Investors in search of a vehicle to hold assets or investments and make profits may opt for an investment holding company. The following article will offer more information on the advantages and reasons for establishing an investment holding company in Hong Kong.
Content Outline
What is an Investment Holding Company in Hong Kong?
An investment holding company is a specific entity that holds assets and shares in other companies that it controls. Therefore, it does not carry out any commercial activities, such as sales, production or services, but can supervise the company’s management decisions.
It is also known as an umbrella or parent company, and holding companies that own other companies completely are called wholly-owned subsidiaries.
Reasons For Setting Up Investment Holding Company In Hong Kong
Establishing a holding company in Hong Kong makes sense for the following reasons:
Tax Regime
Hong Kong is considered a tax friendly country because of its advantageous tax system with low tax rates. The corporate income tax is a two-tiered system, where corporations are taxed at 8.25% on the first HKD 2 million of profits and 16.5% on profits in excess of this amount. Likewise, unincorporated businesses are charged 7.5% on the first HKD 2 million and 15% on profits that exceed this.
Hong Kong’s taxation works on a territorial basis where profits tax is levied only on income from within Hong Kong’s jurisdiction. Hence, profits earned outside Hong Kong are not taxed even if the owner is a resident of Hong Kong.
Furthermore, Hong Kong does not levy taxes on capital gains, dividends, withholding tax on dividends or interest, VAT, or sales tax, which only adds to its attractiveness as a tax-efficient jurisdiction.
Gateway to the Chinese market
Hong Kong, at the southeastern coast of mainland China, is easy to reach from all the major cities in China such as Shanghai and Beijing, and people can travel to any of these cities and return in the same day. Given the fact of its closeness to China, it is a major gateway to the Chinese market.
In addition, Hong Kong is culturally similar and shares languages with China, thus making it easier for people and companies to enter the Chinese market. Such cultural closeness facilitates a quick adaptation and integration into the dynamic business environment of China.
In addition, the Closer Economic Partnership Agreement (CEPA) between Hong Kong and China promotes the closer economic relations. This free trade agreement promotes the mutual access of the markets and introduces facilitation measures for the bilateral trade and investment, strengthening Hong Kong as a gateway to China.
Double tax treaties
Currently, Hong Kong has 40 double tax agreements (DTA) in force, which means that the DTAs prevent double taxation on income. Taxation on a double basis happens when a taxpayer is charged the income of being the taxpayer twice by two jurisdictions.
Advantages of an Investment Holding Company
The process of setting up a Hong Kong investment holding company is simple and the company is usually incorporated within two weeks.
The investment holding company is a separate legal entity that gives limited liability to the shareholders. This implies that in case of insolvency, shareholders’ personal assets are not at risk.
Although an investment holding company cannot engage in operational activities, it has the authority to buy and hold different assets, including both tangible assets such as real estate and intangible assets like intellectual property and stocks.
In addition, investment holding companies control subsidiary companies which they own shares in and can be involved in their management.
It is significant that the minimum share capital for starting an investment holding company in Hong Kong is only HKD 1.00, which makes it relatively easy to enter the market.
Investment Holding Company Incorporation Process in Hong Kong
1. The statutory requirements
You will need the following list to set up a holding company:
- Mandatory company officers include the director, shareholder, and company secretary (who should not be the same person). The company secretary should be:
- An applicant must be a Hong Kong citizen.
- The company – Companies must have their registered addresses or principal office in Hong Kong.
- A minimum share capital of at least HKD 1.00 is required.
Establishing a holding company involves the same procedures as establishing a regular corporation, and they are as follows:
2. Selecting the type of business entity and the company’s name
The private limited company is the most popular business entity used for a holding company with its very minimal incorporation requirements. This format allows for freedom in the naming of the company which can be in English, Chinese, or a mixture of both languages.
3. Prepare investment holding company incorporation documents
Documents of the incorporation are:
- The Article of Association
- Form of incorporation that includes the following details:
- Company name
- Registered address
- Concise description of business activities
- Information about shareholders, directors, and company secretary
- Liability of members
- Share capital upon incorporation
- Number of shares subscribed by initial shareholders
- Copies of Hong Kong identity card and proof of residential address for resident directors and shareholders
- Copies of passport and proof of overseas residential address for non-resident directors and shareholders
4. Register with HK companies registry
Submit all the necessary documents, business formation documents, and evidence of fee payment to the Hong Kong Companies Registry.
5. Post-registration requirements
A tax residence certificate is to be applied for an investment holding company with the Inland Revenue Department, For example, tax reduction as a result of a Double Taxation Agreement between Hong Kong and other locations.
The information required is as follows:
- Place of operation
- Business activities
- Local bank accounts (if applicable).
- Number of employees
- Either the board meeting was to be held in Hong Kong or somewhere else.
You should also be familiar with the Organization for Economic Cooperation and Development’s (OECD) initiative on base erosion and profit shifting (BEPS). According to the OECD’s website, BEPS involves tax planning tactics that exploit discrepancies in tax regulations to artificially move profits to jurisdictions with low or no taxation, despite minimal economic activity occurring there, in order to diminish tax bases through deductible payments like interest or royalties.
Given that your company isn’t leveraging tax advantages and is actively involved in legitimate business operations, you won’t be targeted by the OECD’s BEPS program.
Conclusion
Establishing a Hong Kong investment holding company is an easy procedure, and it resembles incorporating a regular business entity. For businesses, establishing an investment holding company in Hong Kong offers significant benefits, including the ability to engage in trade with or within China.
For setting up the holding company, feel free to contact Fastlane for professional help and smooth business operation. At Fastlane, we have a lot of experience with the paperwork and the company registration process. Working with us can shorten the process and avoid any confusion and mistakes. Fastlane Group not only can be your Hong Kong company secretary but also guide you through the legal issues you face in HongKong.
Contact Fastlane Group today, and discover how our services can benefit you.
