon as practicable after incorporation, especially where advice is required on accounting systems. The directors normally appoint the first auditors. The appointment of auditors is usually reconfirmed at each annual general meeting. Auditors may be removed by an ordinary resolution of the shareholders.

The books of account must be open to inspection by the directors at all times. If the books are kept outside Hong Kong, certain accounts, returns and other information must be sent to and kept in Hong Kong for inspection by the directors, at least once every six months. The board has the power to decide where the books of account are kept, or where the accounts, records and other information are to be sent. A company must keep its books of account for at least seven years.

Bankers. After a company is incorporated it may open bank accounts in Hong Kong and elsewhere. A directors' resolution will usually be required to authorize the opening of each account and to authorize signatories to operate that account. Most banks have standard form resolutions that they require to be passed in connection with the opening of any account.

It is important to ensure that the company's cheques and other financial instruments include the name of the company in full. It should also be made clear on the face of the instrument that any individual signatory signs 'for and on behalf of' the company to avoid any personal liability on the part of the signatory.

Financial year. The financial year-end of the company should be determined, and any change in the financial year-end authorized, by a directors' resolution. The initial choice of financial year-end must permit accounts to be prepared, audited and laid before an annual general meeting within 18 months of incorporation.

Registration matters. All Hong Kong companies must register with the Business Registration Office under the Business Registration Ordinance. This is effected by the issuance of a business registration certificate in respect of each location from which the company conducts business.

A Hong Kong company must have a common seal that is normally kept with the statutory records of the company at the registered office. If a seal is required for use outside Hong Kong, an official seal can be adopted by a directors' resolution, provided that the use of an official seal outside Hong Kong is authorized by the articles of association and the company's objects include the transaction of business outside Hong Kong.

Governmental and other regulatory authorities in Hong Kong often expect a signature on behalf of a company to be accompanied by the imprint of a rubber stamp or 'chop' showing the name of the company and some words indicating the authority of the signatory. Chops, however, are not required by law.

Annual maintenance requirements
Accounts and directors' report. The company's profit and loss account and balance sheet must be audited by a Hong Kong registered auditor and put before the shareholders in general meeting within 18 months of incorporation and then at least once in each year. There are lengthy and detailed provisions in the Companies Ordinance regarding the types of accounts to be prepared. Generally, Hong Kong private companies having a share capital are not required to file accounts with the Registrar.

A directors' report must be prepared in conjunction with the annual accounts. The Companies Ordinance provides a list of items this report should contain (eg, details of contracts directors have with the company).

General meeting. An annual general meeting of the shareholders must be held within 18 months of incorporation and then at least once in each year and not later than 15 months after the last annual general meeting. (This 15-month period may be extended at the discretion of the Registrar upon payment of a fee.) An annual general meeting must be held even though there may be no accounts available for presentation to the meeting and no other relevant business to attend to.

Before the annual general meeting is held, the directors must approve the accounts and the directors' report, they may recommend a dividend, and must resolve to call the annual general meeting. If all the shareholders entitled to attend and vote at the annual general meeting so agree, the meeting may be held at short notice, but otherwise at least 21 days' notice is required. Copies of any audited accounts to be considered at the annual general meeting must be sent to all shareholders, debenture holders and other persons so entitled not less than 21 days before the date of the meeting, unless all shareholders entitled to attend and vote at the meeting otherwise agree.

Return. An annual return must be filed with the Registrar at least once a year (except if there has been no change in the filed particulars since the date of the last annual return, in which case a certificate confirming this fact can be filed in lieu of an annual return). The annual return contains among other things:

  • particulars of the authorized and issued share capital of the company;

  • the names and addresses of the company's directors and the secretary;

  • the names and addresses of the company's registered shareholders; and

  • the amount secured by any registered charges.

The return must be signed by a director and the secretary and must be filed within 42 days of the anniversary of the incorporation of the company. Public companies and companies limited by guarantee without a share capital must file their annual returns within 42 days of annual general meetings.

Changes in particulars
Filing obligations. The following changes must be filed with the Registrar within the periods indicated:

  • any change in the directors or secretary or in the filed particulars of any existing directors or secretary - 14 days;

  • any change in the location of the registered office - 14 days;

  • any increase in the authorized share capital (this also requires the payment of a capital fee) - 15 days;

  • any relocation of the company's statutory books from the company's registered office - 14 days;

  • the passing of a special resolution or certain other resolutions - 15 days;

  • any allotment or issue of new shares (plus the payment of a capital fee in certain cases) - 8 weeks; and

  • the creation of a charge over certain types of assets, or the acquisition of certain types of assets that are subject to an existing charge - 5 weeks.

In relation to the last two items, if the relevant particulars are not filed with the Registrar within the prescribed period, an application must be made to the court for an extension of the time within which the particulars may be filed.

Name. To effect a change in the name of a company (including the adoption or abandonment of a formal English or a Chinese version of the name), the shareholders must approve of the change by special resolution and the new name must be registered with the Registrar.

It normally takes about 14 working days from the time of the filing of the special resolution for the certificate of incorporation on change of name to be issued. The change in name is effective from the date on such certificate.

Share capital. Any increase in the authorized share capital of a company requires the approval of the shareholders. A company's articles of association typically provide for increasing authorized share capital by way of ordinary resolution. Any increase in authorized share capital requires the payment of a capital fee. Notice of the increase must be filed with the Registrar with a signed copy of the resolution.

Memorandum and articles of association. Most of the provisions of a company's memorandum and articles of association can be changed by special resolution. However, there are exceptions to this general rule. For example, where a company has issued different classes of shares, the special rights of any one class may, subject to the articles of association, be changed only with the approval of 75% of the holders of shares of that class. Where the special rights exist by virtue of the memorandum of association and there is no provision for alteration, all such shareholders must agree before the rights can be changed. Also, a member must agree in writing to an alteration to the memorandum or articles of association if such alteration requires that member:

  • to take, or subscribe for, more shares;

  • increase his liability to contribute to the share capital of the company; or

  • otherwise pay money to the company.

A signed copy of every special resolution and every resolution varying a provision in the memorandum or articles of association must be filed with the Registrar and annexed to every copy of the memorandum and articles of association of the company issued after the change.

Share transfers. The transfer of legal title to shares in a Hong Kong company is effected by an 'instrument of transfer'. Beneficial title to shares is transferred by way of contract notes (ie, a bought note and a sold note).

Contract notes must be submitted for stamping within two days (30 days if the sale takes place outside Hong Kong) of their execution. Ad valorem stamp duty is levied on each contract note at the rate of HK$1.25 per HK$1,000 of the consideration paid or the value of the shares transferred (which ever is higher). The total rate of duty on a sale of shares is effectively 0.25%. Intra-group transfers are normally exempt from stamp duty.

A private company must also submit the following documents when contract notes are submitted for stamping:

  • a copy of the latest audited accounts or latest management accounts (if audited accounts have not been prepared or are not up to date);

  • details of any land and properties the company holds;

  • a copy of any sale and purchase agreement; and

  • any additional information the Stamp Duty Office may require.

The instrument of transfer is subject to a fixed duty of HK$5. In the case of a sale and purchase of shares by a person who is not resident in Hong Kong, the ad valorem stamp duty plus the fixed duty must be paid if contract notes have not been made out and stamped.

Where a transfer of beneficial ownership is made other than by sale and purchase (eg, by gift), the instrument of transfer is stamped at the fixed rate of HK$5 plus the ad valorem stamp duty of 0.25%.

When there is a sale of beneficial ownership only and no transfer of legal ownership (ie, the shares remain registered in the name of the same person as a nominee for the beneficial owner), contract notes must be made out and ad valorem stamp duty of 0.25% paid. An instrument of transfer will not be required in this case but a declaration of trust (discussed below) is advised.

Ad valorem stamp duty is not payable on a transfer in registered ownership that does not involve a change in the beneficial ownership of the shares. Where shares are registered in the name of a nominee, it is sensible to execute a declaration of trust and to have the declaration of trust adjudicated as not chargeable to duty. The fee for this is HK$20. Adjudication can avoid later disputes with the Stamp Duty Office about the beneficial ownership of shares.

Penalties for failure to stamp documents within the required time range from two to 10 times the amount of duty payable, although the Collector of Stamp Revenue has power to remit the whole or any part of any penalty in appropriate cases. Neither the company nor any other person is permitted to act on ,or rely on (in court proceedings), instruments that should but have not been stamped. A company may not register unstamped instruments in its books.

After stamping (and compliance with any other formalities prescribed by the articles of association), the transfer can be registered in the statutory books of the company and a new share certificate issued.

Share transfers are sometimes restricted by, for example, provisions in the company's articles of association which require that the shares are first offered for sale to existing shareholders.

Directors. Responsibility for the overall management of a Hong Kong company is freely determinable by the company's articles of association but typically rests with its board of directors. Generally, the board authorizes the actions of the company through resolutions passed at board meetings or, if authorized by the articles, by written resolution signed by all the directors or a stated portion of them.

There is no Hong Kong requirement that board meetings be held in Hong Kong or at any specific intervals. Normally, reasonable notice of meetings must be given to each director, but the articles of association can modify this general obligation.

The board of directors may delegate its powers to certain persons. A certain degree of delegation is, so far as third parties dealing with the company are concerned, normally implied in the case of managing directors and senior employees of a company.

Shareholder approval. Certain decisions must, by law, be made or sanctioned by the shareholders in general meeting by the passing of an ordinary or, in some cases, a special resolution. Such resolutions may be proposed as special business at annual general meetings or at separately convened meetings, called extraordinary general meetings.

An ordinary resolution requires a simple majority of the shareholders who attend and vote at a meeting to approve it. A special resolution, on the other hand, requires a 75% majority of the shareholders who attend and vote at a meeting to approve it.

Generally, 14 days' notice is required for a meeting at which an ordinary resolution is proposed and 21 days' notice is required for a meeting at which a special resolution is proposed (or for the annual general meeting). A majority of shareholders having the right to attend and vote at general meetings who together hold not less than 95% in nominal value of all the shares, or all the shareholders in the case of an annual general meeting, may agree that a meeting be held at short notice.

The articles of association should make provision for the quorum and voting rights and will determine whether or not the chairman of the meeting has a casting vote. There is a statutory right on the part of a shareholder to appoint a proxy to attend and vote on his/her behalf at any meeting at which the shareholder is entitled to attend and vote. A corporation that is a member can attend a meeting by appointing a representative to attend the meeting on its behalf. It is usually necessary to lodge appointments of proxies (but not of corporate representatives) in advance of the meeting.

A company's articles of association will usually permit resolutions to be passed by a written resolution signed by all the shareholders, without the need to hold a meeting. (However, every company must hold an annual general meeting.)

Dormant companies
An inactive Hong Kong private company may be classified as 'dormant'. To become dormant the company must pass a special resolution authorizing its directors to make and deliver to the Registrar a statutory declaration that it will be treated as dormant. Thereafter, the company will be exempt from the requirements for holding annual general meetings, preparing and filing annual returns and carrying out audits of its accounts.

A company is eligible for dormant status if, since the date of incorporation or any other specified date, it has not entered into relevant accounting transactions. A 'relevant accounting transaction' is a transaction which is required by Section 121 of the Companies Ordinance to be entered into the company's books of account. This includes the receipt and expenditure of money, and the sale and purchase of goods, assets and liabilities. It does not include fees the company is required to pay by law (eg, annual business registration fee).

The advantage of making a company dormant is that the cost of maintaining the company can be significantly reduced without having to wind up or apply to the Registrar to de-register the company.

Before taking a company out of dormancy the directors must deliver to the Registrar a declaration that the company intends to enter into a relevant accounting transaction.

Foreign Company Branches

Registration requirements
Foreign companies must register a Hong Kong branch with the Registrar within one month of establishing a place of business in Hong Kong. In practice, it is sufficient if the application for registration is lodged with the Registrar within one month. It is common for foreign companies to complete the registration of a branch before actually establishing a place of business in Hong Kong. It usually takes about 21 working days for the Registrar to issue the Certificate of Registration of Overseas Company.

The obligation to register with the Registrar is separate from the obligation to register businesses with the Business Registration Office.

Representative office. A foreign company that has a presence in Hong Kong but does not create legal obligations is not considered as having established a place of business in Hong Kong. Advice should therefore be sought as to whether, based on the nature of the business, it is necessary to register a representative office as a branch.

Name. Foreign companies can and usually do register the Hong Kong branch in their own name. However, the Registrar has power to require a foreign company that is carrying on business in Hong Kong under its corporate name to use a different name under certain circumstances. This power must be exercised within six months of the date of registration of a branch or the date of registration of any change in the name of the foreign company.

Foreign companies that register a branch must conspicuously exhibit at every place in Hong Kong where they carry on business, and include on their letterhead, the name of the company and the place of incorporation of the company. Where the liability of the shareholders of the foreign company is limited, this must also be stated.

Continuing obligations. Once registered in Hong Kong, a foreign company has continuing maintenance obligations in relation to the Registrar and the Commissioner of Inland Revenue. The obligations in relation to the Registrar fall into two categories: (i) updating information filed with the Registrar on a case-by-case basis, and (ii) filing certain documents with the Registrar on an annual basis. The continuing obligations in relation to the Commissioner are (i) registering each of the company's businesses, and (ii) filing a profits tax return.

Registration procedure
Required documents. To register a branch, an application for registration together with the following documents must be filed at the Companies Registry:

  • certified copies of the charter, statutes, memorandum and/or articles of association (or equivalent) of the foreign company;

  • a list of the directors and the secretary of the foreign company including specific details of each (eg, former names, usual address, nationality, passport number);

  • names and addresses of persons who are resident in Hong Kong (or a firm of solicitors or professional accountants) and are authorized to accept service of process and any notices required to be served on the foreign company;

  • the address of the principal place of business of the company in Hong Kong;

  • the addresses of the principal place of business (if any) and the registered office (or equivalent) of the foreign company in its place of incorporation;

  • the memorandum of appointment or power of attorney authorizing a Hong Kong legal person to accept service of process and notices on behalf of the foreign company;

  • a certified copy of the foreign company's certificate of incorporation or such other evidence of incorporation as the Registrar deems sufficient; and

  • a certified copy of the latest accounts of the foreign company (unless an exemption applies).

Any of the above-mentioned documents that are not in English or Chinese must be translated into English or Chinese, and the translation must be certified by the translator as correct. The translator must also be certified. The Registrar may impose other requirements.

Charges/mortgages. If a foreign company has, when it establishes a place of business in Hong Kong, property in Hong Kong that is subject to a registerable charge, the foreign company must provide the Registrar with (i) the particulars of the charge and mortgage, and (ii) an original or copy of the instrument creating the charge or mortgage.

Annual maintenance requirements
Filing obligations. Subject to an exemption, foreign companies must file certain documents with the Registrar each year. First, they must file a return confirming that there have been no alterations (other than those of which the Registrar has already been notified) in the registration documents. Second, a certified copy of each of the following documents must be filed:

  • the balance sheet as at the end of the company's last financial year;

  • the profit and loss account for the company's last financial year;

  • group accounts, if any, in respect of the company's last financial year;

  • the directors report, if any, in respect of the company's last financial year; and

  • the auditor's report, if any, on the balance sheet and the accounts.

Accounts and reports requiring certification must be certified by a director or the secretary of the company.

Exemptions. In the case of companies incorporated in the United States, the Registrar will grant an exemption from these annual filing requirements if the company can satisfy each of the following conditions in respect of the entire year for which the exemption is claimed:

  • the company has been either a wholly-owned subsidiary of another company or the actual number of its members has not exceeded 35;

  • there has been no provision in its constitution, articles of association or by-laws for the creation or issue of bearer issues or share warrants, and its shares have not been transferable by delivery; and

  • the company has not, under the law of its place of incorporation or origin, been obliged to publish its accounts or to deliver copies to any person in whose office they may be inspected as of right by members of the public.

In the case of foreign companies incorporated other than in the United States, the Registrar will grant an exemption from the annual filing requirements if the company can satisfy each of the following conditions:

  • the company has no more than 50 members;

  • its shares are not listed on any official stock exchange and the company is prohibited from offering and has not offered any shares or debentures to the public;

  • there is no power in its constitution to issue bearer shares or share warrants;

  • shares in the company cannot be transferred merely by delivery; and

  • the company is not required by law to file accounts or to make its accounts available for public inspection at its place of incorporation.

Changes in particulars
Foreign companies registered in Hong Kong must inform the Registrar (within a fixed period) of changes to any of the following:

  • its constitutional documents;

  • the details of its directors (and secretary where relevant);

  • the details of its authorized representative(s);

  • the address of its registered office or its principal place of business; and

  • its corporate name.

Notice of liquidation proceedings commenced in the company's place of incorporation must also be filed with the Registrar.


Types of tax
Hong Kong taxes are essentially territorial. Therefore, only income that arises in or is derived from Hong Kong is subject to Hong Kong tax. Domicile, nationality and residence are generally immaterial. There are three taxes on income in Hong Kong - property tax, salaries tax and profits tax. The Inland Revenue Department is responsible for the administration and collection of these taxes and the taxation regime is set out in the Inland Revenue Ordinance.

In addition, ad valorem stamp duty is levied on transfers of shares in Hong Kong companies and on agreements for sale of residential land and conveyances of non-residential land. Ad valorem capital fees are payable on the authorized capital of a company and on increases in capital.

There is no separate tax on interest in Hong Kong but in general, interest earned by financial institutions from the carrying on of banking and similar financial activities in Hong Kong and by other businesses where the interest has a Hong Kong source, is liable to profits tax. However, interest derived from deposits placed in Hong Kong with Hong Kong licensed banks, restricted licensed banks or deposit banking companies by companies or other persons (who are not financial institutions) generally are not subject to profits tax.

Dividends are not subject to tax and there is no withholding tax on dividends or interest paid to non-residents. There is no capital gains tax in Hong Kong but profits arising from trading in shares, commodities or land are liable to profits tax.

Property tax
Property tax is charged on the owner of land or buildings located in Hong Kong at the rate of 15% of the actual rent or other consideration received, less the amount of any rates paid by the owner and less an allowance of 20% for repairs and maintenance. Owner occupied buildings are exempt from property tax liability.

Salaries tax
Salaries tax is charged on income arising in or derived from Hong Kong from any office of employment or profit, and from any pension.

Sources of income. The income subject to salaries tax includes wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites and allowances. Examples of payments that are not subject to salaries tax include severance payments and long-service payments.

The rules for determining whether employment income arises in or is derived from Hong Kong can be summarized as follows.

Employees with Hong Kong employment are subject to salaries tax on all their income, irrespective of where they work, except in respect of income earned for services rendered in another territory which is taxed in that territory. Also an employee's income will not be subject to salaries tax if that employee was in Hong Kong for not more than 60 days during the tax year.

Employees with non-Hong Kong employment are only subject to salaries tax on that part of their income which is derived from services performed in Hong Kong. 'Non-Hong Kong employment' will normally be found to exist only when the following three conditions are met:

  • the contract of employment was negotiated and entered into outside Hong Kong and is enforceable outside Hong Kong;

  • the employer is resident outside Hong Kong; and

  • the employee's remuneration is paid outside Hong Kong.

Directors' fees paid to the directors of a company that is controlled and managed in Hong Kong are subject to salaries tax irrespective of where directors resides.

Deductions. Deductions from assessable income may be made for certain outgoings and expenses that have been wholly, exclusively and necessarily incurred in the production of the assessable income. It is rare, however, for an employee to succeed in making a claim for such a deduction. Accordingly, emphasis is placed on reducing assessable income by the use of non-taxable benefits rather than expenses in the case of salaries tax.

Non-salary benefits should be tax-deductible expenses for the employer and generally will not be subject to salaries tax if the following apply:

  • the benefit is not in the form of 'money or money's worth';

  • in the case of a payment made by the employer for the benefit of an employee, the employer (and not the employee) has the primary obligation to pay for the benefit and no other person has guaranteed the payment; and

  • the benefit is not in connection with the education of a child of the employee.

Special tax rules apply to accommodation. The taxable amount is generally restricted to a maximum of 10% of the employee's remuneration provided that certain conditions are observed. Holiday travel allowances are generally exempt provided the allowance is spent on travel. Special rules apply for contributions made to recognized occupational retirement schemes.

Rates and returns. Tax is charged on a progressive scale up to 20% after generous personal allowances, but this is subject to a maximum effective rate of 15% applied to gross income.

Employers must file returns of remuneration paid to and benefits provided for employees and must notify the Commissioner of Inland Revenue when employees are employed or are about to leave employment.

There is a system of provisional salaries tax in Hong Kong. A provisional assessment for the current year is made based on the previous year's final assessment and tax is charged accordingly. Once the actual income for the year of assessment is known, a final assessment is issued based on the actual income crediting the provisional salaries tax already paid.

Profits tax
Individuals, partnerships, corporations and other bodies carrying on business in Hong Kong are liable to pay profits tax on profits that arise in or are derived from Hong Kong. The corporate profits tax rate is 16% of assessable profits and the rate for sole proprietors and partnerships is 15%.

As a measure to make Hong Kong a more attractive financial centre, profits from qualifying debt instruments are taxed at half the appropriate rate for profits tax.

Sources of income. The guiding principle in determining whether profits have a Hong Kong source is: What did the taxpayer do to earn the profits in question and where did the taxpayer do it? For example, the following activities would normally give rise to profits with a Hong Kong source:

  • manufacturing in Hong Kong;

  • performing services in Hong Kong;

  • selling goods in Hong Kong; and

  • appointing an agent in Hong Kong with general authority to negotiate and conclude contracts.

Certain profits (eg, receipts from the use of films, intellectual property rights, or movable property in Hong Kong) are deemed to be profits of a business carried on in Hong Kong. Profits from arm's length licensing arrangements are subject to a tax rate of 1.60% for companies and 1.5% for individuals (ie, 10% of the normal rates), provided that various conditions are satisfied.

Special provisions apply to

  • insurance and ship owning companies;
  • disposals of certain discounted financial instruments; and
  • profits of financial institutions in respect of interest derived from financial business carried on in Hong Kong.

Deductions. In general, only the difference between gross Hong Kong profits and Hong Kong expenses incurred in producing profits is subject to profits tax. Interest paid is only deductible if it is of a revenue nature and only then if specific conditions are met. Provision is made for depreciation allowances for approved capital expenditures.

Subject to certain anti-avoidance provisions, business losses may be carried forward and set-off against future profits. There are no provisions for transferring the benefit of losses between group companies or for carrying back terminal losses.

Tax and returns. The tax year in Hong Kong runs from April 1 to March 31. The Inland Revenue Department issues a provisional profits tax assessment for each year of assessment at the same time as it issues a final profits tax assessment for the preceding year. Provisional tax is applied first against profits tax payable on the profits of the current year of assessment. When the final assessment is calculated any under-payment of tax is added to the provisional profits tax assessment for the following year.

Responsible parties. The secretary, managers and directors of a company are each responsible for ensuring compliance with the company's obligations under the Inland Revenue Ordinance. Where none of these is resident in Hong Kong the company is obliged to appoint a tax representative.

Stamp duty and capital fee
Stamp duty is levied on the transfer of shares in Hong Kong companies at the aggregate rate of 0.25%. (There are exemptions available for intra-group transfers.) Duty is charged on the consideration for the transaction or, if higher, the market value.

Stamp duty is payable on agreements for sale of residential land at the maximum rate of 2.75% and on conveyances of non-residential land at the same rate. Lower rates apply where the sale price or gift value does not exceed thresholds that are regularly increased in line with inflation. Where ad valorem duty has been paid on an agreement for sale of residential land, a fixed duty of HK$100 is payable on the conveyance.

A capital fee of 0.1% is payable on the nominal value of, and on any increase in, the authorized share capital of a company and on any premium on the allotment of shares. It is capped at $30,000 for each case.

For further information on this topic please contact Noeleen Farrell at Deacons Graham & James by telephone (+852 2825 9211) or by fax (+852 2810 0431) or by e-mail (noeleen.farrell@dgj.com.hk).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.

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