Hong Kong
  • Singapore
  • UK
  1. Osome Blog Hong Kong
  2. What Is a Holding Company and How To Set Up One in Hong Kong?

What Is a Holding Company and How To Set Up One in Hong Kong?

What Is a Holding Company and How To Set Up One in Hong Kong?

You’ve probably heard of a holding company when searching on how to start a business. Holding companies exist in all countries, and you should have heard of a few well-known ones such as Alphabet Inc., Berkshire Hathaway and Johnson & Johnson. These companies are usually known as the ‘parent’ company while the companies under them are called ‘subsidiaries’.

In this article, we will go through what exactly is a holding company, what you should look out for when considering to open a holding company, why you should consider this option, and how to go about opening one.

What is a Holding Company?

To put it simply, a holding company is a parent’ company with a bunch of ‘children’ that live under the roof of the parent. It is however, still a business entity. A holding company does not perform any business operations such as manufacturing, sales or perform any services. It solely owns the assets of the companies under it.

Therefore, while a holding company can oversee a company’s management decisions, it does not vigorously participate in their subsidiaries’ daily operations.

Alphabet Inc. is a holding company based in California, and it has no business operations on its own. So how does the company stay open? How does it stay on the NASDAQ stock exchange as a trade stock then, if the company does not perform any sales or services?

Alphabet Inc. is fully driven by the earnings, cash flows, revenue and assets of the subsidiaries under it. These subsidiaries include DeepMind Technologies, Google Fiber, CapitalG etc. Without its subsidiaries, Alphabet Inc. will just be an ‘empty’ company.

How to Set up a Holding Company in Hong Kong?

Now that you’ve gotten a gist of what it means to open a holding company, let’s go through the steps to open one in Hong Kong. It’s not as difficult as you would expect. Hong Kong is a country with a relatively easy and straightforward process for company formations.

Things to take note of:

  1. You will need a minimum of one shareholder, a director and a company secretary. They cannot be the same person. If you are the sole director, you can be a shareholder but you cannot be the company secretary. So, minimum, you’ll need 2 people.
  2. If the company secretary is a natural person, he or she must ordinarily reside in Hong Kong. If the company secretary is a body corporate, the address of its registered or principal office should be in Hong Kong.
  3. There are no requirements for the share capital when setting up your holding company.
  4. The steps that apply to normal companies will also apply to holding companies.

If you are a foreign investor looking to invest in Hong Kong, subsidiaries or private limited companies can also operate as holding companies in the country.

The steps are similar to opening a normal company:

  1. Choose your business structure.

Private limited companies are most popular because the requirements needed for incorporation is somewhat lower.

  1. Prepare your incorporation documents.

These documents are the company’s constitutional documents which include its Articles of Association and registration documents. We have prepared a guide to Articles of Association in Hong Kong here as well.

Some things that the Hong Kong government expects every business to have includes:

  • A corporate secretary
  • A registered address
  • A business registration certificate
  1. Formally register with the Hong Kong Companies Registry.

You will need to submit the registration form, and pay the registration fee.

  1. Set up your accounting routine.

Here comes the difficult part. The accounting of any company is key. You need to take care of your accounting processes and take note of any tax exemptions you may be eligible for.

  1. You can start operating your company.

You can now start your business. For holding companies, you can now decide on your subsidiary companies.

If you’re still a rookie entrepreneur, we’ll advise against trying to incorporate a company yourself without any help. Don’t worry because our company secretary professionals in Hong Kong can assist you at any stage.

Next question. Why set up a holding company in Hong Kong?

Well, if you’re here you’ll probably be interested in opening a holding company in Hong Kong. The question is - how do you choose a justification to open a company?

You should look for a jurisdiction that allows investors such as yourself to incorporate easily within a few steps. The last thing you want is to go through numerous steps and then giving up halfway.

For starters, in Asia, notable countries include Singapore, Tokyo and of course, Hong Kong. Be aware that not all jurisdictions are advantageous to the investor, and you should choose one that is.

Some things you can look out for when choosing your jurisdiction:

  • Is company incorporation an easy process?
  • What are the legal laws in place in that country?
  • Is there a minimum capital needed to start a company?
  • What are the tax rates for both locals and foreigners?
  • Will I be maximising my earn rate if I set up a company in this country?

There are many advantages that draw investors towards Hong Kong for company incorporation. We will list out a few that we think are the most attractive.

  1. The Tax Regime

What we think is the biggest advantage that Hong Kong has against other countries such as the USA are mainly the tax advantages.

  • The first 2,000,000 HKD of profits earned is subject to an 8.25% profit tax, while any profits earned after this margin will be subjected to a 16.5% profit tax.
  • This rate is considerably when you compare it to the 25% Corporate Income Tax (CIT) rate that China imposes.
  • Only income produced in Hong Kong will be taxed according to normal taxation rules.
  • Income received by a Hong Kong company due to revenue from other states are not subjected to tax.
  • Hong Kong does not impose withholding taxes on dividends and interest.
  • China has concluded a double taxation agreement (DTA) with Hong Kong. This treaty provides a preferential withholding tax rate on dividends of up to 5%.
  1. Entrance into the China market

Hong Kong is close to mainland China, and it is good news for any investors looking to enter China’s markets. Not to mention, Hong Kong remains a key financial hub in Asia, and has a transparent legal and highly developed financial system.

  1. Corporate structure benefits

Cameron owns a US company. His US company owns an entity in Hong Kong. He will benefit from any China based assets or entities that his Hong Kong company owns as a Wholly Foreign-Owned Enterprise. In other words, even though Cameron does not have a Hong Kong company locally, he can use his existing US company to earn revenue from China that comes through his Hong Kong subsidiary.

Having a Hong Kong subsidiary under your company gives you the flexibility to earn from or sell your China based investments easily.

What to look out for when opening a holding company in Hong Kong?

  1. A holding company or non-resident legal entity needs to apply for a Tax Residence Certificate with the Inland Revenue Department

This is so that you can claim tax benefits. You may be asked to provide information about the place of operation and what your business is involved in.

These can include:

  • Whether or not the company has a local bank account
  • The fixed place of business (if applicable)
  • The number of employees (if any in addition to the administrative officers)
  • Whether or not board meetings were held in Hong Kong

If you wish to take advantage of the benefits included with the double taxation agreements between Hong Kong and other jurisdictions, you will require the Tax Registration Certificate.

  1. Make sure your holding company is compliant with local laws

As long as your holding company is not solely looking to get a tax advantage, and is not lacking in business operations, you will not be on the radar of the Organisation for Economic Cooperation and Development’s (OECD) base erosion and profit shifting (BEPS) program. The organisation looks to stop companies who are set up for the only reason of getting a tax benefit.

On top of that, Hong Kong is tightening their anti-money laundering regulations, as well as China having anti-circumvention laws on indirect transferring of taxable assets. Thus, it is important to remain aware of any application policies when you set up your holding company.
If you need professional assistance, we are able to help! Remember, if it’s your first time starting your own company or if you are unsure of the proper way to do so, it is always good to engage the help of the professional company secretaries in Hong Kong to ensure a smooth incorporation process.

Share this post:

Tips to run your business smarter.
Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

You might like it

Streamlining Payroll Process for SMEs: 5 Tips
Payroll

Streamlining Payroll Process for SMEs: 5 Tips

For a business to run smoothly, the payroll process must be streamlined and error-free. It is easy to streamline and optimize your payroll and other back-office processes within your SMB. Did you know that this can improve your cash flow?

A Guide to Offering Free Shipping Profitably
E-commerce

A Guide to Offering Free Shipping Profitably

Have you ever wondered who pays for the free shipping when you shop online? Turns out, it is possible to offer free shipping and have a profit margin at the same time.

A Guide to the Top e-Commerce Payment Gateways in Hong Kong
E-commerce

A Guide to the Top e-Commerce Payment Gateways in Hong Kong

Other than branding and marketing, these technologically savvy consumers are well acquainted with the Internet and convenient payment gateways and demand nothing less than a seamless e-commerce transaction.

8 Photography Tips for Your E-commerce Store
E-commerce

8 Photography Tips for Your E-commerce Store

Want to kickstart your start-up or bolster an existing online business? These 8 e-commerce photography tips could have a direct impact on small businesses owners in Hong Kong, take a look.

What To Do If I Want To Change My Company Name And Information?
Secretary

What To Do If I Want To Change My Company Name And Information?

If you want to change your company name, it’s relatively easy to do so in Hong Kong. And if there are other changes happening in your company - such as change in registered office address, new company director or secretary - you have 15 days to report these changes to the Companies Registry.

How To Hold Annual General Meeting
Secretary

How To Hold Annual General Meeting

The phrase “annual general meeting” (AGM) may conjure in your head an image of a hall filled with agitated shareholders grilling a row of executives seated on stage with difficult questions about the business, thanks to media coverage of AGMs in listed companies.

The Search for Niche Products and Getting Started Online
E-commerce

The Search for Niche Products and Getting Started Online

Launching an online business is not an easy achievement, with increasingly more entrepreneurs entering the online market space. Competition is fierce, product ideas are saturated, and consumers are getting more well-versed in sieving out the best prices for online products.

Deadlines To Keep In Mind To Stay a Compliant Company in Hong Kong
Secretary

Deadlines To Keep In Mind To Stay a Compliant Company in Hong Kong

Tax and filing deadlines are the bane for many company directors, but we can be fairly certain they’re here to stay. Whether you’re a Type A (“Deadlines are easy!”) or Type B (“When is my next deadline?!”) entrepreneur, we’ve put together this handy guide for you.

Annual Return Filing Dates To Take Note of for New Business Owners
Incorporation

Annual Return Filing Dates To Take Note of for New Business Owners

New business owners or even company officers may not be familiar with the necessary paperwork to deliver to local authorities for annual requirements. Everything is new. Starting a business in Hong Kong is already so tough and now there is paperwork to deliver to be compliant?

Osome Raises $16M in Series A Round for Its AI-based Accounting Platform To Expand Globally
News

Osome Raises $16M in Series A Round for Its AI-based Accounting Platform To Expand Globally

Osome has raised $16M in a Series A funding from a group of investors including Target Global, AltaIR Capital, Phystech Ventures, S16VC, Ace & Company and Peng T. Ong, who joined as an angel investor.

What Happens When You Avoid Tax in Hong Kong? A Guide to Tax Evasion Penalties
Tax

What Happens When You Avoid Tax in Hong Kong? A Guide to Tax Evasion Penalties

Hong Kong is well-known for its simple and straightforward tax regime, which makes the country one of the best places you could start a business in. However, despite the favorable tax rates, there are still cases of tax evasion which leads to legal consequences.

Osome Is Named Singapore Partner of the Year at Xero Asia Awards
News

Osome Is Named Singapore Partner of the Year at Xero Asia Awards

A confirmation of Osome’s commitment at innovation and customer service, this is simply a great way to end 2020. Find out more on how and why we won.

Tips to run your business smarter. Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

We’re using cookies! What does it mean?