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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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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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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As one of the leading financial centers of the world, Hong Kong is the go-to business destination for foreign entrepreneurs. 

For any business operation, banking services are critical since most require a line of credit and other facilities such as making deposits and sending remittances.

Thus, the banking sector in Hong Kong has been vital to the evolution of the region as a top jurisdiction for doing business.

In fact, seventy out of the top hundred international banks across the globe have a presence in Hong Kong. Twenty-nine of them also have regional headquarters in Hong Kong.

But how to pick the best one out of the various banks in Hong Kong?

This article rounds up the top choices you can consider and also provides you with an alternative if you don’t want to transact with traditional banks.

An overview of the banking system in Hong Kong

As an international financial hub handling a huge volume of external and domestic transactions, the banking system of Hong Kong is a highly regulated sector.

No business can accept deposits without obtaining a license from the regulator, Hong Kong Monetary Authority.

There are three types of deposit-taking companies in Hong Kong

Licensed banks

These institutions can carry out all banking transactions as per the Hong Kong Banking Ordinance, including:

• Accepting deposits, regardless of the size of the deposit and its maturity;
• Opening current and savings accounts;
• Granting loans and collecting cheques;
• Freely using the term ‘bank’ freely in their names

Restricted license banks

These institutions are only permitted to carry out certain banking activities. They are primarily engaged in providing merchant banking and capital market services.

While they may operate both within and outside Hong Kong, they can only accept deposits of HKD 500,000 and above, regardless of the maturity period.

Deposit-taking Companies

Licensed banks can own standalone deposit-taking companies that engage in commercial lending, securities business, and consumer finance.

They can accept deposits of HKD 100,000 or above with a maturity of at least 3 months.

Why choose banking services in Hong Kong?

The commercial banking system in Hong Kong is one of the best in the world. It is sophisticated and offers comprehensive one-stop banking solutions, making it immensely attractive for foreign and domestic businesses alike.

Hong Kong ranks among the top five financial centers in the world and is home to some of the most revered financial institutions.

In fact, three out of the top 10 banks in the world are Hong Kong banks.

What to keep in mind while evaluating Hong Kong banks?

Before you go ahead and open a business bank account with a Hong Kong bank, here’s what you should consider:

• Do you have relevant documents to prove your eligibility for a corporate bank account?
• Is the bank account opening process user-friendly? Can you do it online remotely?
• Does the bank provide mobile banking services?
• Can you resolve your issues through the customer service hotline?
• Do you have to maintain a minimum deposit in your account and pay a penalty if you fail to do so?
• Does the bank account support multi-currency options to manage your overseas transactions?
• What are the applicable fees for using ATMs within and outside Hong Kong?
• Do you have to pay additional fees to send money abroad or get it from overseas?
• What is the interest rate on deposits?

If you’re unsure about traditional banks and would like to opt for a more convenient option, opening a bank account online in Hong Kong could also be another option for your business.

Let’s take a look at the top 5 banks in Hong Kong that you should consider for your business.

Top 5 banks in Hong Kong to consider

1. Hang Seng Bank

The Asian Banker ranks Hang Seng Bank as the 4th best bank within the Asia Pacific region. In 2021, Asiamoney rated Hang Seng bank as the best Hong Kong bank for SME clients.

Hang Seng bank offers various services to serve its domestic and global clients. It includes:

• Commercial banking
• Private banking; and
• Personal banking

The bank also supports foreign currency business accounts and savings accounts.

Hang Seng Bank Fees

Here’s an overview of fees payable for various services:

Account opening
Biz Virtual+ Account:
HKD600 (if you apply remotely)
HKD1,200 (if you apply through Business Banking Center)

Integrated Business Solutions Account:
HKD1,200 (whether you apply remotely or through the Business Banking Center)

• Initial deposit – HKD 20,000
• Telegraphic transfer
• Receiving a transfer – HKD 65
• Sending a transfer – HKD 85 (if the beneficiary account is with Hang Seng bank in Mainland China or Macau) and HKD 125 (if the beneficiary account is in Mainland China or Macau but with another bank or if the beneficiary account is in another country or territory)

2. HSBC Bank

Hong Kong and Shanghai banking corporation Limited or HSBC is one of the oldest banks operating in the region. On the basis of its balance sheet strength, the bank occupies 2nd rank in the Asia Pacific region, as per the Asian Banker.

It is the preferred choice of many HNI individuals and investors

HSBC Bank offers the following services:

• Commercial banking
• Retail banking and wealth management advisory
• Global private banking, and
• Global banking

HSBC Fees

Account opening

HKD1,300 (if you apply through Account Application Center)
HKD2,250 (if an overseas HSBC branch facilitates the process)

• Initial deposit – HKD 10,000
• Telegraphic transfer
• Receiving a transfer – HKD 65
• Sending a transfer – HKD 100 (if the beneficiary account is in Mainland China ) and HKD 125 (if the beneficiary account is in any other country)

3. Citibank

Citibank was the first among the international banks to offer services in Hong Kong. The bank is now synonymous with a strong global brand, catering to a multitude of customers.

It is a leading investment bank that also caters to commercial and private clients. Non-residents and ex-pats choose Citibank over others when looking for private banking services, largely because of no initial deposit requirements.

It also offers Citi Private Bank services for ultra-high-net-worth entrepreneurs.

Citibank fees

Account opening

HKD 200o (if you open a local company account)

HKD 8000 (if you open a company account for an overseas company)

• Initial deposit – NIL
• Telegraphic transfer
• Receiving a transfer – NIL
• Sending a transfer – fee waived for online transfers. Otherwise, it is HKD 200 for Citibank and CitiPriority clients and HKD 100 for CitiGold clients.

4. Standard Chartered

Established in 2004 in Hong Kong and with a presence in over 60 countries, Standard Chartered has become a preferred choice in the last few decades. It has been a trailblazer in providing a suite of digital banking products and services.

To keep up with the changing landscape, the bank also offers specialized banking solutions for customers in the ESG sector through sustainability loans, green mortgages, and other ESG derivative products.

Standard Chartered Account Fees

Account opening

HKD5,000 (for an account of an overseas company)

• Initial deposit – HKD 1000
• Telegraphic transfer
• Receiving a transfer – Free for Priority Banking clients
• Sending a transfer – HKD 120 for Priority Banking clients and HKD 150 for others

5. DBS Hong Kong

With its headquarters in Hong Kong, DBS is another key player in the banking sector in Hong Kong. Over the years, DBS has been at the forefront of promoting sustainability in the Asia Pacific market through various corporate social responsibility initiatives.

Here are some key benefits that DBS Bank offers to SMEs:

• SMEs and startups in Hong Kong can opt for DBS BusinessClass
• There are various loan application schemes for SMEs
• The bank carries out swift credit checks in case of urgent financing needs

DBS Bank Account Fees

Account opening

HK$1,200 – Local company account

HKD 10,000 – Overseas company account

• Telegraphic transfer
• Sending a transfer – HK$115 per transaction done through ideal banking services and HKD 200 per transaction if the transfer is via branch
• Receiving a transfer – HKD 65

Note – all fees indicated above are as of the date of publication. Please refer to the bank’s website for the latest fees.

Is opening a virtual bank account a better option for you?

While there are several attractive Hong Kong banks to take your pick from, opening an account may not always be a straightforward process.

Instead of remaining stuck in a loop of red tape and bureaucracy, opening a virtual account with a Hong Kong-based fintech company can be a better solution, especially for foreign companies.

For instance, Statrys offers a multi-currency business bank account in Hong Kong. The application process for such an account is extremely straightforward and you can complete it remotely.

A business account as such has all the features one would typically expect from a bank account, like multiple currencies or making local and international payments at a much cheaper rate.

If you are a foreign business, exploring your options of opening a business bank account in Hong Kong, reach out to Air Corporate.

We can assist you with setting up a new company and also with establishing your bank account.

The process is completely remote and less time-consuming, making it convenient for entrepreneurs and small businesses to operate effectively.

FAQs

Can a non-resident open an account in a Hong Kong bank?

Anyone is free to open an account with a bank in Hong Kong.

However, depending on whether the account is for personal use or business use, certain restrictions may apply.

Which is the best bank in Hong Kong?

This would depend entirely on your expectations from the bank.

It is hard to pick a single bank in Hong Kong as each of them offers a unique suite of services, making them all strong contenders.

Is Hong Kong a good jurisdiction for banking?

The banking system in Hong Kong is extremely sophisticated, catering to the needs of modern-age customers.

Whether you want to open a personal account or a business account, there are plenty of options to choose from.

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Hong Kong is an attractive market for investors and entrepreneurs from all over the world, with China and the Asia-Pacific region right on its doorstep.

The city consistently ranks as the world’s freest economy as an international economic centre with excellent technology infrastructure. The administration’s pro-business attitude, tax incentives for startups, a productive legal system, and world-class tech infrastructure have all contributed to this.

The first step in taking use of Hong Kong’s potential is to establish a company in Hong Kong. Continue reading to learn everything you need to know about business registration in Hong Kong.

Benefits of business registration in Hong Kong

Before we go into the requirements of business registration in Hong Kong, it’s crucial to understand the advantages of forming a company in the territory. These advantages are listed below:

• The procedure of forming a business in Hong Kong is quick, easy, and inexpensive. After an application is approved, the Certificates of Incorporation and Business Registration (“the Certificates”) are usually accessible within four working days.
• Hong Kong, along with Singapore, has earned a reputation as the world’s most open jurisdiction.
• According to the findings of the World Economic Forum’s Global Competitiveness Report 2019, Hong Kong is the best financial system in the world.
• In Baker McKenzie & Oxford Economics’ Global Transactions Forecast 2019, Hong Kong is ranked first in Asia-Pacific for IPO and M&A activity.
• Foreign investors can manage their Hong Kong-based company from anywhere in the world. They only require a local holding address rather than a physical address.
• Profits earned outside of Hong Kong are tax-free, but money earned in Hong Kong is subject to a 17 percent income tax rate on earnings exceeding 120,000HKD.
• Hong Kong is strategically placed in Asia, alongside many of the region’s most advanced business markets, such as China, Singapore, and South Korea.
• The city’s legal system is separate from that of Mainland China and is based on English common law. Hong Kong’s two main languages are English and Cantonese.

Types of business entity in Hong Kong

It’s critical to choose the right company type when starting a business in Hong Kong. The following are the main business types:

Limited company

• Limited businesses are one of the most common options for companies forming in Hong Kong, , as  limited companies are unrestricted in the activities that they perform.  
• Tax exemptions on income derived from overseas operations are available to limited companies in Hong Kong. Hong Kong is therefore an ideal place for establishing a holding company or a corporate headquarters.
• In Hong Kong, there are only a few prerequisites for forming a company, including only one director and one shareholder (who can be of any nationality). The presence of a resident company secretary is also required.
• Limited companies are legal entities that can conduct business independently of their owners.
• Although corporate shareholders are popular, Hong Kong company law prohibits corporate directors.
• At their annual general meetings, limited companies must present audited accounts and tax returns.
• There are no limitations for minimum share capital. In Hong Kong, incorporating a limited company does not require government approval.
• The share capital of a company can be in any currency, including the USD, EUR, GBP, and HKD.

Branch office

• Because branch offices are considered extensions of their parent corporation, they lack their own legal identity.
• A branch office is suitable for organizations who need to start doing business right away or for businesses that only sell in Hong Kong.
• The parent business bears both positive and negative financial consequences for a branch company.
• Hong Kong branch offices are allowed to conduct business within the parent company’s guidelines. They can only do business in Hong Kong if they have the necessary licenses.
• A Hong Kong branch office can open for business up to one month before registering with the Hong Kong Companies Registry.
• Within a month of opening a branch office in Hong Kong, overseas enterprises must register as a “Registered Non-Hong Kong Company.”
• In Hong Kong, branch offices are allowed to sign local sales contracts, invoice local consumers, and collect revenue from local customers.
• A Hong Kong branch office is not required to provide audited financial statements with its yearly returns and tax filings.

Representative office

• In Hong Kong, a representative office is exempt from making direct sales.
• Representative offices in Hong Kong are only allowed to conduct market research and promote the parent company’s products.
• Companies with simply a representative office in Hong Kong must hire a local distributor or agent to offer their products and services to local customers.
• Due to the limitations in business activity, a representative office is excellent for enterprises intending to enter Hong Kong to conduct market research and investigate potential opportunities.

Understanding Hong Kong business registration

The Companies Ordinance of Hong Kong can help anyone who want to register a business in Hong Kong. This is an official document that outlines the legal parameters within which businesses can operate in Hong Kong.

Here are some other facts concerning Hong Kong company registration that individuals and corporations should be aware of:

Directors

There must be at least one individual director, with no limitations or restrictions on the director’s location or country. The maximum number of directors is also uncapped.

Shareholders

In Hong Kong, a limited liability company must have at least one shareholder and a maximum of 50. Shareholders are not subject to any residence requirements.

Share Capital

In Hong Kong, there is no minimum share capital requirement for registration. With this in mind, the most frequent approach is to establish a company with HKD 10,000 share capital. Because one share in Hong Kong has a minimum paid-up capital of HKD 1.00, this capital is represented by 10,000 ordinary shares of HKD 1.00.

Tax

Hong Kong levies taxes on a territorial basis. That is, registered companies only pay corporate tax on Hong Kong-based transactions. Furthermore, there is no withholding tax on earnings and interest, nor is there any collection of tax on social security benefits, nor is there any VAT sales tax.

In Hong Kong, there are two alternatives for profit tax rates. The first is the Single-Tier Corporate Tax System, which levies a 16.5 percent tax on assessable profits on corporations and a 15% tax on unincorporated businesses. The second alternative is the Two-Tier Profits Tax Regime, which lowers the tax rate to 8.5 percent for the first $2 million in assessable profits for both companies and unincorporated businesses.

Company Secretary

A company secretary who lives in Hong Kong is required for any limited liability company. A company secretary serves as a company’s representative in Hong Kong, ensuring that the firm’s operations are conducted in accordance with local regulations. A company secretary is also responsible for keeping the firm’s statutory books and records.

Compliance

After a company has been officially registered in Hong Kong, the owners, directors, and company secretary are responsible for ensuring that accounts are properly prepared and maintained. In Hong Kong, accounts must be audited by a certified public accountant every year. Audited accounts must then be submitted to Hong Kong’s Inland Revenue Department.

Opening a Corporate Bank Account 

Companies that want to use reliable payment gateway providers like Stripe and PayPal should normally use banks in the same territory. The following documents are necessary to open an account in Hong Kong:

• Account application forms
• Corporate registration documents
• Copies of passports of major members
• Personal resume
• A bank reference letter of each major member
• A bank statement of each major member, or any related corporates
• Proof of business such as agreements, invoices, and contracts of the current company or any related one.

Documents needed for business registration in Hong Kong

Several documents must be prepared when registering a company in Hong Kong. These are outlined below:

Articles of Association

These are a set of rules that govern how a board of directors can run a business.  It’s often viewed as a contract between employees members of the company and the company.

A company registration form must also be completed with the following information:

• The company name
• The company’s registered address
• An accurate description of the company’s main activities 
• Details relating to the company’s shareholders, directors, and company secretary 
• Copies of passports and proof of residence in their respective countries are required for firms having non-Hong Kong shareholders and directors.
• Copies of local shareholders’ and directors’ identity documents should be submitted if a company has local shareholders and directors.
• A copy of the parent company’s company registration documents is required in the event of corporate shareholders.
• Company directors’ responsibilities
• Total share capital 

If any documents are provided in a language other than English, an English-translated document must be provided as well.

Summary

For any company trying to join the Asia-Pacific market, Hong Kong is one of the most important investment destinations in the world. The region’s advantageous tax system, world-class financial and technological infrastructure, and ease of company formation all contribute to this.

It is possible to form a company in Hong Kong in a few of days. There are simple rules to follow, including the presence of at least one director, shareholder, and resident company secretary. A corporate bank account is also essential for businesses.

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The Hong Kong Companies Registration Office (HKCRO) has introduced the concept of holding companies for people who have their business registered with the HKCRO but are not based in Hong Kong.

A company can be set up as a subsidiary, associate, or branch of another company, and these are known as ‘holding companies’.

The main difference between a holding company and an ordinary company is that it does not own any shares in its subsidiaries and therefore cannot control them.

It also does not issue any dividends or pays any tax on profits made by its subsidiaries.

Instead, it receives all the profits from its subsidiaries and pays income tax on them.

In order to form a holding company, you must first register your company with the HKCRO. You then need to apply for a license to operate as a holding company.

This will allow you to conduct activities such as issuing shares in your subsidiaries, making investments in other companies, and opening bank accounts.

However, if you want to sell shares in your holding companies, you will need to obtain approval from the HKCRO before doing so.

Common reasons holding companies are set up in Hong Kong

There are several reasons why you might wish to set up a holding company:

To protect yourself against insolvency

Many countries require individuals to hold at least one share in each company they run.

In some cases, this requirement applies even if the individual owns only a small amount of stock.

For example, in Canada, it is illegal for anyone without a minimum level of ownership to take part in the management of a corporation.

As a result, if someone becomes bankrupt, creditors can seize his assets.

By forming a holding company, you can ensure that your personal assets are protected.

To limit liability

Most jurisdictions impose strict rules on how directors of companies can be held liable for any financial losses caused by their actions.

These rules often make it difficult to sue directors for negligence. Setting up a separate legal entity allows directors to act independently of the company and limits their liability.

To manage multiple businesses

There are many advantages to having more than one business. You can use them separately or together. For example, you may choose to run your retail business during the day while running a different type of business in your home office at night.

Or you may decide to open a second shop near your existing store. This way you can increase your sales and develop new markets.

To trade internationally

Having a holding company gives you the opportunity to trade internationally.

If you plan to trade internationally, you should consider whether you need to register your company under the laws of the country where you are planning to trade.

In most countries, including Hong Kong, there are restrictions on trading outside the country where the company was originally registered.

When setting up a holding company, you should bear in mind that certain aspects of your business operations may change because of the structure of the holding company.

For example, the holding company must account for all of the income and expenses of its subsidiaries.

This means that the holding company needs to keep records of these transactions.

If you have already started operating your business, you may find it convenient to continue using your current corporate structures.

The following sections discuss the main options available when setting up a holding company.

Ensuring your holding company is compliant

One advantage of setting up a holding company is that it helps you comply with local regulations.

It also provides additional protection against bankruptcy.

In Hong Kong, there are two ways to set up a holding company:

1) Registering as an incorporated company, and 2) Forming a limited partnership.

Registering as an Incorporated Company

You can form a Hong Kong incorporated company through the Companies Registry.

This will give you full control over the company’s affairs.

However, you will lose some flexibility and face additional costs.

The benefits of incorporating include:

• Full control over the company’s finances and activities.
• Protection from creditor claims. When you incorporate, you become personally responsible for any debts incurred by the company.
• A ready-made credit history. As a registered company, you will appear on the list of approved creditors. This makes it easier to obtain loans.
• Better access to government services. Many government departments require that companies are incorporated before they provide public assistance.
• Easier access to capital. Investors will be willing to invest in a well-known brand.

However, incorporating is not always necessary.

There are other ways to protect yourself against personal liability.

For instance, if you want to operate your own business but do not want to take on the responsibility of being a director, you could set up a company as a sole trader instead.

Why set up a holding company in Hong Kong?

There are several reasons why people set up their own businesses in Hong Kong.

The Tax Regime

Hong Kong has one of the lowest tax rates in Asia. You only pay 15% corporation tax on profits made from your business.

This low rate attracts international investors who would otherwise prefer investing in Singapore or Malaysia.

Entrance into the China market

Starting a new business in Hong Kong allows you to enter the Chinese market without having to start at square one. You can use the advantages of the existing infrastructure and experience gained while operating locally.

Setting up a company in Hong Kong is relatively easy.

The process involves filling out forms and paying fees. After this, you can start trading.

Corporate structure benefits

A holding company gives you more freedom than a normal company.

In addition, a holding company offers greater protection against corporate insolvency.

For example, a company cannot go bankrupt unless all of its directors agree to liquidate.

If you set up a holding company, then you can appoint an administrator to manage the company’s assets.

This person will be able to deal with the company’s liabilities.

Incorporation cost and requirements

The registration fee varies depending on how large your company is. It ranges between HK$700 and HK$20,000.

Another requirement is registering the company’s name. This must be done within 30 days after formation.

If you decide to register your company under a different name, you will need to apply for a change of name certificate.

The time taken to complete the entire process depends on the number of shareholders. Normally, it takes about 1 month.

However, this may vary according to the complexity of the application.

Double taxation arrangement between China and Hong Kong

To attract foreign investment, Hong Kong introduced special arrangements to encourage multinationals to establish operations there.

One such scheme is known as the Double Taxation Agreement (DTA).

Under this agreement, the two jurisdictions have agreed to treat each other’s income equally.

They also share information regarding taxes paid by residents of both countries.

Stay compliant with local Hong Kong taxes and laws

You should be aware that any form of business activity in Hong Kong requires you to comply with the relevant legislation and regulations.

For example, you must obtain a license before carrying out certain activities.

These include selling alcohol, gambling, money laundering, prostitution, drug trafficking, and fraud.

You must also comply with the Anti-Money Laundering Ordinance.

This means that you must ensure that transactions involving cash are properly recorded.

You must also keep proper records of all transactions.

These records must be kept for a minimum period of 3 years.

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

Hong Kong has 2 filing dates: April 15th and June 30th.

April 15th – Annual return date for companies incorporated prior to July 1st, 2006.

June 30th – Annual return date if you incorporate after July 1st, 2006

General characteristics of holding companies in Hong Kong

Holding Companies in Hong Kong offer many advantages. For instance, they allow you to avoid double taxation.

Furthermore, they provide greater protection from corporate bankruptcy.

In addition, they give you additional flexibility when it comes to dealing with the government.

However, there are some downsides to using them. You should be aware of these before setting up one.

Limited liability protection

One drawback of using a holding company is that it limits your personal liability.

In fact, you do not even need to pay any tax on profits made by the company.

This does not mean that your personal assets are safe.

You still have to pay taxes on dividends received from the company.

Tax savings

As mentioned earlier, a holding company enables you to save on taxes.

In particular, you can claim deductions against your earnings without having to declare the source of income.

Dividends and interest earned by the company are exempt from tax.

This exemption applies to dividends and interest paid during the first 5 years of incorporation.

It is important to note that dividends must be declared at least once every year.

Any dividends that are accumulated over more than 12 months are taxed at 20%.

Conclusion

A holding company is useful for several reasons. However, it has limitations.

Therefore, make sure that you fully understand the pros and cons before deciding whether or not to set one up.

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If you open a company in another country like the United States, you’ll end up paying 21% in corporate taxes. Or in Spain, you’ll pay 25%, 28% in New Zealand, or 31% in Canada.

And this doesn’t include the duties you need to pay for goods and services sold.

Running a business is undoubtedly expensive, and depending on where the business is operating, it definitely remains expensive because of local tax rules.

So it’s no surprise when we hear about companies moving their registration, or even their whole operations, to what we know as, Tax Havens.

Tax havens are a great way for businesses to minimize the amount of taxes.

At the same time, they can maximize the profits they make by taking advantage of the low tax regime that other countries offer.

It sounds simple enough, right? Who could say no to saving money?

One of the most popular tax havens in the world is Hong Kong.

It doesn’t tax corporate profits made outside the territory.

The local government encouraged foreign investment.

And the companies that choose to do business in Hong Kong will find a generous 0% VAT on goods and services sold.

However, while commonly known as a tax haven, Hong Kong is much more than that.

What is a tax haven?

Understanding how Hong Kong is more than a tax haven starts with understanding what really makes up a tax haven.

So, What exactly is a tax haven?

Essentially, a tax haven is an offshore country that offers foreign businesses extremely low to no tax rates.

Businesses registered in countries like Hong Kong, Luxemburg, or the British Virgin Islands usually don’t need to be physically present in these countries to enjoy tax incentives.

For example, if you register your business in Hong Kong, you will pay zero corporate tax if you don’t actually run your business from Hong Kong; or, if you do have operations in Hong Kong, you’ll only be paying between 8% and 16.5%.

Other than offering low tax liability, a tax haven must also have a politically and economically stable environment.

Why is Hong Kong considered a tax haven?

In 2020, accounting firm Price Waterhouse Coopers and the World Bank ranked Hong Kong as the world’s most friendly tax system, second only to Bahrain.

The corporate tax for companies goes from 0% for any business conducted outside Hong Kong, to a maximum of 16.5% for business in the territory.

There are no Value-Added Taxes on goods and services, no tax on dividends, and no customs duties on most imported goods.

In terms of salary tax, Hong Kong residents pay between 2% to 17% tax.

As well, any employees of a Hong Kong company who do not live in Hong Kong are not subject to salary tax in Hong Kong.

What makes Hong Kong different from other tax havens?

However, the anatomy of Hong Kong’s tax haven status comes from more than a simple tax reduction.

For one thing, Hong Kong is also well known for its ease of doing business, with companies registering their business in the territory without ever needing to go there.

As of 2021, Hong Kong has been ranked third in the World Bank’s Ease of Doing Business Index.

Hong Kong is also known as the gateway to China, and is a key port for goods to flow in and out of the biggest economy in Asia.

Generally speaking, foreign businesses who register in Hong Kong often times find it’s easier to set up a subsidiary company in Mainland China or other jurisdictions like Singapore or Vietnam.

Third, Hong Kong has one of the most friendly laws and policies for foreign investment.

In Hong Kong, foreigners are allowed to be the ONLY shareholder and directors of their company which a lot of countries don’t allow.

Wrapping up

With more than 1.5 million companies registered and around 100,000 new companies each year for a population of only 8 million, the question is: what makes Hong Kong so special?

Well, the answer is simple – Hong Kong is more than just a tax haven.

Hong Kong is a go-to destination for businesses who wish to leverage the territory’s connections, influence, and status to drive their growth.

Let’s wrap up some major reasons Hong Kong is a popular business registration hub besides tax incentives:

1. Hong Kong is located at the heart of China & Asia, situated as the gateway that allows foreign businesses to freely import and export goods without too many restraints. Registration in Hong Kong also serves to make further registration in nearby jurisdictions easier.
2. Hong Kong is the only jurisdiction in Asia with no foreign exchange control system. What it means is that your company can easily receive and make payments in any currency and to any other country in just a few minutes.
3. Hong Kong is home to many first-class banks and international fintechs. Options like our partners at Statrys often help new businesses open business accounts quickly, and remotely in just a few days.
4. When new businesses just start in Hong Kong, they can then often enjoy the many subsidies and incentive programs provided by the local Hong Kong government.
5. If you set up your company in Hong Kong, even if you never expect to do business there, you will end up sooner or later visiting the city. Hong Kong is a major air transit hub where many industries across the globe coalesce and put together some of the most important events and expos you won’t want to miss out on.

So is Hong Kong just a tax haven? Or is it more?

If you have a business idea that needs to get off the ground, start by registering your business in Hong Kong with Air Corporate today.

Our experts will walk you through the process, and with as little as $90, you could be taking advantage of all that Hong Kong has to offer.

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An annual general meeting, or AGM, is a key event for all Hong Kong companies.

Held once per year, the AGM provides a forum for company directors and shareholders to discuss the company’s performance and strategy.

It’s also an important opportunity to vote on key decisions and appointments.

In this article, we’ll take a closer look at what happens at an AGM meeting and why it’s so important for Hong Kong businesses.

The AGM is a chance for company directors and shareholders to come together and discuss the company’s performance.

This includes reviewing its financial results, discussing any major changes or challenges that have taken place, and setting future goals.

It’s also an opportunity to vote on important decisions, such as appointing new directors or changing the company’s registered office.

Why AGMs are important

Annual General Meetings are important because they allow shareholders to have a voice in the management of the company.

AGMs are required by law for all Hong Kong companies, and must be held at least once per year.

Here’s some things to note about AGMs in Hong Kong:

1. The purpose of the AGM is to allow shareholders to discuss and vote on the company’s financial reports, as well as elect directors and other officers.
2. Shareholders are also allowed to raise any concerns they may have about the company at the AGM.
3. The AGM is an important opportunity for shareholders to stay informed about the company’s operations and make decisions that will affect its future.​

How to call and hold an AGM

An annual general meeting (AGM) is a mandatory requirement for all companies incorporated in Hong Kong.

All public and private limited companies must hold an AGM every year, during which directors and shareholders can discuss matters of concern related to the company’s development and operations.

The meeting also provides shareholders with an opportunity to ask questions and cast their votes on resolutions put forth by the directors.

An AGM can be called by either the directors or the shareholders of a company.

The procedure for calling an AGM meeting is as follows:

1. A notice of the meeting must be issued at least 21 days before the date fixed for the meeting.
2. The company secretary must give the directors of the company a copy of all relevant documents relating to items on the agenda for discussion at least 14 days before the date fixed for the meeting.
3. A list of members eligible to attend and vote at general meetings must be available for inspection by shareholders during an AGM.
4. A report on the company’s affairs must be presented to shareholders at every AGM.
5. The directors of a private limited company are not required to appoint an auditor or prepare financial statements for annual general meetings, but they should keep proper accounts and records of the business in Hong Kong.
6. At least one director must be present at the meeting, and shareholders holding not less than one-tenth of the total voting power must be present in order to constitute a quorum.
7. A majority vote is required for resolutions to be passed. If the number of votes cast in favor and against a resolution is equal, the chairman of the meeting may exercise his casting vote.
8. Minutes should be kept by either an officer or member appointed at the AGM, and must be signed by them as soon as reasonably practicable after the conclusion of proceedings.
9. If a meeting is adjourned, a notice of the next adjourned meeting must be given as soon as possible to all members entitled to receive it and within 30 days after such an adjournment takes place.
10. The company secretary should keep written records of all business transacted at general meetings and provide these documents upon request to shareholders within seven days of the meeting.
11. The company secretary must give notice of any adjournment made at an AGM, or a resolution passed during such proceedings, as soon as possible after it takes place and before giving effect thereto for members who have not yet received that information previously. >
12. A copy of these notices should be filed with the Companies Registry.

The directors of a company are responsible for calling an AGM and ensuring that all relevant documents are prepared and circulated in good time to shareholders.

It is important that a quorum is present at the meeting in order to pass resolutions, and directors should be aware of their responsibilities under the law when it comes to holding AGMs.

Hong Kong companies must comply with the Companies Ordinance in order to hold a valid AGM.

Conclusion

The annual general meeting of a company is an important event in its calendar, as it provides directors and shareholders with the opportunity to discuss matters relating to the business’s development and operations.

AGMs must be held by all companies incorporated in Hong Kong, and there are strict laws governing how they should be conducted.

The Companies Ordinance outlines exactly what needs to happen at an AGM, from preparation through to ensuring adequate quorums for resolutions being passed during proceedings – which may include appointing auditors or amending articles of association that affect future decisions made within private limited firms operating locally here on HK Island (such as changing who has power over management).

Are you looking to incorporate your business in Hong Kong?

All your annual general meeting needs are taken care of if you choose Air Corporate as your company secretary.

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In order to change a company’s secretarial obligations, there are several conditions that have to be met:

1. a new company secretary must be at least 18 years old (If the company secretary is not a business entity)
2. all applications for a Certificate of Incorporation have to be submitted before the date when said business entity would be considered in default under section 183 of the Companies Ordinance (Cap. 622) and
3. if required by the Registrar of Companies, an affidavit from the person applying to be named as the company’s secretary attesting that he/she meets all statutory requirements for being a company secretary.

There is also a change of address requirement which you need to change with both Companies Registry and Inland Revenue

Setting up a company is not something that you can do on the spur of the moment – change in circumstances or not, when you change your company secretary, it will be necessary to change other parts of your business registration at the same time in order to maintain continuity.

For both large and small companies this is an important process; even if the person wishing to change the name of their company’s secretary follows all of these steps perfectly, they may still find themselves in trouble with authorities like Companies Registry and Inland Revenue Authority.

When changing your company secretary, follow these steps carefully:

1) Change Name Details

This is optional, but if you intend to also change the name of your company, changing the company name is very first step when changing a company secretary.

In order to change a company’s name, there are several conditions that have to be met:

• The change of name must not result in unfair advantage or cause detriment to other parties
• All applications for change of name have to be submitted before the date when said business entity would be considered in default under section 183 of the Companies Ordinance (Cap. 622).

In addition, a change of name can only be done when an application for a change of corporate secretary has also been submitted simultaneously or before the change of name.

If you change your corporate secretaries, then change your company’s name as simultaneously as possible to remove any bureaucratic headaches.

2) Select a New Company Secretary

Your company needs to have a company secretary to be incorporated in Hong Kong.

Changing your company secretary doesn’t absolve your company of these requirements.

So, be sure you know who you want next to be your company secretary.

3) Update Change of Address

Update your change of address with the Registrar of Companies.

This can be done by sending in form COA2 or using an online application on their website.

The email address for them is [email protected] if after you send in form COA2 you still have no update showing up, then email them your company name, your old address, and your new address.

Also, when you are doing this step, remember to also change the address on file with The Inland Revenue Department (IRD) because they use the same services as the Registrar of Companies.

4) Amend the Articles of Association

The Board must always ensure that the Memorandum and Articles of Association are consistent with all current legislation.

If there is a change in legislation or any part becomes obsolete, then it is discussed by the Board and approved in order to amend the Memorandum and Articles of Association.

At this point, a new Articles of Association and Company Memorandum can be delivered for future corporate governance with the new company secretary.

5) File for a New Certificate of Incorporation

When you are setting up your corporation, there are many steps that need to be followed in order for the business entity to be legitimate.

Start by filing a certificate of incorporation with your Secretary of State or another corporate filing office.

This is generally accomplished with the help of an attorney who will also organize the subsidiary records, including, if necessary, a shareholders meeting to approve the issuance of shares.

Once these records are complete and filed with your Secretary of State or another office, all paperwork will be transmitted to you for your records.

The next step would be to file any necessary change name papers in foreign countries where you intend on doing business.

This is usually straightforward but does require a little more work on your part as you are essentially repeating step 1 but in foreign jurisdictions.

6) Update Your Bank Details

The Registrar of Companies and the Inland Revenue Department have a duty to ensure that all corporations file their returns on time.

For corporations that do not file their returns for a consecutive period of two years, the corporations will be struck off from the Registry of companies by operation of law after 28 days from the date of issue of notice by the Registrar.

In other words, a company will be dissolved.

So, once you’ve changed your company secretary, don’t forget to update your bank details.

Most companies are looking for a better experience with their corporate governance, including making a more digital one.

Change your company secretary to Air Corporate and start your digital corporate governance in style.

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If you own a registered company in Hong Kong, filing the Return of Remuneration and Pensions, also known as Employer’s Return, is mandatory under law.

This is the annual reporting of the amount of salary and all other benefits that your employees receive.

Here’s everything you need to know about how to file the return:

Employer returns are filed to the Inland Revenue Department through forms BIR56A and IR56B.

Form BIR56A serves as a cover letter to IR56B forms, and both need to be submitted.

These forms are directly sent by the Department.

The employer also needs to find the requisite number of Form IR56B corresponding to the number of employees on a roll.

Moreover, these forms need to be filed regardless of the employee’s income.

That’s why the employer must maintain payroll records to report how much do the employees earn accurately. 

Apart from BIR56A and IR56B, an employer also needs to submit the following to report the earnings of the employees in Hong Kong:

• IR56E: When hiring a new staff
• IR56F: When the employer terminates the contract of an employee or upon the death of the employee
• IR56G: When an employee leaves Hong Kong for a substantial period of time or for good

Who’s an employee?

For the purpose of these forms, the term employee refers to persons employed by Hong Kong companies, including full-time or part-time employees; Hong Kong residents or non-Hong Kong residents; and persons who provide services in or outside Hong Kong.

It also includes all employees assigned or seconded to a Hong Kong company by the overseas holding company or subsidiary, including persons who provide services in or outside Hong Kong.

What are your tax obligations as an employer?

The tax obligations commence as soon as you hire the first employee. 

Accordingly, you must maintain a record of that employee’s personal particulars, nature of employment, the designation in which the employee is employed, the cash remuneration provided, non-cash perquisites, employer’s and employee’s contributions to the Mandatory Provident Fund (MPF), or it’s equivalent. 

Employers also need to maintain business accounting records, including payroll records, for at least seven years.

In case of any change in the employee’s personal details or terms of employment, the employer must inform the Inland Revenue Department as soon as possible. 

Filing Form BIR56A and IR56B

Forms BIR56A, and IR56B should be submitted to the Inland Revenue Department (IRD) of Hong Kong annually.

Every year, these forms are issued by the Department on 1 April.

Here’s what you need to provide when you are filling up Form BIR56A:

• Company’s name and address
• Name of the officer who is filling up the Employer’s Return
• Number of IR56B forms filed up; and
• How the forms have been submitted: in hard copy, online, or a mix of both

Form IR56B should be submitted for the following employees:

• Employees (including laborers, whether daily paid or otherwise, and employees who have received remuneration through service company arrangements), whether resident in Hong Kong or not, whose total income during a financial year is more than HKD $132,000 (if employed for less than a year, a proportionately reduced amount).
•  Directors, married persons, and part-time employees who are likely to have other income chargeable as Salaries Tax, regardless of their income and whether resident in Hong Kong or not.
•  Employees of any non-Hong Kong company who were assigned or seconded to the company during the financial year for duties in or outside Hong Kong.
• Employees receiving pension during a financial year.

If there are any freelancers employed by a company, the remuneration paid to such freelancers should be disclosed in Form IR56M and submitted to the Inland Revenue Department. 

For Form IR56B, the following details must be provided:

• Employee’s personal particulars
• Position/designation in the organization; and
• All salary, benefits, and pension received

Forms IR56B should be submitted in alphabetical order of surnames followed by other names and should be marked in numerical order.

While H.K. Identity Card No. of the employee is mandatory, passport number and place of issue can be provided in case the identity card number is not available.

However, the employer must inform the Inland Revenue Department once the identity card number is known.

What is the timeline for filing the forms?

The forms should be submitted within one month from the date of issue.

Keep in mind that when you receive the forms, you should complete them and submit them even if you do not hire any employees.

In that case, you should tick the Box “NO” in the form.

Similarly, the form should be submitted even if the business has not commenced or has ceased operations. 

In case you are a newly incorporated Hong Kong company, Form BIR56A will be issued 3 to 6 months from filing your first audit, and it should be submitted within one month from the date printed on the form. 

If you need more time to prepare the forms, you can submit a written request for an extension with the IRD.

Ensure to include the company name, file number, the year of assessment in question, the additional time you need, and the reason for the extension, along with necessary documentary evidence.

What’s the process of filing?

Once you have filled up the forms, there are different modes of submitting them:

Both forms in hardcopy or physical form: You can submit physical copies of the forms, provided they are downloaded from the website of the Inland Revenue Department or obtained from Fax-A-Form.

Moreover, such forms require wet ink signatures of the director, secretary, manager, as the case may be, prior to delivery. 

BIR56A in hard copy and IR56B in soft copy: IR56B forms should be either on a CD-ROM, DVD-ROM, or USB storage device.

Downloading and using the IRD’s IR56B software to prepare the forms is mandatory.

The storage device with the soft copies is preserved by the Department as a source document.

E-filing services: You can either opt for online mode or submit the forms through mixed mode.

If you wish to go through the online mode, create an eTAX (Inland Revenue Department’s online services) account.

Such accounts can be also accessed by an Authorised Signatory such as director, sole proprietor, or partner.

The same person will need to sign the Employer’s Return.

You can either type in employees’ information on the IR56B forms and form BIR56A one-by-one online, or you submit a data file containing all the information.  

From November 2018 onwards, the Department allows mixed modes for submitting the returns.

As per this method, you can submit IR56B or IR56F data files without using the Authorized Signatory’s eTAX / “iAM Smart” Account.

Any person designated by the employer can upload the relevant data files.

Once the data files are successfully uploaded, a Control List paper containing the Transaction Reference Number and QR code is generated by the system.

The same should be signed by the Authorized Signatory and submitted to the Department to complete the submission process.

Is there any penalty due to non-compliance with filing requirements?

Yes, as per the terms of the Inland Revenue Ordinance, if the filing requirements are not complied with, the Commissioner can invoke relevant punitive provisions, depending on the nature of the offense

The Commissioner may,  at their sole discretion, initiate prosecution to assess additional tax (which is a form of penalty) in respect of the offense and also impose fine or order imprisonment. 

As the director of your company, do you still need to file your own Employer’s Return?

Under the law, a company director is an employee of a company.

That’s why the details of your earnings and benefits should be submitted as part of the Employer’s Return.

Are you looking for assistance to handle the filing process?

Needless to say, there’s a fair bit of paperwork involved with filing an Employer’s Return in Hong Kong.

As a business owner, it may be a lot for you to handle, and that’s precisely where Air Corporate steps in! 

We take care of all the formalities so that you can solely focus on growing your business.

Our digital company secretary services are specially tailored for entrepreneurs like you to make compliance a hassle-free process.

Speak to us today and let’s find out a way to help you. 

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