• Registration of new companies in Hong Kong, sale of ready-made companies and companies with a bank account, accounting and auditing, creation of factual presence.

Hong Kong (Hong Kong) is a special administrative region of the People's Republic of China.

For over 150 years, Hong Kong has been under British control. In 1997, Hong Kong was transferred under the sovereignty of China and became officially called the Special Administrative Region (UAR) of the Hong Kong People's Republic of China.

Hong Kong is located on the coast of the South China Sea, consists of the island of Xiangang, Julong Peninsula, and several small islands.

Hong Kong has wide autonomy from China, almost complete independence in the administrative, legislative and judicial systems (with the exception of defense and foreign policy issues). Hong Kong's special status will be maintained until at least 2047, subject to the principle: "one country - two systems."

Hong Kong's legal system is based on English common law.

The monetary unit is the Hong Kong dollar (HK dollar).

A company in Hong Kong can be created in one of the following legal forms:

• Private Company Limited by Shares (limited liability company) – the capital of this type of company is divided into shares. Such a company may include no more than 50 shareholders. The company's shares cannot be placed on the stock exchange, and any transfer of shares is usually carried out in the manner prescribed by the charter.
• Public Company Limited by Shares (limited liability company) – the capital of this type of company is also divided into shares, but there is no limit to the maximum number of shareholders. Shares can be placed can be placed and traded on the stock exchange, which is very highly developed in Hong Kong.
• Company Limited By Guarantee (liability is limited by the guarantee of participants) – the capital of this type of company is not divided into shares.
• Unlimited Company – company participants are liable for the obligations of the company, regardless of the size of their contribution to the authorized capital.
• Limited Partnership – limited partnership Includes no more than 20 partners, which can be both individuals and legal entities regardless of their citizenship. The liability of partners for partnership obligations is limited by their contribution to capital.

• Legal entities registered in Hong Kong must have at least one director and one company founder.
• There are no requirements for the nationality of the founder and director. And the director and shareholder of a company in Hong Kong can be a citizen of any country without any additional permits and without restrictions.
• There are no requirements for renting an office. but each company is required to have a legal address, which is provided by a company secretary licensed to do so.
• Under the Companies Ordinance (Chapter 32) of Hong Kong, each company in Hong Kong is required to have a secretary who is established or resides in Hong Kong and is licensed with the Trust or Company Service Provider License. The Secretary in Hong Kong ensures that your company complies with Hong Kong's corporate and tax laws. It is important to note that the meaning of the word "Secretary" refers to the corporate secretary, and not to the position of personal assistant. This is a professional company licensed under Hong Kong law and is responsible for your compliance with the laws.

Information about directors and members is included in the Hong Kong Companies Register. However, it should be noted that it is not possible for an ordinary person to get into the Hong Kong registry. The registry is closed from unauthorized users. To obtain information on a particular company, it is necessary to go through certain stages of authorization. The registry is closed and protected from open indexing by the Internet.

Information about the beneficiaries is not contained in the register, but must be stored at the place of registration of the company or elsewhere in Hong Kong. As a rule, the register is kept at the location of the registration agent. The register is not open online and can only be opened for verification by law enforcement officials and other authorized government agencies in Hong Kong upon request.

In Hong Kong, the territorial principle of taxation of profits earned as a result of trading, professional or other business activities in Hong Kong applies. This tax is taxable only on profits generated or earned in Hong Kong. This means that a legal entity that is registered in Hong Kong but makes a profit outside of it is not a payer of income tax.

The following criteria must be met for tax exemption:

• The company should not have a physical presence in Hong Kong.
• Selling goods should not be made in Hong Kong, should not have any markings associated with Hong Kong, and should not go through ports in Hong Kong.
• The company should not have employees resident in Hong Kong or non-residents residing in Hong Kong.
• Contracting and execution shall be carried out outside Hong Kong.
• The company should not have suppliers and contractors in Hong Kong, those should not have payments between other companies in Hong Kong.
• A company must conduct business lawfully in another country.

A company operating outside Hong Kong and wishing to obtain tax exemption must independently file an “Offshore tax exemption claim” with the Hong Kong tax authorities and provide the tax authorities with documentary evidence of the absence of activity in Hong Kong and the lawful conduct of business in another country.

Income earned from sources in Hong Kong is subject to a two-tier income tax.

1. Income taxes for the first 2,000,000 HKD (approximately 250,000 USD) are taxed at a rate of 8.25%.
2. Income taxes of over 2,000,000 HKD are taxed at a rate of 16.5%.

Profit tax at a rate of 16.5% does not apply to the entire amount of profit received, but only to that part of it that exceeds 2 000 000 HKD.

The use of a two-tier system is limited for companies whose activities enjoy additional support in Hong Kong and which, as a result, are entitled to lower income tax rates for other reasons:

• Professional reinsurers, subsidiary insurance companies, corporate financial centers, as well as companies engaged in aircraft leasing.
• Persons receiving income from qualified debt instruments and using the reduced income tax rate in connection with the implementation of this type of activity.

In addition, it is impossible to apply a reduced income tax rate for related companies, only one company from a group of companies can use a reduced rate. The following persons are recognized as related to each other:

• Ownership of more than 50% of shares, interests or voting rights.

  Control by the same controlling person by holding more than 50% of the shares, interests or voting rights.

All companies in Hong Kong are required to maintain financial statements and audit reports.

Companies are given the opportunity to choose the reporting period - until December 31 or until March 31.

Hong Kong provides for the following types of reporting: 

• The annual report, which should contain the structure of the company - the composition of directors and shareholders, as well as the registered address of the company and other data.
• Financial statements and tax return - must be certified by the local auditor and filed with the Hong Kong Tax Inspectorate within 18 months from the date of registration of the company or the end of the previous financial period.

It is recommended to store the primary documents of the company's business activities, as they may be required by the auditor.

In order to ensure the clarity of the territorial taxation principle, the Inland Revenue Department may provide preliminary decisions regarding the source of income applicable to income tax. The service involves the payment of a fee.

Before obtaining preliminary orders, complete information must be provided.

According to Inland Revenue Ordinance, a person is subject to income tax in the following cases:

• It carries out commercial, professional or other business activities in Hong Kong.
• Activities are profitable.
• Profit generated or earned in Hong Kong.

The first two conditions are quite clear. The third condition requires further clarification.

For many years, the issue of the source of profit has been considered in judicial practice. According to authoritative court decisions, the following principles are highlighted.

Factual circumstance

The issue of localization of profits in fact is very difficult in practice. There is no general rule. Whether or not the profit is actually generated or made in Hong Kong depends on the nature of the profit and the transaction as a result of which the profit was made.

Operation Check

The actions of the taxpayer related to the receipt of the considered profit, as well as where these actions were performed, are checked.

Gross Transaction Profit

The difference between the profit generated or received in Hong Kong and the offshore profit is determined according to the gross profit arising from individual transactions. When determining the source of profit, only those processes of economic activity are taken into account, as a result of which the direct formation of gross profit occurs. Activities related to general management are generally not considered.

Place of decision

The place where investment / business decisions are made daily is just one of the factors that must be considered when determining the source of profit. As a rule, it is not a decisive factor.

Presence of business abroad

A business can have a representative office abroad and make a profit outside Hong Kong. However, the absence of such representative offices does not in itself mean that all business profits in Hong Kong are invariably generated or received in the country. However, in most cases, when the main activity of the business is concentrated in Hong Kong and there is no presence of the business abroad, the profits derived from this business are likely to be taxed in accordance with the Hong Kong Income Tax.

Place of production: in the case of a manufacturing enterprise, the source of profit is the place where the goods are produced. Profits from the sale of goods made in Hong Kong are fully taxed.

If the goods were partially produced in Hong Kong and partially outside, part of the profits attributable to goods produced outside Hong Kong is not considered to be received in Hong Kong.

A common feature of Hong Kong manufacturers is the conclusion of an assembly or processing agreement with a factory operating in mainland China. According to this agreement, the Hong Kong manufacturer provides raw materials, technical development, management, manufacturing skills, design, skilled labor, training, control, etc. The plant, in turn, provides factory premises, land and labor for the processing, production or assembly of goods.

Strictly speaking, a plant located in mainland China is a separate subcontractor that should be distinguished from a Hong Kong manufacturer, so there should be no question regarding the proportionate distribution of the latter's profit.

Inland Revenue Department takes a practical approach, allowing for a commensurate distribution of profits from the sale of goods in the proportion of 50/50: only 50% of the profits are estimated as received in Hong Kong. Thus, the role of the Hong Kong manufacturer in the production activities of the plant located on the mainland is recognized.

Production by an independent subcontractor operating in the territory of mainland China: if production, according to the agreement, is transferred to an independent subcontractor operating in the territory of mainland China, its activity is paid on an ongoing basis and is carried out with minimal involvement of a Hong Kong company in the production process, production in mainland territory not considered a Hong Kong business. Thus, the profits of a manufacturing subcontractor are not taxable in Hong Kong. However, profits made by a Hong Kong-based company from the sale of goods are fully taxed in Hong Kong.

Sales contract: the factor determining the source of profit from trade in goods, as a rule, is the place where the sales contract enters into force, which includes both legal execution of the contract and negotiations, conclusion of the contract and fulfillment of obligations under it.

Aggregate of facts: it would be correct to evaluate a totality of facts. In other words, all relevant facts should be considered, and not just the purchase and sale of goods.

• How was the purchase and storage of goods?

• How were sales requested?

• How were applications processed?
• How was the goods dispatched?
• How were financial issues resolved?
• How was the payment made?

Weight of facts: 

• Significant facts: when considering significant facts, the nature and quality of transactions are more important than their number.
• Minor facts: facts that are not directly related to trading activities are considered insignificant with respect to the determination of the source of profit (rental of premises, hiring of staff, arrangement of an office, etc.), but are taken into account in aggregate.

General practice:

• If the sales contract is executed in Hong Kong, profits are taxable in Hong Kong.
• If the sales contract is executed outside Hong Kong, profits are not taxable in Hong Kong.
• If at least one of the contracts (either purchase or sale) is executed in Hong Kong, it is initially understood that profits are taxable in Hong Kong. However, in this case, it is necessary to analyze the totality of facts in order to determine the source of profit.
• If the sale is to a buyer from Hong Kong, the contract is generally considered to be performed in Hong Kong.
• If it is not required to leave the borders of Hong Kong to execute the sales contract, but it is carried out in Hong Kong using telephone or other electronic means, including the Internet, the contract is considered to be executed in Hong Kong.
• Trading profits are either fully taxed or not taxed at all. Proportional distribution is not provided.

Place of service: the source of income is the place where the commission agent provides services.

If this activity is carried out in Hong Kong, Hong Kong is considered the source of income.

Factors such as the place of activity of principals, their identification by the commission agent, as well as the places where random events take place before or after receiving the commission, as a rule, are not significant in determining the source of the commission.

In the event that a commission is received by a person carrying out business activities in Hong Kong, but activities resulting in a commission are carried out completely outside Hong Kong, the commission is not taxed in Hong Kong.

• Property rental: tax free if property is located in Hong Kong.
• Property for sale: tax free if property is located in Hong Kong.
• Buying or selling listed shares: taxed if the exchange on which shares are sold and bought is located in Hong Kong.
• Profit earned by a business (other than a financial institution) from the sale of securities issued outside Hong Kong and not listed: it is taxed if the sales contract is executed in Hong Kong.
• Service fee: taxable if the services resulting from the fee are made in Hong Kong.
• Royalties received from business: taxed if the relevant business activities are carried out in Hong Kong.
• Royalty for the use of intellectual property obtained from Hong Kong by a non-resident: taxed if intellectual property is used in Hong Kong.
• Interest accrued to a business (other than a financial institution): taxed if the lender provides funds to a borrower in Hong Kong.