A sole proprietorship is best for small businesses run by the self-employed person in a low-risk business environment. However, as opposed to a private limited company, this structure does not afford the owner protection from liability for the business’s debts or protect the owner’s personal property.
It can be claimed that sole proprietors face difficulties in attracting investment and opening new branches as financial institutions may not be willing to work with unincorporated entities. Thus, we recommend avoiding the sole proprietorship as the most favorable legal form of business for entrepreneurs pursuing their business operations.
Considering the sole proprietorship registration in Hong Kong? This guide is aimed at providing one with a better understanding of the process. Establishing a sole proprietorship in Hong Kong is uncomplicated: this in turn involves simple steps of registering the business with Inland Revenue Department. If you are still not sure about the structure of the business you are going to launch, read Understanding Hong Kong Incorporation And Business Entity
Content Outline
Key Things About Sole Proprietorship
- A sole proprietorship is not an incorporated body, therefore the business doesn’t exist as a separate entity from the owner. The sole proprietor has the personal responsibility for all of their commitments. There is no protection for personal assets in the case of debts accrued.
- Every individual who runs the business as a sole proprietor has to register at the Inland Revenue Department’s Business Registration Office.
- You should apply Business Registration Certificate for every business if you operate more than one business and each business has to have its own business name.
- Profits of sole proprietorships are taxed at the rate of 15% for the fiscal year. It is required to send in a tax return to the Inland Revenue Department on an annual basis.
- Any changes in the registered particulars of the business must be notified in writing to the Inland Revenue Department within one month of the change.
- The renewal of the Business Registration Certificate should be done one month prior to expiration. This is every year or after every three years depending on a Certificate validity that is either for one year or three years.
How Foreigners Register As A Sole Proprietor in Hong Kong?
Foreigners who want to establish a sole proprietorship in Hong Kong would be better off engaging an experienced services firm that would act as their Hong Kong resident agent to register the business for them. Besides, foreigners who wish to move to Hong Kong to start a sole proprietorship must apply for an Investment Visa. Please be informed that to use your sole proprietorship as a basis for your application for the Investment Visa, you must register your sole proprietorship in Hong Kong in advance.
One of the requirements for an Investment Visa in Hong Kong is that you should show that you will make a substantial impact on the economy of Hong Kong by proving that your business would create job positions for the local workforce, utilize local service providers, suppliers, manufacturers, etc, and finally contribute to the market you are going into.
As there are fewer chances of meeting these conditions in the sole proprietorship governing structure, the possibility of Investment Visa approval for sole proprietors is very low.
The majority of foreign professionals establish a private limited company which is different from a sole proprietorship. Find out how to register a Hong Kong company with Hong Kong Company Registration Guide.
Registration Procedure To Set Up A Sole Proprietorship
The requirement for starting a sole proprietorship in Hong Kong is registration with the Business Registration Office of the Inland Revenue Department and issuance of the Business Registration Certificate. Business Registration has to be completed within a period of 1 month from the day the business operations start. Anyone who wishes to file a business registration will need to use the business register number that will appear on the business registration certificate which is also a sole proprietorship tax filing number.
The registration procedure is as follows:
- Choosing a suitable business name is one of the first steps. It is essential to follow these factors when choosing a business name:
- A single proprietorship may either be registered in English name only or a Chinese name or both English and Chinese name.
- A Chinese name consists of English alphabets but not real English words.
- The name should not state that the company is “limited liability”.
- The name should not reflect any sort of relationship to the Government or else the participating public body.
- The name should not be used to interfere with trademarks and offensive or a name that’s contrary to public interest.
- Business registration with the Inland Revenue Department’s Business Registration Section is mandatory for the company.
Registration of Sole Proprietorship and applying for the Certificate of Business Registration can be done in 1 day, providing there are no objections to the name of the business and all of the documents are checked out properly. The Business Registration Certificate must be clearly displayed at the office at all times.
Required Documents
For this sole proprietorship business registration in Hong Kong, the documents below are mandatory.
- A completely filled application form that includes your proposed business name
- For resident owners: Hong Kong identity card
- For non-resident owners: A copy of the owner’s passport or identification card.
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Post Registration Formalities
Apply For A Business License
After you have complied with the registration of your business in the Inland Revenue Department, you are also required to have a business license before starting your operations, depending on the nature of your business activities. Businesses like restaurants, educational institutions, travel agents, financial services, and importation/exportation will require a business license to operate.
For more information about business licenses, you can find it in our blog. The service you have hired to carry out the operation of your company registration can give you suggestions and help you with the business licensing requirements and procedure.
Creating A Business Bank Account As A Sole Proprietor
After you have finished registering with the Inland Revenue Department, you can take a step ahead to the opening of a corporate bank account with any of the major banks in Hong Kong. When creating a bank account, some Hong Kong banks have procedures that require you to be physically present at the bank. However, a few of the banks do not expect you to be there personally while opening an account. The consulting service will help you to choose an ideal bank that will meet your business needs and then provide you with the information necessary for you to make a choice.
Ongoing Compliance
Inform Change Of Particulars Or Cease A Business
The IRD must be notified in writing within a month of any change in the business registration particulars, whether a change of business address, a change of business name, or a change of the nature of the business. If you cease business, do not forgett to inform the IRD within a month following the cessation.
Filing Tax Return
As part of the Hong Kong company law, sole proprietorships that are formed in Hong Kong must prepare annual filing of their profits taxes. Normally, the first notification for a newly registered business from IRD for its tax-return filing will be sent 18 months after the date of business registration. Normally, return filing should be done within one month from the date of notification.
For small businesses whose gross assets don’t exceed HKD 2,000,000, no financial statements are required to be attached to the tax return. Nonetheless, they need to prepare the account, file the taxes in accordance with the accounts prepared, and preserve the records and the papers for possible inquiry by the tax auditors.
The sole proprietorship businesses that have an income higher than HKD 2,000,000 will be required to meet the following requirements in addition to handing in their tax return:
- A certified statement revealing the company’s balance sheet and revenue and expenses associated with the basis period.
- A tax computation proving the method of achieving the amount of assessable profits (or adjusted losses).
Annual Renewal of the Business Registration Certificate
The renewal of the Business Registration Certificate must be done one month before expiry, either on an annual basis or every three years provided that the Certificate is valid for either one year or three years.
Final Thoughts
A sole proprietorship is considered the easiest and least costly business structure to establish. The process will be time-saving since registration is done within a day and it does not involve many documents. However, the major disadvantage of sole proprietorship is the personal liability risk which is faced by the person who runs the business alone as there could be an impression of a small business by the clients and suppliers. So, it is advisable to be aware of the risks that this type of company brings. These risks can be solved but not in the short term. On the contrary, the suggested form of business setup is a private limited Hong Kong company.
How FastLane Group Can Help?
Transform your business vision into reality with FastLane Group! Our experienced team can seamlessly guide you through the registration process, ensuring compliance and efficiency every step of the way. Whether you’re a local entrepreneur or a foreign investor, we provide comprehensive support tailored to your needs. Contact FastLane Group today and take the first step towards successful business ownership in Hong Kong!