Hong Kong LLC – A guide to fully understand a Hong Kong company setup before making a decision.

Hong Kong LLCs – many myths go around the globe about this certain company structure, but how does it really work, and more importantly, how does it fit you?

As a Hong Kong accounting firm, we wanted to end false information on the internet and publish this article to have both correct and concise information about Hong Kong LLC on a single webpage. 

Introduction

Who should read this article

This article is for business owners who

• want to open a Hong Kong LLC but are not sure whether it is suitable.
• have gathered a lot of different opinions about Hong Kong LLCs, but feel overwhelmed by what is correct.
• are comparing different offshore companies, such as Singapore LLC, US LLC, and Hong Kong LLC.

Why should you read this article?

Before starting a company in Hong Kong, especially as a foreigner, you should understand the basics of the company structure to

1. verify the company setup is indeed suitable to your situation 
2. understand your duties and responsibilities
3. identify good accounting firms

Once you understand these, you can buy back your time by giving these tasks to an accounting firm to handle them for you.

Practical Example: How does it look in practice?

There can be different purposes why foreigners may start a business in Hong Kong.

At our accounting firm, we have confronted the following cases and purposes:

1. Facilitate drop-shipping with Chinese manufacturers
2. Facilitate business within Hong Kong
3. Self-employed living in a country with complicated/restricted movement of money (Thailand, Vietnam, Philippines, etc.)
4. Self-employed living in a country with advantageous laws that make a Hong Kong company tax-optimal

If you want to discuss your case with us, book a free consultation session with our legal expert.

Let us present an example of a German self-employed software engineer living in Thailand. He can be categorized into cases 3 and 4.

Profile

Name: Max Mustermann (name changed for privacy reasons)
Nationality: German
Residency: Thailand
Annual income: USD 110k
Branch: Software engineer

Problems: 

1. His German clients need a proper invoice from a company to make it tax-deductible
2. His German clients are afraid of “Scheinselbständigkeit” (German for working only one client as a freelancer, which by German law is prohibited) 
3. He wants to reduce taxes as much as possible

The HK company solution:

• Company members:
  • Shareholder (100%): Max Mustermann
  • Director: Max Mustermann
  • Secretary: Xiu Li (a secretary appointed through Reachtop)
  • Number of Employees: 0
  • Company type: Limited Liability Company
• Company bank account: Airwallex
• Payouts:
  • Salary for director: 0 HKD
  • Dividends for shareholder:
    • Monthly payout of 5k USD
    • End of the year payout: Approx. USD 40  – 50k
    • Transferred to: German personal bank account (DKB)
  • Payables:
    • Invoices from accounting company (Reachtop)
    • Monthly invoices from freelancers to various countries, including Germany, India, Vietnam.
  • Revenues:
    • Monthly invoices to German clients 
• Taxes:
  • Company tax: 0% (applied and granted the offshore company status)
  • Dividend tax in HK: 0% (no dividend tax in HK)
  • Dividend tax in Thailand: 0% (no taxes on income that is not brought into Thailand) 
• Costs and fees:
  • Capital investment: USD 1
  • Setup cost: approx. USD 2000
  • Yearly accounting/auditing costs (starting from 2nd year): approx. USD 3000  

Results:

1. German clients receive proper invoices to make them tax-deducible (making it B2B invoices)
2. A HK company is a business registered under HK law that does not fall under German jurisdiction 
3. He pays 0% tax as dividends are not taxed either in HK or in Thailand

1. Hong Kong LLC: What is the structure of a company in Hong Kong?

Company types: What are the different types of business in Hong Kong?

There are four main types of companies:

• Sole proprietorship
• Partnerships
• Limited liability companies (LLC)
• Corporations

In this article, we mainly focus on limited liability companies (LLCs) as these are the most common scenarios, in particular for foreign business owners.

Further reading:
Read more about the different types of company structures (coming soon).

Mandatory figures: Who are essential roles in any Hong Kong company?

• Directors: At least one director, no residency requirement.
• Shareholders: No residency requirement, can be a corporate shareholder.
• Company Secretary: Mandatory, must be a local person or entity with TSCP licence.

Hong Kong and China: Is Hong Kong dependent on China?

While Hong Kong is part of China, it operates under its own legal and business framework. This means simpler regulations and lower taxes compared to mainland China.

Public Disclosure & Nominees: Will my name be publicly visible?

Directors’ and shareholders’ names are publicly available (see screenshots below).
Nominee services can help maintain privacy for the ultimate beneficial owner (UBO) to the public and restrict access only to government authorities.

In case this is of interest, please discuss this in detail with us during our free consultation call.

Licensing

Only a few businesses need a license to operate in Hong Kong, e.g.

• financial services
• import/export
• food services.

Other businesses (especially online-conducted operations) do not require a license, e.g.

• an e-commerce business, 
• trading company, or 
• consulting firm (IT, marketing, coaching). 

2. Costs: How much is a Hong Kong LLC? 

As a licensed CPA, I’m not allowed by law to publicly disclose my fees, but I can provide you with a general idea of the typical market range so you can budget accordingly:

Setup costs (1st year):  How much does it cost to register a company in Hong Kong?

For the first year, you should budget approximately USD 1,000 to USD 2,000 for incorporation costs.
This range typically covers government fees, formation costs, a company secretary, and a virtual address.
The minimal capital required is HK$ 1.

Ongoing annual costs/fees (2nd year onwards):

From the second year onward, you should budget approximately USD 3,000 to USD 4,000 annually.

This fee can be divided into two parts:

Part 1 – Annual Renewal: approx. USD 1000
This includes the annual renewal fee, maintaining the services of a company secretary, and a virtual address.

Part 2 – Auditing and Tax filling: Approx. USD 2,000 to USD 3,000.
This covers the cost of annual auditing and tax filing, carried out by a qualified CPA. Fees can vary based on the nature and size of your business, but reserving USD 2,000 as a starting point is a common practice in the market.

Further reading:
Read more about the process of how to start a business in Hong Kong as a foreigner.

Important consideration:
Beware of low-cost incorporation agencies.
They are often not qualified accounting firms with full licenses.

This means they have an accounting firm as a sub-provider and due to many parties, this can often lead to miscommunication or wrong legal consultation, especially when it comes to more complicated process such as being granted the 0%-tax-offshore company label.

Further reading:
Read more about how to choose the right service provider for registering your company.

3. Hong Kong LLC Taxes: How is the tax system for a Hong Kong LLC?

We will list all types of taxes and the respective tax rates.

Examples of corporate tax:

Let us give an example of how the corporate tax works.

Example 1: Company profit is USD 100k
This is below USD 250k, then there is an 8.25% tax rate.
This means you pay 8.25% x USD 100k = USD 8.250

Example 2: Company profit is USD 300k
This is above USD 250k, which means until USD 250k the 8.25% applies, and the rest (300k – 250k = 50k) is taxed at 16.5%.
So, here is the calculation:
– 8.25% x USD 250k = USD 20.625
– 16.5% x USD 300k = USD 8.250

USD 20.625 + USD 8.250 = USD 28.875

Further reading:
Read more how to apply as an offshore company and be granted a 0% tax exemption as mentioned in case 1 in the corporate tax (see table above).

4. How Money Leaves the Company

There are four ways how money is allowed to legally leave the company business bank account.

• Business Costs: Payments to service providers, freelancers, and others are straightforward, with no major restrictions.
• Loan Arrangements: You can arrange loans between your company and other entities or individuals. There are no tax implications for money going in or out, unless the funds are defined and accounted for as revenue.
• Employee Salaries: Paid directly from the company account, with MPF contributions.
• Dividends: Can be distributed without withholding tax; no frequency restrictions, but proper documentation is required.

5. Payouts: How to pay yourself?

You can pay yourself in two ways.

• Director Salaries: You can pay yourself a salary, but this is subject to tax (5%, see above section taxes)
• Dividends: Not taxed and can be transferred to any local or international bank.

Most of our clients (as in the German software engineer above) prefer to only pay out dividends to keep the taxes to a minimum.

6. Hong Kong LLC Invoicing: How can I invoice clients and how can providers invoice me?

• Flexible Invoicing: Since Hong Kong has no VAT or GST system, there is no standard format for invoices. This provides businesses with more flexibility in their invoicing practices, allowing them to tailor their invoices to their specific needs and operations.
• Receiving Invoices: Ensure all invoices are legitimate and properly documented for audits.

We will guide our clients in a kick-off meeting after our free consultation session.

7. Hong Kong LLC: Business Bank Accounts

Traditional Banks & Fintech Options
Both traditional banks and fintech options in Hong Kong offer high levels of government protection, all your money stored locally will be guaranteed by the Hong Kong government, ensuring the safety of your funds. 

Whether you opt for a traditional bank or a modern fintech solution, you can expect a secure and reliable banking experience.

Further reading:
Read more about 

• how to open a bank account in Hong Kong (coming soon) and 
• which banks are the most suitable for your situation

Freedom of Money Transfers
One of Hong Kong’s greatest advantages is the complete freedom to move money in and out of the country. 

There are no restrictions on foreign exchange, and all major currencies can be freely traded and stored in Hong Kong through multi-currency accounts.

8. Company Registration and Deregistration

Registration: How to set up a company in Hong Kong?

Incorporation in Hong Kong can be done entirely online and remotely, making it simple for international entrepreneurs to set up their businesses without needing to be physically present. The process typically takes 1–3 days.

Opening a bank account takes another 5 to 7 days (with Fintech banks) until you can then receive money from your clients.

Further reading:
Read more about how to set up a Hong Kong LLC as a foreigner.

Deregistration: How to close a limited company in Hong Kong?

Shutting down a company in Hong Kong requires 3–6 months, as all outstanding liabilities need to be settled, and final audits must be submitted.

9. Hong Kong LLC: Director’s and shareholder’s duties

Duties during setup for a Hong Kong LLC:

To set up a Hong Kong LLC, it requires from both the director and shareholder the following documents:

• Passport copy
• Proof of resident address

In the end, it also requires a signature which can be done fully digitally.

Annual duties for a Hong Kong LLC:

Your Hong Kong LLC needs to fill out the yearly annual form to update the information and do the tax filing. Both of those your company secretary will take care of and you need to sign it as a director at the end.

Further reading:
Read more about your annual duties as a director and shareholder.

10. Hong Kong LLC: Usual fears.

Is Hong Kong Part of China?

Yes, but Hong Kong operates under the “One Country, Two Systems” principle, maintaining its own legal, financial, and economic systems. The most significant difference between Hong Kong and mainland China is the freedom of money movement. 

In Hong Kong, there is no exchange control or currency registration, offering businesses full freedom to transfer money wherever and whenever they need it. Additionally, the Hong Kong Dollar (HKD) is pegged to the US Dollar (USD), providing stability in international transactions, which is not the case in mainland China.

Hong Kong’s legal framework is based on common law, which is an advantage for businesses operating in an open and transparent economy. This legal system, derived from British law, offers higher predictability and protection for international investors and entrepreneurs.

Conclusion

Hong Kong is a top destination for global entrepreneurs and investors due to its low taxes, straightforward company setup, and access to international markets. Whether you’re starting a new business or expanding an existing one, Hong Kong’s efficient and transparent system provides an ideal environment for growth.

With no tax implications on money in and out unless it’s classified as revenue or profit, Hong Kong offers flexible, low-tax solutions for businesses of all sizes. The ability to freely move money and the strong legal protections rooted in common law make it a highly attractive business hub.

What other clients have asked

1 – Who can be a director of an HK company?

The only requirement is to be older than 18 years.
Neither nationality nor residency matters to become a director – this means local people and foreigners alike can be appointed to be a director.

2 – Does Hong Kong have an LLC company type.?

Yes, it does.
It is indeed one of the most chosen company types.

3 – What is a Hong Kong limited company?

A Hong Kong limited liability company protects the assets of the shareholders in case of bankruptcy. 

4 – Is it easy to open a company in Hong Kong?

Yes. It is easy because of very few document proofs (passport copy, proof of address of residency), fast (it takes less than 24 hours), and convenient (it can be done online).

5 – What is the minimum capital for Hong Kong LLC?

HK$ 1.

6 – What is the minimum number of directors in a private company Hong Kong?

It requires only 1 director. 

7 – What is capital injection in Hong Kong?

The capital injection is a one-time investment shareholder of a Hong Kong LLC have to do at the start of registering a company.

8 – Can a foreigner be a director in a Hong Kong company?

Yes, unlike Singapore LLCs, in Hong Kong the director can be a foreigner.

9 – What is the difference between a director and a shareholder in Hong Kong?

The only difference is that there must be at least one director who is a natural person.

The director and shareholder can also be the same person.

10 – Do you pay capital gains tax in Hong Kong?

No, Hong Kong does not tax capital gains.

11 – Can foreigners start a business in Hong Kong?

Yes, but they usually need legal assistance in registering a Hong Kong LLC.

12 – Can foreigners own companies in Hong Kong?

Yes, they can be 100% shareholder of a Hong Kong LLC.