How to avoid pitfalls when registering a company in Hong Kong

Hong Kong’s popularity springs from a number of factors, many of which are captured in the World Bank’s Ease of Doing Business rankings. Hong Kong is currently ranked third overall by the World Bank, garnering high marks for such indicators as starting a business, paying taxes, and dealing with construction permits.

Even the most popular business destinations, however, present challenges that growing multinational organisations should be aware of, and Hong Kong is no exception. This article lists some of the most important pitfalls of registering a company in Hong Kong and suggests steps multinational organisations can take to lower their risks.

Submitting a non-compliant company registration

As we’ve seen, Hong Kong is widely known for its ease of doing business, including the relative ease of establishing a local business. That said, organisations looking to establish a local entity must strictly follow Hong Kong’s registration process — the steps of which may vary considerably from a multinational’s home country — or risk delays, fines and/or deregistration.

Steps to take to protect your organisation

• Understand and fulfil local registration obligations. These include but are not limited to:
  • Choosing the appropriate company type and company name. The name must not be the same as an existing Hong Kong company, or one that infringes on the intellectual property rights of another party.
  • Delivering required completed documents — including an incorporation form and the company’s articles of association — either through Hong Kong’s e-services portal or by mail.
  • Obtaining any permits, licenses and/or approvals required to operate in Hong Kong.
• Seek guidance from an established corporate services provider to ensure an efficient, compliant registration. These third-party experts can review any required documents before submission and, if necessary, provide suggestions for amendments to ensure compliance and prompt processing.

Using an unproven or limited provider for company registration

To save money and time and ensure compliance, many businesses use third-party corporate services providers when registering a Hong Kong company. As always, some service providers are better than others, and using an unreliable or limited third party may lead to delays and/or non-compliance, which can in turn lead to fines and penalties.

Steps to take to protect your organisation

• Conduct thorough due diligence before selecting a services provider to ensure that it is reputable and thoroughly understands local laws and enforcement practices related to company registration. Organisations should consider the provider’s local reputation, years providing registration services, customer evaluations, and other information to assess their reliability and service quality.
• Understand the full scope of services provided by the firm, including any advisory services, to ensure it has the necessary expertise and experience to facilitate any registration and provide information and guidance after the company is registered. Also inquire about the provider’s related certifications, such as whether it has a Hong Kong Trust or Company Service Provider Licence. Finally, carefully consider the provider’s tax services. Many multinational organisations that expand into Hong Kong seek tax residency there so they can take advantage of double tax treaty benefits and optimise their tax positions. A provider should be able to help them determine if they are eligible for benefits and, if so, apply for them.
• Consider the provider’s services and global footprint in light of short- and long-term plans in Hong Kong and the APAC region. Many multinational organisation’s expanding into Hong Kong use the jurisdiction as a home base for activities in the region, and in particular may use its Hong Kong presence as a means to expand into mainland China. Ideally, the provider should have an extensive global footprint that includes offices and experts throughout the APAC region. An organisation that is new to the China market, for instance, will be confronted by an intricate legal system, multiple regulators and government departments, and unique tax and HR rules and common practices. Using a single provider to expand into Hong Kong, and from there into mainland China, can significantly reduce administrative burdens and costs related to due diligence and vendor management.

The Importance of maintaining ongoing compliance

It should go without saying that while properly registering a business in Hong Kong is important, it’s just the first step on the path to success. Maintaining ongoing compliance of the entity is critical to protecting the company’s bottom line and reputation. Key steps include:

• Establishing a sound corporate governance framework. With investors, consumers, legislators and other stakeholders and authorities around the globe demanding corporate transparency and accountability, good corporate governance has never been more important. There are many hallmarks of good governance, including implementing policies and procedures that ensure accountability from company officers, regular board meetings, and compliant and robust reporting.
• Monitor and address compliance obligations. Enterprises should closely monitor ongoing obligations related to tax, HR, accounting and more to avoid fines and penalties and promote efficiencies. Related policies and procedures should include addressing new and/or changing obligations, not just existing ones.

There are of course many other steps involved in operating a compliant, optimised Hong Kong company. These steps include implementing due-diligence practices related to hiring local vendors, providing locally appropriate compensation packages to attract and retain top talent, understanding tax incentives, and more. Companies often engage third-party corporate services providers — or retain the provider they used to register — after the registration process is complete to ensure they keep abreast of and understand new and changing compliance rules and to continuously optimise their Hong Kong operations.