Setting up your business in Hong Kong
- Sophie Yeung
- Mar 10
- 5 min read
I have joined many social media groups here in Hong Kong and the most common questions that I see come up are related to setting up the business. It makes sense - you have the idea for your business and you cannot wait to get it started. But you want to make sure that you have all the information first.
"How does a small business work? Do you have to register with the government?"
Business registration is not for regulating business activities but is to provide IRD with the information of your business so that tax files can be opened (1).
You should register your business with the government to avoid the fine of HK$5,000 and 1 year imprisonment, plus the business registration fees for each year your business has been operational (2). This should be done within one month of your business starting. IRD will not accept applications for businesses which are not yet operational (2).
"I've been offered a consulting opportunity on a contractor basis. Do I need to set up a sole proprietorship to do this kind of work?"
First, let's answer what is the difference between Sole Proprietorship (SP) and Limited (Ltd) companies? In simple terms, if you have registered as a SP, you personally are responsible for all financial and legal obligations. That means that if your business gets into any financial difficulties, your personal assets can also be used to pay off the business debts. If you are a Ltd company, the business is a separate legal entity from you as the shareholder, and your personal assets are generally protected from any business debts and lawsuits.
Now is it worth it to set up a SP for freelance contracting work?
If the amount of payment is under HK$25,000 per tax year, the company you are freelancing for does not need to report this to IRD (3).
There is a two-tiered profits tax rates here in Hong Kong, that can be applied to ONE business per individual. If you have an SP, your profits tax rate is 7.5%, and if you are a Ltd, the profits tax rate is 8.25% (4). If you do not have an SP and report this income on your Personal Assessment, the tax will be based on the progressive tax rates, which goes up to 17% (4).
"I'm looking for information on the process and costs to launch a freelance activity here."
For both SP and Ltd companies, you need to complete a business registration form. As of 1 April 2024, this costs HK$2,200 for one year and HK$5,720 for three years.
In order to incorporate a Ltd company, the additional actions and costs are:
File an Incorporation Form
File the Articles of Association
Hire a company secretary
The company secretary is a legal requirement for Ltd companies. They can file all your documents for you (including the business registration form) and the total cost for one year is HK$3,745 + your company secretary costs. This will vary depending on who you choose.
"I'm currently on a non-permanent visa, I am wondering if it is possible to set up a limited company."
Yes, all individuals who have the right to work in Hong Kong are able to setup a business in Hong Kong. IRD will require non-resident sole proprietor or partners to provide further information to make sure that you are not a visitor, who are not allowed to work in Hong Kong (2).
"My plan is to begin as a sole proprietorship and, if things go well, consider upgrading to a limited company later. Any advice on this?"
If you choose to start your business as SP and later decide to convert to a Ltd company, you will still need to file all the additional documents and hire a company secretary. The cost doesn't change if you have already started as an SP, as the government does not consider it as a change but the closure of one company and the start of a new one.
"What do I need to know about the annual taxes?"
Your first tax report is due 18 months after your business registered date. If you change from an SP to a Ltd, your first tax report for the Ltd is 18 months after this start date.
As an SP, you should complete the Tax Return BIR60 for Individuals and for Ltd the Tax Return BIR51 for Corporations (5). In terms of the tax rate, I have already covered the two tiered profits tax above. When completing the tax returns, you will need to calculate the amount of income and expenses that your business has incurred. Your tax will be based on the profit rather than the income so it is very important to know what you can include in your expenses. We will be writing another blog post specifically about this at a later date.
"Do I need a physical address or can my residential/ apartment address suffice?"
You should check the contractual agreement on your residential lease. There may be a section stating that the tenant shall not use or be permitted to use the Premises or any part thereof for any purpose other than for Residential purposes.
Your address should be aligned on the Business Registration form as the one submitted for a Ltd company. If you do not have a physical place of work, your company secretary will normally include a fee to provide a legal company registration address for one year. If you are a SP and do not require a company secretary, there are many providers, who for a fee, will provide you with an address that you can use for your business registration.
"Does one have to open a business bank account or can they use their own account?"
For your taxes and running the business, it is easier to have a separate bank account. I have a client who is a SP and they used their personal bank account for their business. At the end of the tax year, we needed to go through each transaction to work out if it was business or personal and this took a very long time. Also, for auditing, you need to include the bank statements so they would need to black out each line that was personal expenses.
Our hot tip
If you are setting up a Sole Proprietorship, you can do all the paperwork on your own and keep those costs low.
If you would like to have support, or have any further questions, then please do get in touch with us.
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