Hong Kong has become a favorite location for businesses worldwide. Whether it is expanding your current operations in the Hong Kong or forming a wholly-owned Hong Kong subsidiary to operate overseas, it is important to understand the general business entity formation concepts before forming your Hong Kong company.
The following is a summary of Hong Kong entities (The ability to form one of these types of companies in Hong Kong may be limited by citizenship/residency), followed by a summary of FATCA:
Hong Kong Limited: As the name signifies, a limited company means that the shareholders will only have limited liability for the debts of the business up to the amount of capital invested. In addition, the limited company is considered a separate entity, which does provide better reputation on an international scale if the companies seeking to obtain financing, funding or investment from third parties. If the limited company’s private then management and control will be done by the Directors. The most important aspect of the limited company is the tax benefit, which essentially is that profits made by this type of company outside of Hong Kong may not be taxed in Hong Kong as long as the company is structured properly as a non-resident Hong Kong company.
Hong Kong Representative Company: A representative company is a very common type of business that is formed by companies outside of Hong Kong who are interested in researching and analyzing a locality’s business environment before making a full investment. The representative company is relatively easy to form, and it does not require registration with the companies Registry. Moreover, the representative office (as well as the foreign company itself) do not need to file any financial or statutory returns with the Hong Kong government. The major downside to this type of company is that the representative office cannot engage in profit motive activities, this generally includes signing and/or entering into contracts.
Branch Office: a branch office is similar if not almost identical to a wholly-owned subsidiary. One of the main downfalls for this type of office is that because the branch is an extension of the main office as opposed to a wholly-owned subsidiary that might be tax issues from the main company’s country of citizenship/residence. In addition, there is potential exposure for the main office in the foreign country outside of Hong Kong.
Sole Proprietorship: as in most countries, a sole proprietorship is relatively simple to form and is not considered a separate entity. Moreover, the so propriety may be subject to personal liability for the full amount of the company debts.
Partnership: Hong Kong has both a general partnership and limited partnership. While a partnership is not a separate legal entity, Limited partners may be limited to the amount of their investment as to the liability they could be subject to for debts of the partnership. In addition, outside of limited partners the general partners may be liable for the actions of the other partners.
The following is a summary of FATCA: