Setting Up a Limited Liability Company in Hong Kong

Limited Liability

One of the main advantages of an LLC is that from which it gets its name. Limited liability protects owners against debt and liability, in a way that a sole proprietorship or partnership does not.

In the case of an LLC, creditors cannot claim the owner’s assets when looking to repay debt. Instead, they can only claim the money owed from the business and only the firm’s assets can be liquidated to repay the debt. In this way, personal assets are protected and the owner cannot be held personally responsible.

For example, if you lost business to a competitor and were no longer able to pay your rent or bills, you would owe creditors a sum of money. However, while plaintiffs would have the right to claim money from the organisation, they couldn’t go after the owner’s personal assets, such as a house.

In essence, the amount of money for which you would be liable if your firm was bankrupt or sued is restricted by the corporation structure, acting as a form of safety net.

Full Foreign Ownership Permitted

With the exception of a few specific sectors such as broadcasting, an HK-based corporation with limited liability status can have 100% foreign ownership. There is also no requirement for shareholders who are residents there.

Hong Kong encourages foreigners to set up businesses because of their contribution to the country’s overall incremental growth. As such, foreigners can be directors or shareholders of an HK-based business with no need to have a local resident do so instead.

Owners also don’t need to be physically present in order to incorporate a company in Hong Kong, which makes it easier to set up your firm while overseas. However, bear in mind that the owner must be present to open a bank account.

Finally, you do not need to relocate to HK in order to run your company operations and can run your firm from abroad. You can find out more about this in our guide on how to open an offshore company or this article on how to set up a business in Singapore from Hong Kong.

Taxation and Benefits

Something that appeals to potential owners about incorporation in HK is the light taxation regime. In the 2018/19 financial year, corporation tax rates were 8.25% on the first HKD $2 million, and 16.5% on any remaining taxable profits, which is very low compared to other countries.

There are other taxes to pay including social security for both the employer and the employee, as well as stamp duty and real property tax. However, there is no payroll tax or capital duty payable in HK. In addition, the government doesn’t charge tax on sales, services or dividends.

Limited liability companies also benefit from tax deductions — another reason that makes incorporating here so appealing. In general, HK has relatively hassle-free tax procedures and clear-cut rules and regulations.

One of the main reasons people choose to incorporate in the Special Administrative Region is the low corporate income tax, no VAT and no sales tax. Finally, only profits derived from HK are taxable for LLCs.

Flexibility of Share Allocation

When it comes to investing and profit sharing, a limited liability company structure provides a lot of flexibility. Within this structure, members can invest in a different proportion than they own. For example, if someone owned 30% of the company, they do not need to contribute the same amount of initial investment.

This means that an outside investor can put money into the organisation without having any ownership. It also allows companies to allocate or distribute profits in different proportions than ownership. For example, a member may own the same amount in shares as another, but has contributed more hours, so they might take a bigger portion of the profits to reflect this.

The operating agreement mentioned earlier is key to making this work, as it states the percentages each member will receive, regardless of their initial investment or ownership proportion. This level of flexibility is appealing for many because it allows for a more true monetary representation of how much each member has contributed.