Hong Kong as a company jurisdiction
Hong Kong is a Special Administrative Region of the People's Republic of China with its own legal system based on English common law, its own currency and its own tax system. Companies are formed under the Companies Ordinance and registered with the Companies Registry. Business registration is handled separately by the Business Registration Office of the Inland Revenue Department.
The territory's role in Asian trade is long established. Many groups use a Hong Kong company to buy from manufacturers in mainland China and Southeast Asia and sell to customers in Europe, North America and the Middle East. Others use one as a regional headquarters, a holding company for mainland subsidiaries or a sales and sourcing office. Unlike some of the holding company jurisdictions in this series, a Hong Kong company frequently carries on an active trading business with real counterparties and frequent payments.
Company basics
The usual vehicle is a private company limited by shares. Its main features include:
- At least one shareholder, who can be an individual or a company of any nationality.
- At least one director who is a natural person. Corporate directors are allowed for private companies, but the company must have at least one individual director. Directors do not have to be Hong Kong residents.
- A company secretary. If an individual, the secretary must ordinarily reside in Hong Kong. If a body corporate, it must have its registered office or a place of business in Hong Kong. In practice, many companies appoint a licensed trust or company service provider.
- A registered office in Hong Kong, which is the address for official correspondence.
- Articles of association setting out the company's internal rules. Model articles are available, and many companies adopt them with modifications.
When a company is incorporated, the Companies Registry issues a certificate of incorporation, and the company is registered for business registration at the same time, receiving a business registration certificate. The business registration certificate must be renewed periodically and displayed at the place of business.
Statutory records and filings
A Hong Kong company must keep a set of statutory records, usually at its registered office or another place notified to the Registry. These include:
- The register of members, showing shareholders and their holdings.
- The register of directors and the register of company secretaries.
- Minutes of general meetings and directors' meetings, and written resolutions.
- The significant controllers register, discussed below.
- Accounting records sufficient to explain the company's transactions and financial position.
Each year the company files an annual return with the Companies Registry. Changes to directors, secretary and registered office must be notified within set periods. Hong Kong companies must also prepare financial statements that are audited by a Hong Kong certified public accountant, and file profits tax returns with the Inland Revenue Department. The audit requirement applies to private companies regardless of size, subject to limited exceptions such as dormant companies.
For anyone onboarding a Hong Kong company, the public record helps. A company search at the Registry shows the company's status, its directors and secretary, and recent filings. Providers usually ask for the latest annual return as well, because it lists the shareholders at the date of filing.
The significant controllers register
Hong Kong companies must keep a significant controllers register. A significant controller is broadly a person who holds, directly or indirectly, more than a set percentage of the shares or voting rights, has the right to appoint or remove a majority of the board, or otherwise exercises significant influence or control over the company. The register records both individuals and certain legal entities that meet the test.
Key practical points:
- The register is kept by the company itself, not filed publicly at the Registry. It must be available for inspection by law enforcement officers on request.
- The company must designate a representative, either a member, director or employee resident in Hong Kong, or a qualifying accounting or legal professional or trust or company service provider, to provide assistance to officers.
- The company must take reasonable steps to identify its significant controllers and keep the register up to date.
When a Hong Kong company applies for a payments account, a copy of the significant controllers register is one of the most useful documents it can provide. It should match the ownership chart and the individuals put forward as beneficial owners. If the register names an intermediate company rather than the individual behind it, the provider will follow the chain upward and ask for documents at each level.
Documents for onboarding
A complete pack for a Hong Kong company usually includes:
- Certificate of incorporation, and certificate of change of name if relevant.
- Current business registration certificate.
- Articles of association.
- Latest annual return.
- Significant controllers register.
- Registers of members and directors, or a recent company search.
- Most recent audited financial statements.
- A board resolution approving the account and naming signatories.
- Identity and address documents for directors, signatories and beneficial owners.
- Evidence of trading, such as sample invoices, purchase orders, contracts with key customers and suppliers, and shipping documents.
Trading evidence matters more for a Hong Kong company than for a pure holding vehicle, because the provider needs to understand the real business behind the payments. A short description of the supply chain, from factory to end customer, with the currencies used at each step, makes the file far easier to assess.
HKD, USD and the currency peg
The Hong Kong dollar has been linked to the US dollar for decades under the Linked Exchange Rate System, which keeps the HKD within a narrow band against the USD. As a result, many Hong Kong companies think and price in US dollars, even when their costs are in HKD.
In practice, a Hong Kong trading company often:
- Pays local rent, salaries and Hong Kong suppliers in HKD.
- Buys from manufacturers in mainland China and Southeast Asia in USD, and increasingly in renminbi.
- Sells to customers in USD, EUR or GBP.
The peg makes HKD and USD close substitutes for planning, but they are still separate currencies, and conversion between them has a cost. Larger currency risk usually comes from the other side of the business: a company that sells in euros and buys in dollars has a real exposure to the EUR/USD rate between invoicing and settlement. Converting at spot when euro receipts arrive, and holding dollar balances to pay suppliers, is a common pattern.
Paying and receiving across Asia
Payments within Asia have their own practical quirks, and a few are worth knowing.
- Mainland China. Payments to and from mainland suppliers can be made in USD or in renminbi. Cross-border renminbi payments follow specific documentation practices, and mainland banks may ask for underlying trade documents. Make sure the supplier's beneficiary name matches exactly what is on the invoice.
- Southeast Asia. Payments to Vietnam, Thailand, Indonesia, Malaysia and the Philippines can usually be made in USD or local currency. Some countries have rules on how incoming foreign currency must be documented or converted, so suppliers may ask for specific payment references.
- Purpose codes. Several Asian countries require a purpose of payment description or code on incoming transfers. Check with the beneficiary before you send.
- Intermediary banks. USD payments into Asia usually pass through correspondent banks, which can deduct charges. Agree with the supplier who bears these.
Screening applies throughout. Payments that touch sanctioned parties, sanctioned regions or controlled goods will be stopped. Trading companies dealing in dual use items, electronics or chemicals should expect detailed questions about end users and destinations.
Practical habits for Hong Kong trading companies
Hong Kong trading companies are often busy, with many suppliers and customers and frequent payments in several currencies. A few habits make them much easier to service.
- Keep the counterparty list current. Providers ask for the main customers and suppliers at onboarding. When a significant new counterparty appears, especially in a new country, send a short note with the contract or first invoice.
- Match invoices to payments. Each incoming and outgoing payment should be traceable to an invoice or contract with the same amount, currency and counterparty name. Partial payments and netting between customers should be documented.
- Avoid third party payments. A customer paying through an unrelated company, or a supplier asking to be paid into a relative's account, is one of the most common reasons payments are held. Insist that payments come from and go to the contracting party.
- Keep shipping evidence. Bills of lading, airway bills and packing lists support trade payments and answer questions about goods quickly.
- Explain related party trade. Where a Hong Kong company buys from and sells to related parties, set out the group relationships so that intra-group trade does not look like circular flows.
These habits also help with the company's audit, so the effort serves more than one purpose.
Hong Kong money service operators
Hong Kong has its own licensing regime for money service operators, meaning businesses that provide remittance or money changing services in Hong Kong. These are licensed by the Customs and Excise Department. A business that offers those services to the public in Hong Kong needs a licence there, separate from any licence it holds elsewhere.
This is relevant when choosing a provider. Some international providers have a Hong Kong office that handles relationships and introductions while the accounts and services themselves are provided from another jurisdiction under that jurisdiction's regulation. Ask any provider which entity will hold your funds, which regulator supervises that entity and which law governs the contract.
General information only
This article provides general information about Hong Kong companies and payments in Asia. It is not legal or tax advice, and Hong Kong rules should be confirmed with a local adviser, as company, significant controller and licensing requirements are amended from time to time.
CCYFX has its head office in Vancouver and a sales office in Hong Kong operated by CCYFX Limited. CCYFX services are provided by CCYFX PAY INC, not by the Hong Kong office. Our offices page has more detail.
