Hong Kong Offshore Company Formation: A Comprehensive Guide

Hong Kong Offshore Company is a Hong Kong-incorporated entity that conducts its business predominantly abroad.

This structure is primarily used to take advantage of the tax exemptions on overseas revenue. However, offshore companies still need to comply with the local regulations.

In this article, we’ll give you an overview of how to register an offshore company in Hong Kong and what you can and cannot do with it.

Why Choose Hong Kong for Offshore Company Formation

If your company earns a significant part of its revenue internationally (e.g. you are an ecommerce company selling products internationally), you are likely going to benefit from an offshore company as you won’t have to pay income tax on overseas revenue.

While many countries don’t tax offshore revenue, we usually advise our clients to think more broadly about the benefits and disadvantages a jurisdiction might bring to their company, such as:

• Regulatory risks – how easy is it to comply with local regulations, how consistent are they, etc? 
• Banking risks – do major banks serve that market? Are you easily able to send and receive payments from that country?
• Reputational risks – does the jurisdiction raise any potential issues with your clients, vendors, public?

Unlike many other offshore destinations (usually located in exotic islands), Hong Kong does well with all of those criteria.

However, keep in mind that Hong Kong is also serious about maintaining its reputation and this means that there are more regulatory requirements than in some other more remote offshore jurisdictions.

Main benefits of a Hong Kong offshore company

Here are the main reasons investors choose Hong Kong as their offshore destination:

• Zero income tax on income generated outside of Hong Kong
• No minimum capital requirement
• You don’t need a resident director, only a resident company secretary (which can be served by Emerhub)
• Strategic location, especially if you sell your products and services in Asia

The process of setting up an offshore company in Hong Kong

Company formation in Hong Kong is a fairly straightforward process, especially if using a company registration agent like Emerhub. You won’t even need to visit Hong Kong to set up your entity.

1. Company Name Selection: Provide us with your preferred company name. We’ll check its availability with the Hong Kong Companies Registry and ensure it complies with naming regulations.
2. Share Capital Structure: Inform us about your planned share capital structure, including details about shareholders and their respective shareholdings.
3. Director Appointment: Let us know who you’ve chosen as the director(s) of your company. Remember, directors can also be shareholders.
4. Company Secretary Appointment: If you don’t have a local secretary (most companies we work with don’t), Emerhub will appoint a company secretary for your company, as per Hong Kong’s legal requirements.
5. Registered Business Address: Emerhub can provide a virtual address if you don’t need a physical office.
6. Document Preparation and Submission: We will prepare and submit all the necessary incorporation documents on your behalf, including the Incorporation form NNC1 and the Articles of Association.

Maintaining a status as an offshore company in Hong Kong

First of all, let’s make it clear what an offshore company is in Hong Kong. It’s not a separate type of legal entity but rather depends on whether you earn local income or not.

An offshore company can claim tax exemption on its profits if it meets both conditions:

• It has foreign-sourced income that is not derived from any trade or business carried on within Hong Kong;
• It does not carry on any trade or business within Hong Kong.

If an offshore company does not meet these conditions, it will be subject to a 16.5% corporate income tax.

The process of classifying revenue as offshore

In a nutshell, keep your books tidy and you’ll be able to legally earn revenue without paying income tax on it. Here is the process using Emerhub as your corporate secretary:

1. Tax Return Submission: We’ll submit a tax return on behalf of your business to the Inland Revenue Department (IRD). This is a standard procedure to initiate the process of tax exemption for your offshore income.
2. Gathering Supporting Documents: To validate your claim, we need to compile supporting documents that demonstrate the sources of your income and where your business activities are conducted. These documents include invoices, contracts, bank statements, and relevant correspondence.
3. IRD’s Assessment: After submission, the IRD will review our claim. They’ll issue a notice of assessment indicating whether your profits are considered taxable or exempt under Hong Kong law.
4. Maintaining Records: Your business needs to keep accurate records and books of accounts, especially for your offshore company. These should be retained for at least seven years. This practice is not just a legal requirement but also a prudent business strategy, as the IRD may request to inspect these records.

Ready to legally optimize your taxes and use Hong Kong for your offshore company formation? Reach out to our consultants by filling out the form below.