Offshore company formation in Hong Kong is popular – 0% corporate tax, 0% dividend tax, who doesn’t like this?
But there is a lot of things to watch out for.
In this guide Raymond Mo, expert in incorporation of Hong Kong companies and helping foreign entrepreneurs to become 0% tax-free.
He is an accountant and specializes how to reduce taxes for entrepreneurs living in foreign countries (Vietnam, Thailand, Malaysia, Australia, or South America) through a Hong Kong company without living in Hong Kong.
Introduction
There is a lot of wrong information around offshore company formation in Hong Kong going around in the internet and people who are not experts in this field.
In this guide, we will go through
- 9 wrong assumptions we have encountered when talking to foreign entrepreneurs
- how the process actually works
Who is this article for:
This article is for entrepreneurs who have an online business (a service that is conducted through a laptop, e.g., software development, online consultation, marketing, e-commerce etc.).
Businesses such as barber shops or nail stores, where part of the service is conducted on-site, are not included.
It is most interesting for entrepreneurs who live in countries with beneficial tax systems that make not only a Hong Kong company tax-free, but reduces the tax income on their whole personal income (we discuss this more in detail later).
Offshore company formation Hong Kong: 8 wrong assumptions
Offshore company formation Hong Kong: Assumption 1
Assumption:
“You can open an offshore 0% Hong Kong company instead of a normal Hong Kong company from the start.”
Reality
Wrong.
There is no such thing as “opening an offshore company”.
You will open a normal Hong Kong company just like anyone else with company type limited liability etc.
Whether it becomes offshore or not is determined later.
Offshore company formation Hong Kong: Assumption 2
Assumption:
“An offshore company in Hong Kong is a type of company that is chosen by the founder.”
Reality:
Wrong.
An offshore company is a label.
You apply for it, and it is granted by the government after investigation.
Offshore company formation Hong Kong: Assumption 3
Assumption:
“Whether you have an offshore company or not is determined from the start of incorporation.”
Reality:
Wrong.
An offshore company label is given officially after 3 years.
You can apply from year 1 and not pay the corporate taxes.
But be aware after 3 years the tax government will go over documents to scan whether you fulfill all the requirements. If not, you have to pay the taxes for all 3 years.
Do you want to know before incorporation whether the government will approve the 0% offshore tax for you?
You can find out in our pre-incorporation eligibility call where we find out whether you are eligible for 0% tax offshore.
Offshore company formation Hong Kong: Assumption 4
Assumption:
“An offshore application is a simple application.”
Reality:
Wrong.
An offshore application means:
- A lot of documentation
- Yearly tracking of all documentation needed for you business, industry and meetings
Offshore company formation Hong Kong: Assumption 5
Assumption:
“As a founder I don’t need to do anything for the offshore company. My accountant does everything.”
Reality:
Wrong.
Your accountant will tell you based on your business and industry:
- all documents you need to keep each week, month
- all documentation you need to prepare
- all meetings etc.
He will also check your documents regularly: monthly, quarterly, yearly.
But it is your obligation to keep those documents ready.
Offshore company formation Hong Kong: Assumption 6
Assumption:
“Every accounting firm will be fine and know about the offshore process. It cannot be that hard.”
Reality:
Many accounting firms and agencies actually are not familiar with all requirements, especially for foreign business owners.
It needs:
- experience of having done this multiple times
- having a good network to the Hong Kong tax authorities
Further reading:
Read more about how you can determine whether an accounting company is good.
Offshore company formation Hong Kong: Assumption 7
Assumption:
“One step at a time. I focus on incorporation first. I worry about accounting and offshore company later.”
Reality:
Good approach to most things in life and business.
Unfortunately, in accounting it can lead to many problems.
Because:
- incorporation is relatively easy, but applying for an offshore company is hard (so if you don’t focus on the second on, it may get chaotic later)
- you can change your incorporation later, yes. But this would need a transfer of all documents and all information, which can be frustrating
- a small mistake one year can lead to not being granted the offshore label
Offshore company formation Hong Kong: Assumption 8
Assumption:
“The offshore company is granted for all foreigners who do not live in Hong Kong.”
Reality:
Very wrong.
The offshore company is granted when multiple criteria are met:
- no clients in Hong Kong
- no operations in Hong Kong
- not residing in Hong Kong
- and a few more
We conduct due diligence during our consultation calls to give you the green light on whether your business can pass the offshore company test. Feel free to talk to our experts by booking a call here.
If you are not ready for a call, you can watch this video with all the requirements to become a 0% offshore company:
Offshore company formation Hong Kong: Assumption 9
Assumption:
“I am 0% tax-free when I have an offshore company.”
Reality:
Wrong.
Yes, you are then 0% tax-free in Hong Kong (on corporate tax, dividend tax and capital gains).
This is on business level, but whether you are completely tax-free on personal level depends where you reside.
Example:
If you reside in Thailand, you can live tax-free. Yes.
Because Thailand does not tax foreign income from other countries.
If you live in Cyprus – it depends. Yes you can be tax-free, but it is more complicated.
Further reading:
Read more how to become tax-free in Cyprus.
We hope this helps to shed some light on this topic.
Further reading:
Here is also the official guide by the government with other questions and answers.
Offshore company formation in Hong Kong: The process
Let us also show you what the process for an offshore company looks like.
Step 1: Incorporation, bank accounts etc.
The first step is
- opening your company
- registering your virtual office address
- receiving all your business documents from the government
- opening business bank accounts
Once this is done, and you are able to operate your business, we as accountants take the next steps.
Step 2: Documentation
We will throughout the year tell you what documents to keep, save or prepare based on your business, industry and client locations.
Step 3: End-of-the-Year audit
End of each year, we will conduct your audit (we are CPAs, so we conduct the audits ourselves for you).
During the audit, we make the application for the offshore company.
Also, we will add all the documentation to the application.
This will be sent to the government.
We won’t go into the details to not bore you.
If you need more details, what we do in detail during audit please book a consultation call with us.
