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Hong Kong is not only a top-tier financial hub — it is also one of the most expensive places to stay. Anyone working in Hong Kong, especially those who have low-income jobs, needs a minimum wage to keep up with living expenses.

The Minimum Wage Ordinance and Minimum Wage Commission lay down the government-mandated wage that a person employed in Hong Kong should receive and protects them against unduly low pay.

Here is an ultimate guide exploring Hong Kong’s minimum wage landscape. Read through to learn how to calculate your employee’s earnings to ensure compliance with Hong Kong’s minimum wage law.

Understanding the concept of minimum wage

Let’s start with the basics before diving deep into minimum wages in HK.

Definition of minimum wage

The International Labour Organization defines minimum wage as the minimum remuneration a worker should receive for their work.

The minimum wage is usually decided through a minimum wage ordinance/statute, a wage board, industrial and labour courts, or tribunals. Collective agreements between trade unions and employers can also decide the minimum wage payable.

No agreement can reduce the statutory minimum wage payable. Employment contracts agreeing to any reduction are void under the law.

The rationale behind minimum wage policies

The chief objective is the protection of workers against excessively low pay.

Enforcing statutory minimum wages also ensures that workers receive fair wages to access the necessities of life and stay above the poverty line. From the standpoint of welfare economics, the statutory minimum wage is also considered a tool to minimize societal inequality.

Guaranteeing minimum pay incentivizes workers to be more productive and produce better-quality work.

Minimum wage systems around the world

A majority of countries across the globe follow minimum wages.

United Kingdom and New Zealand were some of the earliest countries to pass legislation to guarantee minimum wages.

Some countries follow a national minimum rate for all workers, while others apply different rates based on the sector, geographical region, population, and enterprise size.

Hong Kong’s statutory minimum wage rate

Here’s a brief overview of the statutory minimum wage system in Hong Kong.

Background and implementation

The Minimum Wage Ordinance enforces the Hong Kong minimum wage.

It applies to every employee and their employer, subject to the exceptions below.

Before the ordinance, a 1932 legislation and the Trade Board Ordinance of 1940 gave powers to the governor to establish minimum wages. But the governors did not propose any minimum wage under these legislations.

The Hong Kong government proposed a Minimum Wage Provisional Commission in February 2009 to reduce the widening wealth gap. The Minimum Wage Ordinance was finally passed in 2010 and bought into effect in May 2011.

Eligibility and exceptions

All employees, including those who are disabled, are eligible to receive Hong Kong minimum wage irrespective of their:

• employment contract (whether permanent, continuous, casual, full-time, or part-time)
• wage payment period (whether monthly, weekly, daily, hourly or per piece basis)

No statutory minimum wages are available for :

• live-in domestic workers (including domestic helpers, chauffeurs, gardeners, or other personal helpers) who receive free housing from their employer;
• student interns and work experience students; and
• anyone not covered by the Employment Ordinance. E.g. anyone serving their employment contract outside Hong Kong and apprentices registered under the Apprenticeship Ordinance

Current statutory minimum wage rate in 2023

From 1 May 2023, HK’s statutory minimum wage (SMW) is HKD 40 per hour. This means that regardless of the wage period, no employer should pay below the statutory minimum wage rate.

The monthly monetary cap for employers recording the total hours clocked in by an employee is fixed at HKD 16,300. So if the employer pays an employee less than HKD 16,300 as wages per month, they need to record the total number of hours worked by that employee during a wage period.

Calculation of hourly wage rate

The minimum wage ordinance only provides a wage floor and doesn’t mandate hourly wage payment.

It doesn’t state that each hour’s wage should meet the statutory minimum. The employer’s only obligation is to ensure that the wages paid are not less than the statutory amount when averaged over the total hours clocked in during a wage period.

Here’s the formula to calculate the minimum wages payable by an employer:

Minimum wage = Total working hours in a wage period x Statutory Minimum Wage (currently, HKD 40 per hour)

The Labour Department’s Minimum Wage Reference Calculator is also a handy tool to work the minimum wage your employee is entitled to and whether you are paying above their entitlement based on their current salary.

Wage policy and government regulations

The recommendations of the Minimum Wage Commission influence the policy decisions on minimum wages in HK.

The role of the MWC is to strike a balance between promoting Hong Kong’s economic growth and protecting workers against excessively low wages.

Role of the Minimum Wage Commission

The Minimum Wage Commission (MWC) is an independent statutory body in Hong Kong. It has been established under the Minimum Wage Ordinance.

The job of MWC is to submit recommendations on minimum wages to the Chief Executive at least once every two years. The Legislative Council passes the law on minimum wages based on MWC and Chief Executive’s recommendations.

While reviewing the minimum wage rate, MWC conducts in-depth discussions with various organizations representing employers and employees and analyzes statistical information.

Wage adjustment mechanism

Setting the floor for wages is the most critical part of a minimum wage system.

Workers don’t receive effective protection against poverty when the base is too low. If the base is too high, the unemployment rate goes up.

MWC adopts evidence-based criteria for wage adjustment mechanisms. Apart from taking into account the views of the public and stakeholders, it conducts impact assessments.

Impact assessment includes various SMW test levels to evaluate the potential impact on employees, employers, inflation, and unemployment rate based on different economic assumptions.

Factors considered in determining minimum wage

Some key factors that MWC considers for calculating minimum wage include:

• Prevailing economic conditions
• Demand and supply in the market
• Productivity of labour
• Prevailing wage rates
• Bargaining power of trade unions

Enforcement and penalties for non-compliance

As per the Employment Ordinance, any employer that doesn’t pay minimum wages is liable to pay a fine of HKD 350,000 and face imprisonment for three years.

Economic Impact of Hong Kong’s minimum wage policy

Here’s how the minimum wage policy of Hong Kong may impact the following:

Income inequality

Increasing the minimum wage can reduce poverty and income inequality by minimizing the gap between wages.

Employment rates and labour market

Critics of minimum wages argue that enforcing a wage floor can lead to employers hiring fewer workers. But there is insufficient evidence to support the premise.

The employment rate may reduce in labour-intensive industries where labour costs make up a chunk of the total production cost.

Supporters of minimum wages suggest that the employment rate may increase if minimum wages increase domestic consumption and demand.

Cost of living and inflation

Increasing the minimum wage is unlikely to significantly increase inflation and the cost of living in Hong Kong.

In fact, labour groups in HK argue that the minimum wage revision of May 2023 is still less than the accumulated inflation rate over the last four years.

Businesses and industries

The statutory minimum wage is only the wage floor for employees. It doesn’t mean Hong Kong employers are only liable to pay the minimum wage. They still need to comply with relevant provisions of the Employment Ordinance and also honour other statutory and contractual entitlements such as leaves, meal breaks, and rest days.

Some business owners have also expressed concerns about a ‘knock-on effect‘ due to the periodic increase in minimum wages in HK. They argue that raising the wages of employees who earn well above the minimum is an added burden to preserve the wage hierarchy.

Comparing Hong Kong’s minimum wage to other regions

Learn how Hong Kong’s minimum wages fare compared to the rest of the world:

Minimum wage rates in other countries

Here’s a snapshot of the current minimum wages:

• Mainland China: Each province in China can decide its minimum wage. The highest monthly minimum wage is in Shanghai at RMB 2590. Hunan has the lowest monthly minimum wage at RMB 1220.
• Switzerland: No national minimum wage. Each Canton can determine its minimum wage. At present, Geneva pays the highest hourly minimum wage of CHF 23.
• Australia: Approximately 812.50 Australian dollars per week
• United Kingdom: Employee’s age determines the minimum wage they earn.. The hourly wage is £10.18 for workers aged 21 to 22, £7.49 for workers aged 18 to 20, and £10.42 for workers above 23.

Factors affecting wage rate differences

A number of factors contribute to the variation in minimum wages across countries. These include:

• Regional economic conditions
• Cost of living
• Differences in labour market conditions
• Size of the enterprises
• Population
• Sector-specific economic factors

Lessons from other minimum wage models

Here’s what Hong Kong can consider incorporating:

• Implement an age-based minimum wage system similar to the UK.  A national minimum wage is paid to anyone between 16-22 whereas a national living wage is available for workers aged 23 and above. The national living wage is higher than the national minimum wage.
• Permit specific industries to formulate their minimum wages in HK, depending on their capacity to pay and the skills of the workers
• Annually review the minimum wage to take into account rising living costs and inflation

Navigating Hong Kong’s minimum wage landscape as an employer

Are you looking to register your business in Hong Kong and get employees on the roll? Here’s how to cruise through the statutory minimum wage requirements:

Ensuring compliance with minimum wage regulations

Consult with an employment law lawyer to stay updated about the latest changes to Employment and Minimum Wages ordinances.

Integrating minimum wage policies into payroll management

Outsource your payroll processing to a trusted service provider to keep your accounting system up to date with the latest minimum wage laws.

Strategies for managing labour costs

Investing in training to make employees more productive to counter increases in labour costs due to higher minimum wages.

Moreover, given that higher labour costs may also increase a firm’s tax burden, consult an accountant for efficient corporate tax planning and filing.

Employee engagement and satisfaction

Ensure that the average wages of employees are above the minimum wage limit to promote employee satisfaction and motivation.

Future of minimum wage in Hong Kong

The future of minimum wages in Hong Kong is uncertain as there are multiple actors are at play.

Here’s a look at some of the key aspects:

Potential Changes and Trends in wage policies

Hong Kong’s economy faces significant challenges due to the ongoing global economic crisis in the wake of the COVID-19 pandemic and geopolitical risks.

As MWC noted in its findings, increasing minimum wages in such an economy can force enterprises to reduce headcount, leading to unemployment.

As such, the government may freeze the statutory minimum wage rate until the economy bounces back. Between 2011 and 2018, when the Hong Kong economy was in a better position, the minimum wage rate increased from HKD 28 to HKD 37.5. However, from 2019 until 2023, it has only increased from HKD 37.5 to HKD 40.

Role of Government and Policymakers

Hong Kong’s government faces significant public pressure to reconsider the mechanism of deciding minimum wages in light of the protests and demonstrations.

The government has also pointed out the need to balance the interests of businesses and workers and avoid sharp increases that may potentially impact employment rates.

Advocacy and workers’ rights movements

Labour groups in Hong Kong have been consistently critical of the minimum wage revisions by the government.

They believe employers should pay a living wage, estimated to be HKD 60 currently, to meet the basic needs of employees in an expensive region such as Hong Kong. Worker rights movements have also urged the government to consider minimum wage reviews every year instead of reviewing them once every two years.

Conclusion

To recap, as an employer in HK, you cannot offer wages below the statutory minimum. Failure to pay minimum wages attracts civil and criminal liability.

While minimum wages protect the employees, they also directly impact a business’s bottom line. Given the economic situation of Hong Kong, there is a greater need for closely monitoring the minimum wage policies that create a win-win situation for all.

Running a business in Hong Kong can be challenging when you have to ensure compliance with labour and employment laws. Need help with starting up in Hong Kong and sailing through legal compliances?

Contact Air Corporate today so we can guide you in the right direction.

FAQ

How to calculate Hong Kong minimum wage for my employee?

You need to multiply the hours an employee works by the current statutory minimum wage to work out the monthly minimum wage.

What is the current minimum wage in HK?

From 1 May 2023, the minimum wage in HK is HKD 40 per hour.

Do employers need to pay minimum wage in HK for rest days?

Employers and employees can agree on the payment of minimum wages for rest days and the manner of calculation.

There is no obligation under law to pay minimum wages for rest days.

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In the ever-evolving modern business landscape, embracing a remote workforce is a win-win for all stakeholders, thanks to the flexibility offered. While only a certain section of the global workforce worked from home before the pandemic, the mass transition to remote working became a reality in the post-COVID-19 world.

Being gainfully employed no longer means working out of a physical office.

Your employees can work anywhere in the world and still get their work done. And if experts are to be believed, companies opting for remote workforces to give employees the freedom to work from any location they choose are here to stay. 

The remote working landscape in Hong Kong consists of:

(i) Employees based and employed in Hong Kong and seeking to work remotely within Hong Kong and

(ii) Employees employed and based outside Hong Kong and seeking to work remotely from Hong Kong.

In this guide, we’ll explore the various legal and practical considerations before setting up a remote workforce in Hong Kong along with insights into creating an effective remote work policy for seamlessly managing your employees.

Understanding Remote Workforce in Hong Kong

Remote work refers to a form of employment where the employees do not work from a central office of the employer. Typically, such employees do not commute to any office and can work from anywhere they want as long as they can access the internet and their laptop.

There are various types of remote working arrangements.

Some remote workers are fully remote, which means they never have to walk into an office and can work remotely 100%. Some employers only allow certain employees to be remote workers depending on their geographic location and job function.

Freelancers and independent contractors in specific sectors are also technically remote workers, although they are not bound by any formal employment contract.

Remote working is prevalent in Hong Kong. Hong Kong companies hiring globally prefer having a remote workforce and hiring candidates from countries such as Ukraine, India, the Philippines, the United Kingdom, and the United States. A survey found that in 2022, 89 percent of employment contracts offered by Hong Kong companies were for remote work.

Hong Kong is also a popular destination for digital nomads working remotely as self-employed individuals or under an employment contract for companies in the United States, the UK, Canada, Singapore, and Denmark.

But to become a remote-friendly company doesn’t mean you cannot have a physical office in Hong Kong.

Several companies set up a branch or representative office to establish their business presence.

The advantages and disadvantages of a remote workforce are as follows:

Advantages

• Reduced costs for both employer and remote worker
• Remote workers can set up their schedules and work flexibly
• Remote workers enjoy a better work-life balance
• Employers get access to a diverse and wider pool of candidates with specialized skills
• Reduced absenteeism
• Better productivity of employees

Disadvantages

• Security is a major concern for employers and remote workers, especially those handling sensitive or confidential information
• Unstable internet access can prevent remote employees from performing their tasks on time
• Training remote employees is a challenge

Legal Aspects of Setting Up a Remote Workforce in Hong Kong

Every employee in Hong Kong enjoys several legal rights under Hong Kong laws, which extend to those who are part of a remote workforce. There is also no distinction between employees hired by a non-Hong Kong company and a Hong Kong company.

However, no legal protections are available to independent contractors/freelancers who are remote workers.

Employment Law and Labor Ordinance

Employee Rights and Protections

Key rights and protections available to all employees include:

• Protection from discrimination on any ground, including sex, marital status, disability, and race
• Receiving minimum wages
• Minimum paid holiday entitlement and paid time off for illness or injury for four consecutive days

Continuous employees are also entitled to paid annual leaves, maternity/paternity leave, sickness allowance, rest days, and severance or long service payments. A person must work for 18 or more hours weekly for the same employer for at least four weeks consecutively to qualify as a continuous employee.

Courts have held that even if Hong Kong law doesn’t govern the employment contract, employees working in Hong Kong still enjoy employment protections offered by law, and employers cannot bypass compliance obligations. This also applies to remote workers and entitles them to enjoy employee benefits per Hong Kong law and the foreign law applicable to the employer’s central office.

Employer obligations

Key obligations under the Hong Kong Employment Ordinance include:

• Paying minimum wages
• Enrolling employees in the mandatory provident fund scheme and making a contribution
• Maintaining necessary insurance coverage to cover liabilities for work-related injuries, if any
• Providing annual leave, statutory holidays, maternity and paternity leave, sickness allowance, severance, etc.
• Ensuring a safe work environment
• Providing minimum notice of termination or payment in lieu

But a foreign entity employing remote workers in Hong Kong is unlikely to provide the benefits under the scheme unless it holds a business registration certificate in Hong Kong.

Visas and Work Permits

If an individual is a national or a resident of Hong Kong or has a valid employment visa to work in Hong Kong, they can work remotely from Hong Kong. Persons holding a Hong Kong permanent identity card can also freely take up remote employment in Hong Kong and work for foreign entities.

There is no special visa for individuals who are not Hong Kong nationals but want to relocate as digital nomads and take up remote work opportunities in Hong Kong. But they can apply under the Quality Migrant Admission Scheme or the General Employment Policy.

Under the Quality Migrant Admission Scheme, applicants don’t need any offer of local employment before they enter Hong Kong. However, applicants must have a confirmed employment offer if they apply under the General Employment Policy.

Taxation

Both employers and remote workers have tax obligations in Hong Kong:

Employer tax obligations

Since Hong Kong follows territorial tax laws, profits arising in or derived from Hong Kong are taxable. Employers with a tax presence in HK must file annual tax returns and the most recent audited financial statement.

Any overseas company that employs persons in Hong Kong to carry on its business as part of its remote workforce may be considered a Hong Kong permanent establishment. A Hong Kong PE is subject to local tax laws, subject to a double taxation agreement.

Every employer in Hong Kong also should notify the Inland Revenue Department about the commencement and cessation of employment of its employees in Hong Kong.

Employee tax considerations

A foreign individual who works remotely from Hong Kong is subject to Hong Kong salaries tax, provided their employment income is derived from Hong Kong. This is subject to any double taxation avoidance agreement between Hong Kong and the individual’s country of residence.

If an overseas employer employs a foreign national who works remotely from Hong Kong, they will likely be considered non-Hong Kong employees. They only need to pay salaries tax on income directly from services provided in Hong Kong.

Insurance

Corporate insurance is a crucial aspect of maintaining a remote workforce.

Mandatory insurance requirements

The Hong Kong labor department states that employers must compensate employees for work injuries, occupational diseases, and death.

Employers should purchase and maintain compulsory employee insurance of at least HKD 100 million if employing up to 200 employees and at least HKD 200 million if there are more than 200 employees.

Employers cannot provide insurance coverage through salary deductions.

Additional insurance options

There is no maximum insurance coverage laid down under Hong Kong law. So employers are free to purchase a higher coverage depending on the job function of the remote worker.

Practical Aspects of Setting Up a Remote Workforce in Hong Kong

When you set up a remote team, it’s important to understand the practical aspects that are required.

If you’re opting to get a remote business address in Hong Kong or other options, it’s critical to understand these aspects beforehand.

Here are some things you should consider.

Establishing a Remote Work Policy

A remote work policy clearly outlines employees’ and employers’ expectations when work is done remotely.

Hiring a remote workforce without a formal policy can lead to miscommunication and confusion. Here’s what you should consider while framing one:

Scope and objectives

A remote work policy aims to broadly lay down the scope of work of remote workers, rights and obligations, and how the employer will evaluate their performance.

A well-drafted policy ensures that even though employees may be working remotely in different locations, they know relevant resources and protocols to perform their tasks efficiently.

Eligibility and Expectations

The policy should clearly specify which job functions are allowed to work remotely. It should also clarify whether the policy applies to full-time or part-time employees working remotely.

The availability expectations from remote employees should be clearly stated in the policy and state whether employees have the flexibility to decide their own schedule, or if they should be available from 9 AM to 5 PM on all working days.

Communication guidelines

Remote working requires efficient communication.

The policy should lay down whether employees working remotely are expected to respond to their coworkers immediately on a real-time basis or if an asynchronous mode of communication is acceptable. Including an indicative response time guideline can be useful.

It should also identify a digital workplace platform/communication tool all employees should use for all project-related conversations.

Performance and accountability

The remote working policy should lay down the working hours of everyone working remotely.

It should also lay down what KPIs are taken into account for evaluating the performance of employees.

Technology and Infrastructure

Managing a remote workforce is highly dependent on technology. Here are a few things to keep in mind:

Remote work technology essentials

To allow your employee to work smoothly from a remote location, ensure they have access to relevant hardware such as a laptop with an in-built web camera, other mobile devices, USB or external drives, etc.

Avail the services of a reliable third-party cloud hosting provider to upload all your files, databases, and applications your employees need to access.

Security and data protection

Ensuring compliance with data protection law is a non-negotiable for data security.

Create a comprehensive cybersecurity policy telling employees how to handle sensitive and confidential data. Have virtual training to sensitize remote workers about potential threats. Make it mandatory for the mobile workforce to use virtual private network software for business.

Implement a strong password policy and multi-factor authentication for the mobile workforce as a security measure.

Ensuring seamless collaboration

Working remotely can make collaboration awkward and clunky, resulting in poor productivity.

To overcome obstacles, opt for cloud business communication platforms that support video and voice needs and can be easily integrated into your existing workflow. Establish clear communication protocols to make remote collaboration work smoothly.

Hiring and Onboarding Remote Employees

How do you know if someone will make an excellent remote employee? The process you follow to make a hiring decision can make all the difference.

Sourcing talent

The first step is coming up with a job description. To create a solid JD, provide details of the position and the skills you seek. Add a line or two about your company values and ethos. This will help you to filter candidates who do not fit the bill.

Post the details on popular head-hunting websites as well as the social media accounts of your company.

Remember to share the JD with your existing employees if you have a referral system.

Interviewing and selection

Hiring for a remote role usually involves conducting remote interviews.

Ensure that all interviews are conducted over a video call instead of a phone call, as it helps establish a better connection with the candidates. Have a list of questions to evaluate whether the individual is a right fit for the role. But don’t shy away from asking a few icebreaker questions to make the candidate comfortable.

Effective remote onboarding process

Remote onboarding goes beyond offering logistical or technical support.

Create an intentional onboarding experience by appointing a dedicated onboarding team. Once a candidate accepts the job offer, the team can start the joining formalities, such as giving them access to the digital workplace and sharing employee policies, etc.

The team can also proactively reach out to the remote employees and iron out any practical issues they may face once they start work.

Best Practices for Managing a Remote Workforce in Hong Kong

Here’s what you should put into practice for seamlessly managing a remote team in Hong Kong:

Communication and Collaboration

Ensuring efficient communication and collaboration with individuals working remotely is one of the crucial practical considerations you must consider.

Make sure to establish standardized formats for communication but also make an effort to understand the communication preferences of your teammates. Before starting virtual meetings, set aside some buffer time to allow everyone to catch up and have a virtual water cooler moment.

Lack of team cohesiveness is a challenge managers face when employees work remotely. Since remote working means no physical interaction daily, schedule regular check-ins with members to get an exact idea about where your team is currently at.

Performance Management

Micromanagement is the death knell for remote teams.

For effective performance evaluation, communicate to your employees what’s expected of them and what metrics will be considered for assessment and review.

Set aside time regularly to provide feedback and talk about an employee’s performance in general and also let them know how they are faring against specific objectives.

Employee Engagement and Well-being

As there is no clear separation between home and work, it is far more challenging for remote teams to maintain a healthy work-life balance.

Working remotely shouldn’t be at the cost of sacrificing mental and emotional well-being, and employers should lead by example. It is best not to promote a work culture where everyone puts in ridiculously long hours and stays online round the clock. Except in an emergency, your team members shouldn’t be expected to answer work queries once they log off or are on leave.

Schedule regular check-ins to gauge employee well-being. If you notice any troubling signs, provide the necessary support, such as reimbursing employees for mental health counseling sessions.

Check whether your employees have a proper set-up for home working and as them to contact the technical support team if they are experiencing technical difficulties.

Bottom line

Setting up a remote workforce is a great way to add diverse talent to your company. Besides providing freedom and flexibility to employees, remote working reduces the employer’s cost and increases the workforce’s overall productivity.

Before you take the leap, you must consider all the legal and practical considerations of maintaining a remote workforce in Hong Kong. Complying with various provisions of employment law, tax law, insurance law, and immigration laws is critical to avoid penalties.

Several businesses are proactively embracing the remote work trend and hiring workers from Hong Kong. As the law doesn’t distinguish between remote and regular workers in Hong Kong, ideally, businesses must establish a presence in the region to comply with their statutory obligations.

Setting up virtual offices for remote workers can help businesses manage their remote workforce efficiently. But even in a business-friendly destination like Hong Kong, choosing the correct mode for establishing the presence of your business can be challenging.

Get in touch with Air Corporate — we help businesses across the globe to explore their options in Hong Kong and get their business up and running.

FAQs

As a foreigner, can I work from Hong Kong as part of a remote workforce?

You can become a remote worker in Hong Kong only if you have a necessary work permit.

How easy is it to get a work visa in Hong Kong?

Difficulty in securing a work visa varies on a case-to-case basis.

No one can guarantee a positive outcome of your visa application.

Which industries have the best remote work opportunities in Hong Kong?

Businesses engaged in computer & IT, marketing, project management, medical and health, recruiting, and accounting are more likely to offer remote positions.

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As a business owner, setting up a separate bank account for your business must feature on top of your to-do list. Even though you may have a personal account, using it to care for your business finances can be a nightmare.

Apart from ensuring compliance with legal and accounting principles, a corporate bank account makes your business operations appear more professional and offers financial protection.

This guide covers everything you need to know about the importance of having dedicated company accounts.

What is a corporate account?

A corporate or company account refers to a bank account that’s opened in the name of a company. The account can receive business income and facilitate various business transactions.

Most leading banks and financial institutions across the globe support company accounts.

Opening company accounts may be mandatory for businesses depending on the laws and regulations of the country where you conduct business. In any case, opening company accounts for efficient management of business finances is highly recommended.

A word of caution — opening and operating company accounts shouldn’t be confused with corporate accounting. Corporate accounting is a specialized branch of accounting that deals with preparing a company’s financial accounts and cash flow statements.

How does a corporate account work?

A corporate bank account works in the same manner as any regular bank account.

You can use it to park any funds from your business and pay for various business expenses. You can also use the account to carry out online transactions.

Banks also issue checkbooks and debit cards to allow withdrawal from corporate bank accounts.

Are business accounts different from company accounts?

The term ‘business account’ is often used interchangeably with a corporate account.

Even though they may sound the same, there are a few differences between business and company accounts.

Who can open the account?

Any business entity is free to open a business account. It includes corporations, partnership, and sole proprietorship businesses, and limited liability companies.

However, only a corporation incorporated under the law can open a company account. Account opening should be backed by a corporate resolution passed by the company’s board of directors.

Independence of operations

Since corporate bank accounts are more formal, they can only be operated by a list of authorized signatories. The corporation holding the account can appoint the signatories by passing relevant board resolutions.

On the other hand, a business account usually operates as the personal bank account of the business owner though the account may be opened in the name of the business. The business owner can access the account directly without appointing other authorized signatories.

Liability to creditors

Since a company is recognized as a legal person, corporate bank accounts are not considered personal assets of the shareholders. As a result, only company creditors can attach them. The accounts cannot be used to meet unpaid personal debt obligations of any individual shareholder.

In contrast, a regular business account is considered a personal asset of the business owner, and personal creditors of the owner are free to attach them.

What are the benefits of having a company account?

The key advantages of maintaining a corporate bank account are as follows:

Lends credibility to your business

A proper company bank account signals to your investors, customers, and vendors that you are a legitimate business.

Promotes financial management

Corporate accounts make it extremely convenient to track your business expenses and keep the finances separate.

It helps you avoid personal liability

Separating business banking from your personal finances ensures you do not incur any personal liability for debts in your company’s name.

Fewer tax reporting issues

Maintaining a separate bank account for your business allows you to file accurate tax returns, as there are no overlaps between business income and personal income.

Better personal liability protection

As a corporate account holder, you won’t be held personally liable for any profit loss if your business fails.

A personal bank account doesn’t offer similar protection.

Boost the company’s credit rating

Without a corporate bank account, you need to rely on your individual credit score when you apply for any loans. Having a corporate account can boost the business’s credit rating and make it easier to obtain financial assistance for the company.

What are the differences between company accounts and personal bank accounts?

Here are the critical differences between corporate accounts and personal accounts:

Signatories

A personal account can only have one or a maximum of two signatories, as the account is meant for personal use.

Company accounts can have several signatories.

Fees

The fees for opening and managing company accounts are higher when compared to personal accounts.

End-use

A company account is meant for paying business expenses and receiving business income.

A personal account is for paying personal expenses and personal parking funds.

Liability

A corporate bank account protects business owners from incurring any personal liability for company debts.

A personal account doesn’t offer any protection to the account holder. If the account holder is declared insolvent, creditors can attach the personal account to meet unpaid obligations.

What documents do you need to open company accounts?

As part of corporate account opening formalities, you must submit several documents to complete a KYC check.

While the exact checklist of documents varies depending on the banks and the country they are located in, here’s what you can expect:

• Incorporation documents of the business, such as the certificate of incorporation, business registration certificate, and articles of association
• Proof of business, such as financial statements or business plan
• Proof of business address
• A copy of the board resolution of the company authorizing the opening of the bank account
• Identity proof documents, such as a passport or any identity card issued by the respective government of principal shareholders or beneficial owners of the company
• Proof of residence of the principal shareholders or beneficial owners
• List of signatories authorized to operate the business bank account

Always speak to the bank about the documents required to set up a new corporate account. Failure to submit relevant documents can result in the bank rejecting your account opening application.

Top tips for managing company accounts

Operating corporate bank accounts throw up unique challenges you may not encounter otherwise during banking operations. This is especially true if you are only used to operating a personal bank account.

Here are a few things company account holders should keep in mind for managing their accounts without glitches:

Be aware of introductory offers

Most banks offer a range of benefits to incentivize customers to open company accounts. These include higher interest rates, cash bonuses for preliminary deposits, and waiving maintenance fees for the first year, etc.

Ask each bank about their introductory offers to make an informed choice.

Check whether your deposits are insured

Ideally, you should open corporate accounts with financial institutions that insure the deposits. If the bank shuts down its business, you don’t risk losing all your hard-earned money.

In some countries, deposit insurance is mandatory for banks and financial institutions. For example, all licensed banks in Hong Kong offer insurance protection of up to HKD 500,000 per depositor.

Double-check the fees payable

There are various fees associated with company accounts, including monthly service fees and maintenance fees. It is also common for banks to charge an account opening fee or ask for a deposit in lieu.

Additionally, you may also need to pay transaction fees for ATM cash withdrawals and termination fees for shutting down your corporate bank account.

Banks may sometimes agree to waive the fees provided the account holder fulfills additional conditions, such as the bank’s minimum balance requirements.

Ask about additional services and benefits associated with corporate accounts

As a corporate bank account holder, you may receive additional benefits from your bank, such as access to an overdraft facility, pre-approved business loans up to a certain amount, mobile cheque deposit, and virtual assistance.

Depending on the nature of your business, you may be better off choosing a bank that offers more services and features to support your business banking needs.

Why is it critical for businesses to have company accounts? 

Regardless of the size or nature of your business, you should open a company account if you need a hassle-free way of receiving, managing, and remitting company funds.

Always consider the requirements of your business before you go ahead and open a business bank account.

If you want to incorporate a company in Hong Kong and need assistance with setting up your company account, get in touch with Air Corporate. Our experts can help you open a corporate account and suggest alternatives to traditional banks depending on the nature of your business.

FAQs

What is the cost of opening company accounts?

Most banks charge an application fee for opening any type of account, including a corporate account.

The exact cost varies depending on the bank you approach.

Who can open a corporate bank account?

Usually, any business organization incorporated under the law can set up a corporate bank account.

Unincorporated business entities can consider opening a regular business account.

Who is the owner of company accounts?

Company accounts are opened by incorporated entities recognized as legal persons. Therefore, the corporation owns the account.

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Given that Hong Kong is one of the top international financial centers, it is not surprising that Hong Kong’s banking sector enjoys a particularly favorable position in the world.

There are 163 licensed banks and 8 virtual banks catering to commercial lending and personal banking needs.

While it is incredibly easy to find a bank, who is the banking system’s crown jewel from the long list of banks in Hong Kong?

Check out this compilation of the Best National Banks in Hong Kong to Consider for Your Business.

List of Top Banks in Hong Kong

Here’s a list of the best banks in Hong Kong for your banking needs:

• Bank of China (Hong Kong)
• HSBC Hong Kong
• Hang Seng Bank
• Standard Chartered Hong Kong
• Citibank
• Bank of East Asia

How Banking System Works in Hong Kong

Before we dive deep into the list of banks in Hong Kong, here’s a look at how the banking sector operates.

Hong Kong is home to a thriving banking industry regulated by the Hong Kong Monetary Authority (HKMA).

HKMA classifies the banks into three tiers based on the deposit amount, nature of business, and deposit term. The three tiers are collectively called Authorized Institutions. They are:

Licensed banks

These banks can operate current and savings accounts and accept deposits of any size from the public.

They can also use the term’ bank’ in their name without restriction.

Restricted License Banks

Such banks can only accept deposits of HKD 500,000 or more.

They can be incorporated both within and outside Hong Kong.

Deposit-taking companies

Such banks can accept deposits of HKD 100,000 or above with a minimum maturity of 3 months.

Below is a list of the most popular banks in Hong Kong:

1 – Bank of China (Hong Kong)

Bank of China (Hong Kong) is the 4th largest bank in the world and manages total assets worth HKD 3 trillion and above.

It provides a full suite of banking services, including corporate banking, personal banking, and treasury services.

With over 190 branches, the Bank of China also ranks as the 2nd largest commercial banking group in Hong Kong.

Pros and Cons of Bank of China (Hong Kong)

Here’s a look at the advantages and disadvantages associated with the bank:

Pros

Cons

An extremely strong network of branches between Mainland China and Hong Kong, with over 280 branches in Hong Kong and 15 branches and sub-branches in China’s mainland to support the cross-border banking needs of customers  A diverse range of financial products and services are on offer, including foreign currency exchange, international settlement, financing, cash management, and customs clearance assistance  A solid market reputation

The account opening process can be long-winded Not all staff members speak fluent English

 

Bank of China (Hong Kong) Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – NIL
• Account opening – The application fee is HKD 1200. If the applicant is a company incorporated overseas, the bank levies an additional HKD 5000 plus fees incurred for conducting a company search at actuals.
• Receiving a wire transfer – No fees if the amount received is less than HKD 500 and HKD 60 if the amount remitted is more than HKD 500
• Sending a wire transfer – HKD 240 per remittance between branches of the bank in the mainland and designated branches outside Hong Kong and HKD 100 per remittance through electronic modes
  Information as of date. Please check the bank’s website to know the latest fees.

2 – HSBC Hong Kong

Hong Kong and Shanghai Banking Corporation (HSBC) is the biggest bank incorporated in Hong Kong, with over 220 branches throughout the region.

Known as “Wayfoong” in Cantonese, which means “focus of wealth,” HSBC Hong Kong is well known for its range of personal, commercial, and corporate banking financial services across Asia.

Pros and Cons of HSBC Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
Offers diverse account options for business customers such as HSBC Sprint Account, HSBC Business Direct, and BusinessVantage The preferred choice of HNIs	Charges higher fees for telegraphic transfers The high minimum deposit for opening a corporate account

 

HSBC Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 10,000
• Account opening – HKD 1300 for opening accounts online. HKD 2250 if an overseas HSBC branch facilitates account opening.
• Receiving a wire transfer – HKD 65
• Sending a wire transfer –HKD 100 for the beneficiary account in Mainland China and HKD 125 for the beneficiary account in any other country
  Information as of date. Please check the bank’s website to know the latest fees.

3 -Hang Seng Bank

Hang Seng Bank is one of Hong Kong’s leading banks and a member of the HSBC group. It offers personal and commercial banking services.

It has 260 outlets in Hong Kong, 20 outlets in Mainland China, and a presence in Macau, Singapore, and Taipei.

Pros and Cons of Hang Seng Bank

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
Local presence and solid reputation in Hong Kong Offers innovative e-services such as Mobile Cash Withdrawal	Global presence is not very strong compared to its competitors Lack of variety in financial products on offer

 

Hang Seng Bank Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 20,000
• Account opening – HKD 600 if you apply remotely and HKD 1,200 if you apply through Business Banking Center
• Receiving a wire transfer – HKD 65
• Sending a wire transfer – HKD 85 if the beneficiary account is also with Hang Seng Bank in Mainland China and Macau and HKD 125 if the beneficiary account is in another country/with another bank
  Information as of date. Please check the bank’s website to know the latest fees.

4 -Standard Chartered Hong Kong

Standard Chartered is one of three commercial banks with an HKMA license to issue banknotes. Asia Banker magazine has voted it as 3rd strongest commercial bank in the Asia Pacific region.

It operates 75 branches across Hong Kong.

Pros and Cons of Standard Chartered Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

 

Pros	Cons
Strong global presence with operations in over 60 countries. Dedicated relationship managers for customers	Fees are higher compared to competitors In addition to maintaining a minimum balance, customers have to bear monthly maintenance fees

 

Standard Chartered Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 1000
• Account opening – HKD 5000
• Receiving a wire transfer – HKD 55
• Sending a wire transfer – Charges a flat fee plus an additional fee for non-domicile currency. A flat fee is HKD 140 for International Trade Account Customers, HKD 160 for Preferred Business Account Customers, and HKD 200 for Business account customers
  Information as of date. Please check the bank’s website to know the latest fees.

5 -Citibank

Citibank Hong Kong was the first foreign bank to start operations in Hong Kong. Apart from commercial banking, Citibank also offers investment banking services.

It has 48 branches throughout Hong Kong and is also the largest credit card issuer in the country.

Pros and Cons of Citibank Hong Kong

Here’s a look at the advantages and disadvantages associated with the bank:

Pros	Cons
No initial deposit requirement Bespoke private banking services for ultra-high-net-worth entrepreneurs Well-recognized brand globally	Sporadic issues with customer service No online account opening is available in Hong Kong

 

Citibank Hong Kong Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – NIL
• Account opening – HKD 8000 for an overseas company and HKD 2000 for a local company
• Receiving a wire transfer – waived
• Sending a wire transfer – No fees for online transfers except for Citi Banking clients who need to pay HKD 200. Transfers through manned channels are charged HKD 220 for CitiPriority clients and HKD 100 for CitiGold clients.
  Information as of date. Please check the bank’s website to know the latest fees.

6 -Bank of East Asia

Bank of East Asia is the biggest independent in Hong Kong and provides a bouquet of services including consumer finance, retail banking, and corporate banking services.

It has 17 branches throughout Hong Kong.

Pros and Cons of Bank of East Asia

Here’s a look at the advantages and disadvantages associated with the bank:

 

Pros	Cons
Services are at par with foreign banks Has a strong reputation in the Hong Kong market as a family-run bank	No global presence A high initial deposit fee

 

Bank of East Asia Fees

Here’s a look at the fees payable for key services:

• Initial deposit fee – HKD 10,000
• Account opening – HKD 10,000
• Receiving a wire transfer – HKD 65
• Sending a wire transfer – HKD 200 plus cable charge if sent through the branch and HKD 20 plus cable charges if sent through online channels. The cable charge is HKD 100 if the beneficiary account is with the Bank of East Asia and HKD 130 for other banks.
  
  Information as of date. Please check the bank’s website to know the latest fees.

Why Choose The Best Banks for Your Business

Not all banks are created equal — services offered and fees vary widely.

Whether you opt for international or local banks, picking the best one suited to your banking needs is extremely important. After all, banks are an essential cog in the wheel for your business operations.

From providing long-term and short-term finances to remitting funds, there’s hardly any aspect of your business where banks don’t play a role. So make sure to consider what each bank can offer you carefully before you sign up with one.

If you are a foreign business wondering How to Open a Company Bank Account Online in Hong Kong, contact Air Corporate immediately.

We can assist with establishing your bank account with a physical or virtual bank in Hong Kong, making it convenient for entrepreneurs and small businesses to operate effectively. If you already have an account with an HK bank but cannot make any withdrawals, we can also guide you on How to Fix a Suspended or Frozen HK Bank Account.

FAQs

Who is eligible to open a corporate bank account in Hong Kong?

The exact eligibility criteria depend on the type of account you want to open and the bank where you want to open the account. As such, anyone can open an account in Hong Kong.

Which Hong Kong bank is best for foreign entrepreneurs?

HSBC, Citibank, Bank of China, and Standard Chartered are some of the top choices.

However, the exact match depends on what the customer is looking for.

Which is the largest bank in Hong Kong?

In terms of the assets held, HSBC ranks as the largest bank in Hong Kong. In 2021, the bank held assets worth HKD 10 trillion.

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Over the years, setting up an offshore entity has been one of the chosen ways for businesses to enjoy better asset protection and reduce their tax burden legally.

But very often, people tend to confuse an offshore company with offshore income. While offshore income is primarily a concept relevant to taxation, an offshore company is merely a structure for carrying out business.

Having said that, an offshore company may also benefit from favorable taxation laws regarding offshore income.

This article tells you everything you need to know about the two.

What is an offshore company?

An offshore company refers to a corporate entity incorporated outside the jurisdiction where the operations are primarily carried out, and the stakeholders reside.

The term offshore means something that is located outside or abroad.

Setting up such a company for business activities that comply with the law is perfectly legal.

Suppose you are based in Singapore and decide to incorporate a company in Hong Kong. In that case, your Hong Kong company will be an offshore company.

Similarly, if you are located in Hong Kong and decided to set up a company in Malaysia, it will be an offshore company.

While you can set up an offshore entity in a jurisdiction of your choice, some destinations work better than the rest due to attractive tax structures and corporate compliance requirements.

It is always better to evaluate the pros and cons of setting up an offshore company in the destination of your choice before you move ahead with the incorporation process.

A few pointers to keep in mind when you are considering incorporating an offshore company:

• What is the purpose of your offshore company?
• Do you want to set up your offshore company in a common law or civil law country?
• Are there any restrictions on the type of activities your offshore company can carry out in the jurisdiction of your choice?
• Is it easy for an offshore company to open a bank account in the country you are considering?

Features and benefits of setting up an offshore company

When you register an offshore company it’s important to understand factors that will be able to benefit you from setting one up.

Here are some of the key features and benefits of setting up an offshore company:

It can help you save on taxes

Reducing tax liability legally is one of the key concerns for business owners across the globe.

Typically, offshore structures are chosen for the attractive taxation regime of the country of incorporation.

For example, setting up a Hong Kong offshore company means that dividends declared will not attract taxes, making Hong Kong a preferred choice for doing business.

There is also no capital gains taxes in Hong Kong. This means no tax is levied on the profits from the sale or disposal of an asset unless facts establish that the disposal was in the nature of a trade.

Companies set up in Hong Kong that have operations generating profit outside Hong Kong don’t have to pay profit tax in Hong Kong.

It offers better confidentiality

Several offshore jurisdictions have strict privacy laws that prohibit government authorities and financial institutions from disclosing the details of company directors, shareholders, company bank accounts, etc., other than in exceptional circumstances.

This is especially beneficial for new players in the market who do not want their competitors to know about their operations or expansion plans.

Business owners enjoy better asset protection

When you park your assets in a different jurisdiction, you create a protective structure around them to prevent them from being seized due to frivolous litigation or seizures by the government.

For most business owners, setting up an offshore company is one of the preferred ways to safeguard their assets from creditors, attorneys, and plaintiffs.

Some offshore jurisdictions have debtor-friendly laws that make it easy to set up LLCs and trusts to protect the investor’s assets.

If someone wants to enforce a judgment passed against the investor in their home country and access their assets for setting unpaid debts, they would have to go through a circuitous path to get access to the offshore assets.

You enjoy relaxed corporate compliance

Corporate law regimes for some parts of offshore company jurisdiction are not strict in terms of taxes, which makes it easier to set up companies.

In some countries, there are no minimum paid-up capital requirements to be met. Offshore companies also have less stringent auditing and financial reporting obligations.

Moreover, some jurisdictions do not have any foreign exchange control regulations, making it easy to freely repatriate any income earned in those countries to any other destination.

Your assets can benefit from political stability

Setting up an offshore business can be a great move for asset protection, especially when if you find the chosen destination to be economically stable.

Carrying out business in a country engaged in civil war or facing a huge recession means constantly fearing external activities completely disrupting your business transactions.

What is a concept of an offshore income?

An offshore income refers to any income generated through activities performed outside your home jurisdiction.

For instance, if you’re a tax resident in that jurisdiction, this counts as offshore income.

Suppose you are a resident of the US and you have an offshore company in Hong Kong. Hong Kong tax laws levy a profit tax on only Hong Kong-source income.

So if you can demonstrate that the earnings of your company are through services rendered in the US, such income can be called offshore income.

Whether you can claim any tax benefits on your offshore income varies depending on the country where you set up an offshore company.

For example, suppose a Hong Kong company wants to claim tax benefits for offshore income. In that case, it should actively seek exemption when filing a profit tax return or obtain an advance ruling before commencing business activities.

Only if the Inland Revenue Department accepts the claim can a company benefit from the exemption.

So earning offshore income doesn’t mean it is automatically tax-free. You may still be taxed by your home country.

What are the factors you need to consider for offshore income?

If you want to take the tax benefits associated with offshore income, consider choosing a jurisdiction that follows a territorial tax system while setting up your offshore company.

Only such countries have tax exemptions on offshore income or foreign-earned income.

So, when you set up a company in a country with territorial taxes, you don’t have to pay any taxes on any income earned outside that country.

Another important factor to consider when selecting a jurisdiction with favorable offshore income tax laws is to see whether they have been flagged as a non-cooperative jurisdiction for tax purposes by the European Union.

The list, which has existed since 2017 and is updated regularly, identifies jurisdictions that do not have good tax governance in place to fight off tax evasion and avoidance.

Since such jurisdictions may change their tax regimes to comply with the EU requirements, businesses should not solely choose a jurisdiction for their offshore income tax treatment.

There is a possibility of such countries amending their tax laws to align with international tax standards, and one must evaluate the potential impact of the changes on their tax treatment.

For example, although, at present, only income sourced in Hong Kong is subject to profit tax, the Inland Revenue Department is in the process of updating the tax regime.

As part of proposed changes, dividends, disposal gains from shares or equity interest, interest income, and income from IP, which are foreign-sourced income, may be subject to profit tax:

• When such income is received in Hong Kong; and
• The relevant taxpayer fails to meet the requirements set out by the Inland Revenue Department

Bottom Line

Whether you want to reduce your tax burden, protect your assets, or enjoy better privacy, setting up a company in a foreign jurisdiction is a great option.

While there are several countries you can consider for offshore companies, make sure to pick one that meets your requirements. Don’t opt for the most popular destination.

If you’re considering Hong Kong for your next offshore venture, it can be an excellent choice for corporations looking for a new home for their business.

Get in touch with Air Corporate and let our experts help you start your offshore business in Hong Kong the right way.

FAQs

When is it illegal to set up an offshore company?

It is illegal only when you intend to use the offshore entity to evade taxes or money laundering activities.

How long does it take to incorporate an offshore company?

The incorporation process varies depending on the jurisdiction you choose.

Typically, most countries offer a hassle-free process of setting up an offshore entity in a bid to attract more foreign companies.

For instance, you can complete the entire process of setting up a Hong Kong offshore company in just a few days.

I pay taxes in the country where I live. Do I have to file my tax return in the country where I have set up an offshore entity?

This depends on the tax laws of the country where you have set up the company. Always make sure to seek proper legal, tax, and accounting advice to stay in compliance with the law.

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Understanding the difference between management accounts and statutory accounts is crucial for business owners and decision-makers. These two types of accounting serve distinct purposes and provide different insights into a company’s financial health.

The two critical business management and accounting benchmarks are statutory and management accounts. While the Hong Kong Companies Ordinance states that all companies in Hong Kong must prepare statutory accounts, maintenance of management accounts is usually discretionary.

Both help to monitor the finances of a company and also forecast the performance in the future. That’s why Understanding Hong Kong accounting standards  is critical to ensure your company complies with the law.

Here’s what you need to know about maintaining management and statutory accounts.

What are management accounts in Hong Kong?

As the name suggests, accounts that aid in the internal decision-making process of a company are known as management accounts. They represent cumulative financial statements prepared during the financial year of a business. Most companies use management accounts for better financial control.

The key objective of management accounts is tracking various financial metrics and key performance indicators to gain deeper insights into how a business is faring. However, these accounts are rarely available to shareholders unless the company is struggling.

Typically, here’s what is included as part of management accounts

• Statement on the financial position, highlighting the assets and liabilities of the company
• Key performance indicators of the business to track performance
• Cash flow statement
• Profit and loss statement
• Executive summary about profit margins, turnover and expenses

Since maintaining management accounts is discretionary, most small businesses forgo drawing up one. However, if you are a startup needing accurate data for making business projections, it is advisable to maintain management accounts. Moreover, such accounts may also help you fare better when talking with external parties such as investors.

What are statutory accounts in Hong Kong?

A statutory account refers to financial statements prepared every year by limited companies. The primary objective of statutory accounts is to demonstrate the various financial actions that the company took in that financial year and provide an overview of the finances.

In other words, statutory accounts show a company’s overall earnings, profit, deductions/adjustment and spending without delving into minute details. They are also known as ‘company accounts’ or ‘annual accounts’.

The exact scope of information that the statutory accounts would include depends on the size of your company. As per the Hong Kong accounting standards, the statutory accounts of a company should include the following financial reports:

• Balance sheet
• Profit and loss account
• Notes on accounts
• Audited financial statements of the financial year (1 April to 31 March)
• Auditor’s report and opinion
• Director’s report

A certified public accountant in Hong Kong should certify the financial statements. The audited statements also need to be approved by the company’s board of directors and adopted by the shareholders.

Only when a company attains a dormant status is it exempted from preparing audited financial statements.

How do management accounts differ from statutory accounts?

Now that you know what management account and statutory account mean, understand the differences to decide how best you can utilise them for your company’s financial health.

Here are the major differences between management accounts and statutory accounts:

Legal status

Maintaining management accounts is not mandatory as it is not stipulated by law. Such accounts serve as internal reports to guide the decision-making process of business owners.

But every company is obligated to maintain a statutory account as per law. Though small companies may be exempted from maintaining statutory accounts in some countries, there is no just exception in Hong Kong.

Content

One can get an overview of the company’s financial activity by looking at its statutory accounts. In contrast, management account reports offer more in-depth details as they are prepared to help with the day-to-day operations of a company.

Frequency

The timeline for preparing the accounts is different.

Management accounts can be generated at the convenience of the company. So the company gets to decide the frequency. But statutory accounts must be drawn up annually to comply with the law.

Filing requirements

Under Hong Kong law, a copy of the statutory accounts should be retained with the company secretary and submitted to the Inland Revenue Department when filing a Profit Tax return.

Management accounts don’t need to be filed with any authorities as they are for internal use.

Format

The format of statutory accounts remains the same across companies, including a balance sheet, profit and loss account, and notes on accounts.

The format of management accounts is completely bespoke as they are personalized to suit the needs of their audience.

Audience

Management accounts are meant for company executives and key decision-makers within the company.

Statutory accounts are for an external audience, which includes shareholders and company regulators.

Use

Both statutory and management accounts are useful if you want to take stock of the current financial situation of your company.

However, when it comes to forecasts about the business, management accounts fare better because of their in-depth analysis.

Benefits of management accounts in Hong Kong

Here are the major benefits of using management accounts

• These accounts can be used to obtain the latest information about the cash flows of a business as they present raw date.Business owners can review the management accounts to understand the revenue inflow and financial position of the company to develop relevant strategies to avoid any potential crisis. It can also help business owners detect financial fraud.
• Management accounts are useful for identifying the tax liabilities of a business. Typically, chartered accountants in Hong Kong review a management account to determine the profit tax a company needs to pay.
• Dividend payments can be calculated using management accounts.
• Auditors need to peruse several documents to prepare the financial statements during audits. A company can prepare management accounts to help the auditors.
• They can also identify accounting errors and correct them ahead of the audit.
• Management accounts can help companies identify unwanted expenses and plan expenditures of resources to maximise profits.
• The company executives can decide the format since there is no statutory requirement.

Benefits of statutory accounts in Hong Kong

• Statutory accounts help to keep track of the financial health of your company.
• They are a ready reckoner of your company’s performance and investments that various stakeholders, investors, and even regulators can refer to. This is especially useful if the company wants to privately or publicly raise money.
• Statutory accounts represent a true and fair view of the company’s financial position and provide insights into the actual business performance. This adds credibility to your business.
• Statutory accounts can be used to discover the risk of financial fraud.
• It offers insights into the efficiency and effectiveness of the processes adopted by the company.

Bottom line

Now that you have a succinct understanding of How SMEs work with management accounts and statutory accounts, do not delay in seeking help to get the accounts of your Hong Kong company audited.

Air Corporate offers accounting services for SMEs and cuts the necessary paperwork involved. Whether you are a newly established business in your early days or one that has been around for a while, different packages are available to suit your needs.

So save your precious time by outsourcing the work to our qualified accountants.

FAQs

Should a registered non-Hong Kong company file annual accounts with the Companies Registry in Hong Kong?

As per the Companies Ordinance, a registered non-Hong Kong company should file a certified copy of statutory accounts with the Companies Registry along with its annual return if it is;

• required by the laws of the place where the company is originally incorporated or registered; or
• if the company is bound by the rules of any stock exchange or other regulators in that jurisdiction to deliver such accounts for inspection by the public

What is the role of the auditor’s opinion as part of statutory accounts?

An auditor can give either a qualified opinion or an unqualified opinion.

An unqualified opinion means that the chartered accountant agrees with the methods used for preparing the accounts and provides reasonable assurance about the accuracy of accounts.

On the other hand, a qualified opinion means there may be certain limitations about the information provided, or the financial statements have not been prepared following the generally accepted accounting principles.

Is there any penalty for delay in preparing statutory accounts?

Hong Kong laws do not impose any penalty for late filing of audited accounts.

However, audited financial statements are part of tax returns, and the tax authorities levy a fine for delayed submission.

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Having the freedom to work from anywhere in the world is incredibly enticing. And digital nomads enjoy this freedom to the fullest.

Thanks to the internet and technology, they can be termed as people who work from a remote location anywhere in the world.

One of the key concerns that one has as such a remote worker is the tax treatment of their income.

Since the person may be working out of various countries and each country has its own tax regulations, figuring out what tax rates apply to such an individual can be challenging. This is also the case with Hong Kong, considered one of the Best countries to start a business for digital nomads.

In this blog post, you will learn everything about digital nomad taxes in Hong Kong.

What do digital nomads do?

Digital nomads are essentially remote workers. They are not bound by any location and travel freely while working.

They may be self-employed or employed by an organization. However, they cannot be pigeonholed into one specific task as they work in different industries in various capacities.

Here are some of the popular sectors that have a vast number of such remote workers:

• Design
• IT
• Accounting
• Marketing
• Project management
• Sales
• Software development
• Writing
• Teaching
• Transcription and translation
• Recruiting and HR

What do taxes look like for digital nomads in Hong Kong?

Taxation laws are a critical concern for remote workers working in Hong Kong.

While Tax exemption in Hong Kong is one of the key reasons why people prefer working out of Hong Kong, can every digital remote worker also benefit from the same?

At the outset, note that taxes in Hong Kong are based on the territorial principle. This means that Hong Kong authorities can tax only such income earned in Hong Kong. But there are no specific digital nomad taxes levied by authorities.

Here’s a break up of the various applicable taxes:

Salaries tax

Any individual who earns income from a Hong Kong office by virtue of Hong Kong employment or due to services rendered in Hong Kong through visits of more than 60 days in any tax year is liable to pay Hong Kong salaries tax.

Net Chargeable Income	Progressive Rates
On the First HKD 50,000	2%
On the Next HKD 50,000	6%
On the Next HKD 50,000	10%
On the Next HKD 50,000	14%
On the Remainder	17%

Source: Tax Rates of Salaries Tax & Personal Assessment

The tax is levied progressively on the net taxable income post deductions and allowances. The tax rate is as per the tax slab, begins at 2%, and is capped at 17%.

However, if the tax you need to pay basis of your net chargeable income is more than the tax charged at a standard rate of 15% on your net total income, then you need to pay tax at 15%.

Your chargeable income is calculated based on the various types of income you need to report through your tax return. This includes:

• Salary and wages
• Allowances and fringe benefits
• Bonuses
• Commissions
• Pensions
• Share options

Your residence or citizenship has no relevance when deciding liability for paying Hong Kong salaries tax. Any income earned locally by nomadic workers who stay less than 60 days is exempt from payment of salaries tax.

As per the Inland Revenue Department, any employment qualifies as non-Hong Kong employment only when the following three conditions are met:

• The employment contract was negotiated and entered into and is enforceable outside Hong Kong;
• The employer is not a resident of Hong Kong; and
• The employee’s salary is paid outside Hong Kong.

Unless all conditions are met, the employment will likely qualify as Hong Kong employment and attract relevant salary taxes.

Profits tax

Any person, including a corporation, partnership, or sole proprietorship, carrying on a business in Hong Kong has to pay tax on the profits made in Hong Kong, regardless of the person’s tax residence. Nomadic workers also fall within this unless they belong to jurisdictions with tax treaties with Hong Kong to protect against double taxation.

Hong Kong follows a two-tiered profits tax rates regime. The tax rate is as follows:

Assessable profits (HKD)	Tax rate
Not more than 2,000,000	8.25%
Over 2,000,000	16.5%

Source: Tax Rates of Profits Tax

From January 2023, Hong Kong authorities have classified the following types of offshore income to be subject to profits tax if such income is received in Hong Kong SAR by a multinational enterprise, unless a few additional conditions are met:

• Interest
• IP income
• Disposal gains from selling equity interests
• Dividends

Property tax

Hong Kong tax legislation stipulates that any non-permanent resident who intends to purchase a residential property must bear the Buyer’s stamp duty and Ad Valorem stamp duty capped at 15% each.

However, once non-residents have resided in Hong Kong for at least seven years, they can apply for a refund.

Automatic exchange of information (AEOI)

It is also worth noting that Hong Kong is a signatory to the Automatic Exchange of Information agreement of OECD. As a result, Inland Revenue Department is obliged to report information of all digital nomads back to the tax authorities of their country of residence.

As of 2022, Hong Kong authorities have an information exchange relationship with 74 countires through bilateral or multilateral competent authority agreements.

If you have not been declaring your income and paying taxes in your country of residence and want to use Hong Kong to escape your tax liability, you can get in trouble.

How can digital nomads benefit from the ‘Tax haven’?

While there is no international tax law for a nomadic worker, they can’t escape the tax burden entirely. However, tax havens can help reduce the tax liability of nomadic workers to some extent:

For starters, nomadic workers can take advantage of the flexible taxation laws of tax havens by becoming a non-resident in their home country and demonstrating that they have permanently cut off ties. Some of the benefits include:

• Exemption from profits tax in case of offshore income generated by a company incorporated in Hong Kong;
• No capital exchange control regulations which promote free repatriation of income;

Setting up a business in a tax haven can also help nomadic workers save on taxes, provided the business operations are carried out elsewhere. For example, there are no withholding taxes on any interest and dividends earned from shareholding, investments, and deposits;

Bottom Line

If you are a remote worker in search of a destination with an efficient tax regime, Hong Kong is an excellent destination you can consider. But remember that simply becoming a digital nomad cannot help you forgo your tax liability. While you can reduce your taxes or become tax-neutral, escaping tax payments is punishable.

Are you searching for seasoned advice for structuring your operations to minimize your tax burden in Hong Kong? Get in touch with Air Corporate right away.

The experienced team at Air Corporate can guide you through the entire process and also help with Setting up a business account and company in Hong Kong.

FAQs

Does Hong Kong offer any special digital nomad visas?

Hong Kong doesn’t offer any specific type of visa to a digital nomad.

However, one can apply for Investment as Entrepreneurs visa and the Quality Migrant Admission Scheme visa if they want to work as a digital nomad in Hong Kong.

Both these schemes have requirements you must fulfill to be eligible for the visa.

How much money should I have to become a digital nomad in Hong Kong?

It is difficult to zero in on a specific number as it depends entirely on your lifestyle and the type of work you want.

As a rule of thumb, you should have enough to live comfortably within your means.

I am a digital nomad. Do I need to be physically present in Hong Kong to set up a business?

As per Hong Kong laws, directors or shareholders don’t have to be physically present in Hong Kong when setting up an offshore company.

It is possible to complete the process remotely.

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Incorporation refers to the legal process for establishing a company in any jurisdiction.

The relevant authority that oversees the process issues a certificate that serves as evidence that the company has been set up under the requirements of law.

Hong Kong law also requires local and foreign companies to follow the incorporation process and obtain a certificate of incorporation. This guide tells you everything you need to know about getting one.

What is a certificate of incorporation?

A certificate of incorporation is a legal document that records the date from which a company comes into existence. You can think of it as a birth certificate for companies. Since a government authority issues a certificate of incorporation, it also serves as a license for a company to operate.

In Hong Kong, only limited liability companies need a certificate of incorporation and the Companies Registry issues it. The certificate follows a standard format and contains information in English and Chinese.

Note that an incorporation certificate is different from acquiring a certificate of incumbency which contains the details of your company structure and validates its legal status. Moreover, while any independent third party can issue an incumbency certificate, only the Companies Registry has the power to issue a certificate of incorporation.

Additionally, incorporation certificates issued by Hong Kong Companies Registry are only valid in Hong Kong. You need a separate certificate of incorporation in case you want to set up a company in Mainland China.

Information within a certificate of incorporation

Your Hong Kong certificate of incorporation carries the following information:

Company registration number

Your Company Registration Number is a unique 7-digit number printed on the top left corner of the incorporation certificate.

This number acts as the ‘social security number’ of your company and is used for identifying your company in official and government records.

Official name

The company’s name appears in the middle of the certificate of incorporation.

Incorporation date

The date on which the existence of a Hong Kong company is officially entered in the records of the Companies Registry also appears on the incorporation certificate. It is above the signature of the Company Registrar.

This serves as the date of incorporation of the company.

Ordinance type

A specific section of the Companies Ordinance provides for the issuance of a certificate of incorporation to limited liability companies in Hong Kong.

The incorporation certificate mentions the same to prove that the business is indeed a limited liability company.

Certificate type

The words ‘Certification of Incorporation’ is printed right on top, below the logo of the Companies Registry.

This is a piece of important information as there are several other certificates such as ‘Certificate of Continuing Registration’ and ‘Certificate of Registration as a Trust Company’ that look similar to an incorporation certificate but serve a completely different purpose.

Company registrar’s name

Since the company registrar issues the incorporation certificate, their name also appears on the certificate.

Why your company needs a certificate of incorporation?

A certificate of incorporation validates the existence of a company.

It is a legal document that proves that your company has followed the due process of setting up a company as per the laws of the place where it intends to carry out business.

In fact, if you want to open a business bank account or apply for financial assistance or raise money from investors, you need to submit your certificate of incorporation.

Incorporating a company is advantageous for any business, as it:

• Establishes a distinct legal liability of the business and separates business assets from your assets
• Provides you with tax benefits; and
• Helps in maintaining the perpetual existence of your business so that it remains unaffected by the death of the owner

Difference between a certificate of incorporation and a business registration certificate

Any business that generates profit (including sole proprietorships, partnerships, branch offices, and representative offices) need registration with the Inland Revenue Department.

As part of the registration process, the Department issues a business registration certificate. Along with other details, the certificate also carries a unique 8-digit number known as the business registration number.

As per Hong Kong law, overseas companies doing business in the region need to register within 30 days of the commencement of operations. Failure to register on time attracts hefty fines.

Here are the key differences between a business registration certificate and a certificate of incorporation:

• While a certificate of incorporation contains the company registration number which serves as the company ID, a business registration certificate grants the business registration number which serves as the tax ID of the company.
• A certificate of incorporation doesn’t have an expiry date but a business registration certificate is only valid till the date specified on it.
• Even though the approval process of both certificates goes on in parallel, the issuing authorities are different.
  Companies Registry issues a certificate of incorporation whereas the business registration office of the Inland Revenue Department issues a business registration certificate.
• You can verify the authenticity of a certificate of incorporation using the Integrated Companies Registry Information System.
  But there is no such registry or platform available to verify the authenticity of a business registration certificate.
• The law mandates that businesses display their business registration certificate in a conspicuous place.
  However, there is no requirement for displaying the certificate of incorporation.

How can you obtain a certificate of incorporation?

Here’s what you need to do to obtain a certificate of incorporation:

Choose the type of company you want to incorporate

There are two types of limited liability companies you can choose from: you can either opt for a company limited by shares or a company limited by guarantee.

A company limited by shares means that the shareholder’s liability is limited to the capital they hold in the company. As per the Hong Kong Companies Ordinance, there is no minimum share capital required for incorporating a company limited by shares.

In a company limited by guarantee, each member acts as a guarantor for liabilities of the company for a specified amount.

Choose a name for your company

Decide on a name for your company. It can be either in English or in Chinese.

If you want to incorporate a company with a Chinese and an English name, both names will appear on the certificate of incorporation and act as the formal name of the company.

Ensure that the name is per the company name guidelines and is not in use already by other Hong Kong companies.

Fill in the application form

Fill in the relevant details in your incorporation form.

The fact that you need to fill in the details of your company secretary in the form highlights the importance of having a company secretary before you begin the incorporation process.

You also need to attach a copy of the Articles of Association of the company and the Notice for Business Registration to the Inland Revenue Department along with the form.

Submit the documents and pay the applicable fees

You can submit the form and supporting documents either online or in person at the Company Registrar’s office.

The fees vary depending on the mode of submission and whether the company is limited by shares or guarantees.

Here’s a breakup of the fees payable for private companies limited by shares:

Receive your certificate

In case of online submission of forms and documents, you will receive an electronic copy of the certificate of incorporation within an hour of submission.

In case of in-person submission, a hard copy of the certificate of incorporation is available for pick up within 4 working days of submitting the form.

Bottom line

As a limited liability company, a certificate of incorporation forms part of the constitutional documents that are necessary for a corporate entity that wants to do business in Hong Kong.

Want to get your company incorporated and get a certificate but unsure how you can get started?

Contact Air Corporate today. Our experienced team can guide you through the entire process and help you get incorporated with ease.

FAQs

What is the validity of a certificate of incorporation?

A certificate of incorporation remains valid till the company remains in existence. That’s why there is no expiry date specified.

If the company files for winding up or dissolution, the certificate of incorporation ceases to be valid.

Can I download a physical copy of the certificate of incorporation if I have submitted the documents online through e-registry?

You can order a certified copy of the certificate through the Companies Registry’s Cyber Search Centre or Company Search Mobile Service.

This service is available on payment of additional fees.

How to check if a company holds a certificate of incorporation?

You can use the Companies Registry’s online system ICRIS (Integrated Companies Registry Information System) to verify whether a company has an incorporation certificate.

This is a bilingual platform that allows you to confirm basic information about a company such as its date of incorporation and if there has been any change of name.

But you cannot download a copy of the incorporation certificate from ICRIS.

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Opening a bank account for your business is on top of your to-do list as soon as you register your business in Hong Kong.

Having a separate Hong Kong business account is necessary for most business structures and you cannot substitute your personal account for it.

But which bank is the best for opening a business account in Hong Kong? How do you distinguish between personal and business accounts? And can you open a corporate bank account elsewhere apart from a regular bank?

This guide tells you everything you need to know.

Difference between business accounts and personal accounts

The primary use of a business bank account is to help business owners hold and manage money that the business makes.

This includes paying various suppliers and employees, making tax payments, and receiving payments from customers.

There are various types of business accounts, such as:

• Business checking account
• Business savings account
• Certificates of deposits account; and
• Foreign currency accounts

On the other hand, personal accounts are meant for managing personal funds. You can use it for paying for any type of personal expense.

Why do you need a company bank account in Hong Kong?

Opting for a business account in Hong Kong has several advantages:

• A business bank account lends credibility to your business. This is especially important when you are just starting in a new country.
  Having a separate account means your customers and clients can directly pay your business instead of routing the funds to your personal account. This makes your business appear more professional.
• Business bank accounts offer tax benefits. The account holder doesn’t have to pay any tax on the earnings.
• Most banks in Hong Kong allow you to open a multi-currency bank account that makes it convenient to hold, send and receive various currencies from one account.
• Since there are no capital control laws in Hong Kong, you can freely transfer the deposits from your business account to accounts elsewhere in the world.
• Having a distinct business bank account offers protection to your business assets. In case your business fails to repay its debts, the assets in your personal account remain untouched.
• A separate bank account for your business makes it convenient to track expenses, keep an eye on your spending and avoid unnecessary expenditures.

Top 5 business bank accounts in Hong Kong

Choosing a company bank account in Hong Kong can be a task given that it is home to an extremely sophisticated banking and finance sector.

Here’s a roundup of the top 5 options you can consider:

1. Standard Chartered

Headquartered in London, Standard Chartered is a key player in the business banking services sector of Hong Kong.

Type of account offered:

It offers two types of corporate bank accounts: business and priority banking.

Both accounts support 11 major currencies.

Who can open an account?

To open a business bank account with Standard Chartered in Hong Kong, you should be one of the following:

• Sole proprietorship
• Partnership
• Limited company; or
• Owners incorporation

You are ineligible to open an account if your business is incorporated in a sanctioned country or operates in a prohibited sector.

How long does it take to open an account?

Can take several weeks to months

Minimum deposit requirements:

Nil

Account opening fees:

HKD 5,000

Currency conversion fees:

For receiving payments via telegraphic transfer, the fee is HKD 55. For outward telegraphic transfers, the fee is HKD 200.

2. DBS Bank

Headquartered in Singapore and the recipient of Hong Kong’s best international bank in 2022, DBS Bank is a top choice for businesses in the region.

Type of account offered:

It offers three types of business accounts :

• Business Entrepreneur
• Business Edge; and
• Business Edge Preferred

All accounts support 14 major currencies.

Who can open an account?

Any limited liability company, partnership, or sole proprietorship business that’s incorporated and registered in Hong Kong can open an account. However, the business shouldn’t have any corporate directors or partners.

How long does it take to open an account?

Within 2 to 3 working days

Minimum deposit requirements:

HKD 10,000 but no deposit fees for the first three months.

Account opening fees:

HKD 1200

Currency conversion fees

No fees if you use DBS Remit, an online overseas transfer service from the bank.

Otherwise, you need to bear correspondent bank charges plus handling and cable charges of DBS Bank.

3. Statrys

A virtual Hong Kong business account is an excellent alternative, especially if you are looking for more features and perks compared to what traditional banks offer.

And a fintech such as Statrys fits the bill perfectly. It also supports the remote application process and you can complete all formalities online.

Type of account offered:

Multi-currency business account

Who can open an account?

Any company registered in Hong Kong.

How long does it take to open an account?

Usually, less than 3 days

Minimum deposit requirements:

Nil

Account opening fees:

Nil

Currency conversion fees

For sending payments, the fee is HKD 75.

For receiving payments, the fee is HKD 55.

4.HSBC

As the largest bank in Hong Kong, HSBC is a good option for opening a business bank account. The HSBC business banking division has offerings for businesses in various stages of growth.

Type of account offered:

You can choose from three types of business bank accounts, namely HSBC Sprint, HSBC Business Direct, and HSBC BusinessVantage.

HSBC Sprint account is perfect for newly set up startups whereas Business Direct is more appropriate for growing SMEs.

For SMEs that have been around for a while, HSBC Business Vantage is a better choice.

Who can open an account?

HSBC allows all limited companies, partnerships, or sole proprietorships registered in Hong Kong and carrying out business operations in Hong Kong to open an account.

However, the business should not have any corporate directors or shareholders. But they should have up to 2 individual directors or authorized signatories.

How long does it take to open an account?

Within 3 days

Minimum deposit requirements:

• Average account balance of HKD 50,000 for HSBC Sprint and HSBC Business Direct account
• Average account balance of HKD 100,000 for HSBC Business Vantage

Account opening fees:

The fees vary depending on the type of business account you wish to open.

Typically, applicants need to pay HKD1,300 as account application fees.

The bank also levies additional fees for inactivity or account closure.

Currency conversion fees

You need to pay additional fees for any currency conversion.

It is usually HKD 65 for receiving payments and HKD 120 for sending payments to any other bank across the globe excluding HSBC bank in Mainland China.

5.Hang Seng

Hang Seng bank, partly owned by the HSBC group, is the second-largest retail bank in Hong Kong.

Type of account offered:

The bank offers two types of business accounts, depending on the type of business entity applying. These are:

• Biz Virtual+ account for startups; and
• Integrated Business Solutions account for established SMEs

Who can open an account?

The applicant can be an incorporated sole proprietorship, partnership, or limited company.

The applicant should not have any corporate shareholders and must meet the annual sales turnover requirement of the bank. The individual directors and authorized signers should hold HKID.

How long does it take to open an account?

Biz Virtual+ account: 3 business days

Integrated Business Solutions account: 5 business days

Minimum deposit requirements:

HKD 50,000 equivalent or above

Account opening fees:

The fees vary based on the type of business account you open.

Typically, for opening Biz Virtual+ account, applicants need to pay HKD 600 if they do it remotely and HKD 1200 if they do it in person.

For Integrated Business Solutions account, the fee is HKD 1200 for both remote and in-person applications.

Currency conversion fees

Charged based on the amount sent or received.

Bottom Line

Having a business bank account is the mark of a real business.

Deciding on which business account is best for your business depends on what you are looking for. Get a thorough understanding of your requirements before you shortlist an option.

To get a complete picture, also calculate the fees you would be paying for every cross-border payment.

If you want to avoid the complicated account opening process of banks, consider a fintech that offers a virtual account.

Get in touch with Air Corporate to set up a remote Hong Kong business account.

FAQs

What documents do I need for opening a business bank account in Hong Kong?

Every bank follows its unique account opening process and the relevant documents for account opening may vary. Typically, they request the following documents:

• Documents that prove your business is legally registered in Hong Kong such as your Business Registration Certificate or a Certificate of Incorporation
• Identity and address proof directors and signatories; and
• Documents that show business activity, such as a business plan

Can I open a Hong Kong business account remotely from abroad?

Every Hong Kong bank follows a strict procedure for account opening.

While you may be able to submit the documents online, you may still need to go in person to a branch to complete the formalities.

Only a fintech providing virtual business accounts in Hong Kong allows you to complete the entire process online from a remote location.

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What is common between opening a bank account, applying for a new mobile phone connection, and signing up for an insurance policy anywhere in the world? You can successfully complete these activities only when you furnish proof of address along with your application form.

The situation is no different in Singapore — whether you want to live in Singapore for work or to study, you need local address proof for opening a bank account or applying for a utility. Even if you intend to carry on business in Singapore, a Singapore business address is a must to comply with the regulatory requirements.

So how do you go about gathering acceptable forms of address proof? Here’s a guide explaining what is an address proof document and what documents can you furnish in Singapore as proof of residence.

What is proof of address and why do you need it?

Proof of address is exactly what it sounds like — it refers to documentary evidence that shows you reside in a particular country.

Both public and private organizations, including government agencies, require this information when you fill up any official forms and use it as a safeguard against any fraudulent activity.

Moreover, it also helps to identify whether the applicant resides in a country with extensive sanctions. For example, the Office of Foreign Assets Control (OFAC) of the US Treasury Department maintains a list of sanctioned countries and prohibits any financial transactions with such counties without prior permission.

While it is impossible to create a comprehensive list of acceptable documents one can use to provide proof of residence, as a thumb rule, most organizations request documents that cannot be falsified easily or obtained dishonestly.

Why do banks need proof of residence?

In the case of banks across the globe, proof of address forms part of the ‘know your customer’ (KYC) documents.

Over the years, the incidents of applicants submitting fake documents to open accounts have shot through the roof. Typically, account holders carry out illegal activities through them. So when you open a bank account, banks have a legal obligation to ask for all KYC documents to verify that you don’t intend to open an account for carrying out any illegal activity such as money laundering or financing terrorism.

In other words, banks need to verify that you are really who you say you are. Documents such as address proof and ID proof make it easier to conduct this check.

Depending on the jurisdiction they operate in, each bank has a list of documents that are acceptable as proof of address. But what may work as proof of address in one country may not work in another. Even the KYC processes followed by different banks in the same country vary.

That’s why it is important to understand what qualifies as proof of residence in a particular country where you need to furnish it.

How to obtain proof of address in Singapore?

Proof of address in Singapore is your residential address within Singapore.

The document for residence proof in Singapore should have your full name and the address where you are currently residing. To get proof of address, you can contact the relevant organization, depending on the type of document you want.

For instance, if you want to furnish your utility bill as proof of address, you can apply for a physical copy of the bill from the relevant utility company. But ensure it is a recent bill, preferably issued within the past 3 to 6 months.

Usually, the organization you are applying to provides detailed instructions on how to go about the process. So if you live where you claim to live, it is relatively painless to obtain proof of residence.

What are acceptable documents for proof of address in Singapore?

Here are a few documents that are usually acceptable as address-proof documents by most organizations in Singapore:

• NRIC card of Singapore residents or Permanent Residents
• Utility bills, no older than 3 months (some organizations may accept utility bills that are no older than 6 months)
• Credit card statement or bank statement
• Letter issued by your employer or the institution where you are studying
• Letters issued by the Central Provident Fund Board & Inland Revenue Authority of Singapore, preferably within the last 1 year
• Letter from a public authority such as a court
• A valid passport with an address verified by the Immigration Authority
• Letters or bills from other government agencies such as Land Transport Authority or Town Council, if issued within a certain time frame
• Tenancy agreement bearing signatures of both landlord and tenant and no older than 1 year
• A mortgage agreement that’s no older than 1 year

Make sure to confirm with the relevant organization whether a particular document will work as proof of address. Also, keep in mind that acceptable documents may also vary depending on whether you are filing a form or applying for something online or in-person.

Do businesses need a separate proof of a Singapore business address?

The business address refers to the place from where you carry out your business. If your business is a sole proprietorship or if you have business partners, your home address can serve as your Singapore business address.

This is different from a registered office address which refers to the place where a company’s registers and records are available and communications and notices to the company can be sent/received.

As per the Accounting and Corporate Regulatory Authority of Singapore, at the time of registration of a new business in Singapore, it is mandatory to provide the home address of all business owners and company officers by furnishing any of the acceptable documents for proof of address.

Please note that a P.O. Box address cannot serve as a Singapore business address or registered office address. If you are setting up a local company, you need a lease a physical office space.

What documents are not acceptable as proof of address in Singapore?

Typically, most organizations are reluctant to accept the following as proof of address, especially if they are furnished alone without any supporting document:

• Any identity card issued by any organization without any supporting document
• A commercial address
• A proof of address that is past its validity period, as indicated by the organization providing it
• Invoices for purchasing any goods
• Pension agreements
• Any document that indicates your residence at a different address
• A library card issued by your university or college
• Driver’s license
• Photocopies or printouts of certain documents

What documents can a foreigner provide to prove residency in Singapore for opening a bank account?

Banks in Singapore require every applicant to mandatorily furnish documents that include their current residential address to process their account opening application.

If you are not a Singapore national or a Permanent Resident, here are a few documents you can furnish to satisfy the bank’s requirements:

• Letter from your employer or the institution where you study
• Ministry of Manpower’s In-Principle Approval issued to migrant workers
• Certificate of stamp duty
• Local utility bills

If you are a foreign business that wants to set up a subsidiary in Singapore, any document that is acceptable as address proof of your local director can help you to open a corporate business account with a local bank.

What happens once you submit the address proof document?

The verification process starts once you furnish an acceptable document. The exact procedure varies depending on the entity to which you submit a document.

Most banks may initiate an automatic check to verify whether you reside at the address provided. It includes confirming the name on the document and determining whether the address in the document actually exists.

If you provide a document that is only valid for a specific time frame, the bank may also confirm whether the document furnished complies with the timeline prescribed.

In case any information doesn’t match up, you may not be able to prove residency. So double-check all the details before you proceed. In the event of any address change, promptly inform the relevant entity so they can update the record to reflect your new address.

Wrapping up

If proof of address is what’s holding you back from setting up a business in Singapore, get in touch with Air Corporate right away.

Our experts can provide you with all the information you need and help register your business in Singapore in a hassle-free manner. We also take care of the business account opening procedure and guide you about the documents you need to furnish.

So leave your worries aside and sign up with Air Corporate before you take the plunge.

FAQs

1. I am a foreign company. Can I use my virtual office address as proof of business address in Singapore?

Your virtual office address is insufficient as address proof of your business.

Even though Singapore laws allow you to open a virtual office, a valid registered office address is mandatory, which doubles up as proof of business address. This is a physical location where company records are available for inspection.

2. Can geolocation data work as address proof?

Currently, most regulators in Singapore and elsewhere are reluctant to admit GPS data as address proof, even though it is a faster and more efficient way of gathering information.

Since the Finanсial Action Task Force (FATF) has pressed on the need for accepting geolocation-based proof of address, it remains to be seen if regulators warm up to the idea in the future.

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