Hong Kong Company Setup & Upkeep Costs: Audits & Accounting

Michael MicheliniBlog, Corporate, Taxes24 Comments

Have a Hong Kong company setup but still confused about what exactly the ongoing fees that are required to keep it going?

Today’s guide is for you!

We are digging into the nitty gritty of what you need to do to keep your Hong Kong Limited company in good standing.

If you do not yet have a Hong Kong company and want to learn more about the costs of setting up and the overall process, please check out extensive Hong Kong setup guide free guide.

Let’s start with the catalyst that got me into this. Malakia left a detailed and rather frustrated comment on a podcast 50 post, on Hong Kong auditing and accounting about his experience with trying to establish and figure out:

hey Michael!

Thank you for your work, it’s definitely useful for anybody interested in this topic. But I have to admit that after a long research of informations about opening a company in Hong Kong I think that.. IT’S REALLY expensive!

A lot of startuppers are considering and choosing Hong Kong to do their first steps but I think that if you are on a tight budget as I am there MUST BE some alternatives that are much better.

Every consultant tells you that opening a company in HK cost around 10.000 HKD, they forget to tell you that the accounting will be 10.000 hkd more and that the Auditing is 10.000 more.. Oh yes, they advise you to have 10.000 shares of capital, 1 hkd each.. Again 10.000 hkd.

You have to know it by yourself or they will just send you an email to inform you that it’s time to pay a lot for something that you didn’t expect.
Even bridges.hk is doing the same.
In total you have to spend around 45.000 HKD the first year, when I opened my first company in Italy I spent 3.000 hkd… Much better for a startupper with a tight budget. I suppose there are other countries with these opportunities around the world.

What’s your opinion? Do you think there is a cheaper way to own an Hong Kong company? Now I am looking for a cheap solution to have a company abroad with a gateway for my e-commerce.

Malakia

And then almost within a day or two I received another similar email from John Peden:

Subject: Incorporating in HK
From: John Peden ( www.johncpeden.com)
Date: Oct 11 (6 days ago)

Hey Mike,

I’m interested in incorporating in HK for a few reasons but simply put, it would be financially viable if it cost less than $40,000 HKD/year to do.

I picked up your guide but was wondering if I need to use an agent on the ground to setup?

Thanks,

John Peden

And then on top of it, I met Nikos from CoinSimple while he was visiting Hong Kong, and he was frustrated with his current agency for constantly adding costs and fees without prior agreements and notices. That is pretty embarrassing for Hong Kong service providers, and for those of you who might one day read this article–Westerners don’t like hidden fees. If you do business with the West, be clear up front about your charges.

I have also talked to Gerard from BetaFresh and he was quoted 10,000 euros to open a Hong Kong company (about 100,000 HKD), but luckily he is a podcast listener!

So the costs not just to set up a Hong Kong company, but for the ongoing upkeep and maintenance definitely deserves a blog post.

I have consulted with many auditors and accountants on this topic, enough now that we have set up our own agency and you can see our list of services here.

I will take parts of our business processes in upkeeping and transferring over Hong Kong companies and also add my own insights and opinions.

Does It Need to Be a Domestic Hong Kong Company?

According to Malakia’s case,  if his e-commerce business is not operating in Hong Kong, and has no profit arising in Hong Kong, then yes, he has other jurisdiction options that could be cheaper.

  • Option 1 is he can still open a Hong Kong company. As his company does not involve a business in Hong Kong, he can file an “Offshore Claim” to the Inland Revenue Department (IRD) and wait for the IRD’s approval for tax exemption of not paying the 16.5% corporate tax (approval of tax-exempt status is subject to the IRD’s assessment). Even if he has received an approval of ‘Offshore Claim’ from the IRD, his company still needs to prepare accounting records and yearly audits, but he shall not receive the Profits Tax Return from the IRD for several years and so does not need to file the Profits Tax Return during the period. The IRD will review the company’s tax-exempt status once every few years.
  • Option 2 is he can open an offshore company like Seychelles or BVI, the fees would be setup fees (around HK$10,000) + annual maintenance fees, without tax filing and auditing requirements. So this means you don’t have to worry about a yearly audit by a Hong Kong CPA, or bookkeeping. But I do have to say that having an offshore island company there may be more issues getting a bank account or merchant account.

Why a Hong Kong “Domestic” Company

For people choosing Hong Kong as the jurisdiction to set up a limited company, the core reasons are:

  • Their business involves operations in Hong Kong, such as a shop, physical office, and full-time staff.
  • They want to treat Hong Kong as a stepping stone into China or the Asian market. It may be for import and export in Asia, as many factories are set up in Hong Kong.

If the entrepreneur’s business operation is in Hong Kong, he has no choice but set up a Hong Kong company (as all business operation in Hong Kong is taxable at Hong Kong’s 16.5% profits tax).

Clarification about Share Capital Requirements

There is one concept Malakia got wrong. He can actually put 1 HKD as the share capital of his company. The agent will normally advise the client that 10,000 HKD in share capital is to give the company a better reputation. People can search a company’s value via a public search on the Hong Kong Cyber Search Centre. I will be quite honest, I do searches more and more now on Hong Kong companies before I do business with them; it’s free and it gives me a better understanding of how long they have been in business and their company name history. For a small fee, I can dig more into owners and other tidbits.

A second point is that he can use the 10,000 HKD in share capital for the business’s operation costs, such as paying 5,000 HKD for audit fees, paying office rent, etc. There is no need to invest 45,000 HKD in total startup fees for the first year.

I am curious which agencies Malakia is talking to.

There are so many either misinformed agents out there or ones that are out there to take advantage of business owners who don’t have any idea how to do business in Asia. I hope this article and the podcasts are helping a bit with that; there is still a long way to go.

Why Set up a Hong Kong Company?

The reasons Hong Kong is the jurisdiction of choice for some people is due to its good reputation in the market. Yes, you can pick some other jurisdictions that are cheaper, such as the “offshore islands,” without the need to prepare accounting and auditing reports, but then the regulations of such systems are very loose and your potential suppliers, bankers, and clients might find it risky to do business with you.

But for a Hong Kong company, because of its well-developed financial infrastructure, regulatory structure, reliable online banking system, free (but still safe) transfer of money, low tax rate and sound legal system, many people still prefer to pick this jurisdiction as a good foundation of their firms and businesses. Although it requires people to complete accounting and auditing reporting, it’s worth avoiding the risk of opening a business in a jurisdiction that doesn’t require such documentation.

Standard Pricing from Our Agency

While our Global From Asia agency service is not the cheapest in town, but we know what we’re doing and are professional (e.g. know bank managers from HSBC, Hang Seng or others and a PayPal representative into the mix to meet clients so you won’t be running around the city, etc.).

When it comes to establishing your company and relying on solid advice and knowledge, it makes sense to get a dependable provider to give you peace of mind that your company is in good hands.

Here is the introductory email for the new entrepreneur client, we do not hide anything from our clients; we mention in the first email that the company maintenance needs a registered office address, company secretary, accounting, and auditing arrangement. We do not have any hidden costs, all government fees are already included in our package.

We have outlined our services with pricing on GlobalFromAsia.com/products and you can browse through each service you want one by one, with pricing on each. If you have a Hong Kong company and want to transfer over to us, we have clear HK transfer pricing and process here.

Standard Email for New Client Request

Dear Sir,

Thank you very much for your kind interest in our Hong Kong Company HKVIP Incorporation service.

I’m really excited to get you started on the Hong Kong Company Setup VIP package. Here is the invoice to get started (if Paypal or Credit Card is Ok, else I can send bank transfer details).

** checkout link **

Once I get this information listed below back and payment, it will take approximately 2 weeks to process the company.

Please note this is also based on prompt replies on your side as questions do come up that need your input.

Here are the things I need to get started, ​Feel free to drop these safely and securely to my dropbox at (link removed):

  1. Your name – that matches your passport
  2. Pen Name / Alias – do you have a pen name you use in daily life? Should we be aware of this when we meet?
  3. Scanned copy of your passport
  4. Correspondence address – we do not plan to send mail here, and this will not be where the Hong Kong company address will be registered to (we’ll use our Hong Kong office for that) but this is for incorporation documents.
  5. Contact information – again for our own internal records, your email and phone number you would like us to have for company correspondence.
  6. Directors – will there be any other directors?
    Shareholders – will there be other shareholders?
  7. Issued Share Amount – How many shares do you want to issue? The default / most common / recommended under 95% of circumstances is 10,000 shares at 1 HKD each share. This is not a fee that needs to be paid now.
    If you want to discuss this on a call let me know.
  8. Company Name requests / requirements.

Once we move to the next steps, I will provide you with the information needed, this is all I need to get started for now to register the Hong Kong company.

Let’s do this! 🙂

Ongoing Costs – Accounting and Audits

There are 5 main parts:

  1. Accounting
  2. Audits
  3. Hong Kong Address
  4. Company Secretary
  5. Government Yearly Fees

Actually the entrepreneur can do the accounting part on his/her own if he/she wants to save money, especially for those who do not handle many transactions at the beginning.

Let’s cover each service separately below:

Accounting Services and Costs

The types of work required for accounting, which is a service you as the entrepreneur can do yourself, includes the following tasks:

  • Maintenance of accounting books and records
  • Preparation of profit and loss account
  • Preparation of balance sheet
  • Trial balance for management review

And here is the pricing list for bookkeeping

Update November, 2014: The policies of HKICPA (Hong Kong Institute of Certified Public Accountants) does not like accountants and CPAs to show pricing, but we feel entrepreneurs need to have a price idea before setting up the company and do not agree with this policy!

Again, costs of bookkeeping is a cost of doing business, anywhere in the world. Sure, there are offshore islands that don’t care – but are those legit? Any good business owner will make sure they keep their books in order.

Company Audit Service

The yearly audit is something you are not able to do by yourself as the business owner. By having a Hong Kong domestic company you must have a Hong Kong government-approved and accredited CPA (certified public accountant) to check over your books and accept them.

The audit service includes:

  • Audited financial statement
  • Tax computation
  • Complimentary complete and submit profit tax return

And fees for the service are below:

Update November, 2014: Due to the policies of HKICPA (Hong Kong Institute of Certified Public Accountants), we can’t put our readers at a disadvantage, so here it is anyway

Only the auditing part requires a CPA, and fees start from only $5,000 HKD. We have our pricing for audits laid out here.

What’s an SME Audit?

Some people have been contacting us and asking what is a SME version of an audit. Actually, that is the majority of audits we do. It is for those doing lower revenue and therefore have less requirements in the audit process. You can say that the quotations you receive from us (as well as most CPAs) will be for the SME version of an audit.

Hong Kong Address

While you don’t need to be in Hong Kong to have a HK company, you need an address for the government to send mail.

Most agencies have a service for this, and you can also use the address for your other mail and invoices and website.

Global From Asia has various pricing options you can read about here.

Company Secretary

This is one of the bigger differences with Hong Kong and Singapore. In Singapore, you need a local company director. In Hong Kong, just a company secretary.

This is not a shareholder or owner, but instead someone who can talk to the HK IRD (tax department) on your behalf. Here at Global From Asia we can help you with company secretary service, as we’re an accredited registered agency.

Government Fees

There are 2 yearly fees for a Hong Kong company.

They are:

  1. BRC (business registration certificate) this costs BRC the cost price is 2250 HKD, as you can see by checking this link http://www.ird.gov.hk/eng/tax/bre_lcc.htm#a1
  2. Annual Return, NAR1 the cost price is 105 HKD – http://www.cr.gov.hk/en/companies_ordinance/specified_forms_details.htm

A lot of times, agencies will merge this with their service fees. It is best to be clear with the company before signing on and paying.

For Global From Asia, we include the NAR1 fee in the Company secretary charge. For the BRC, we let you file that directly or take care of it when you’re filing the company secretary package.

Form You’ll Receive

Many people get stressed out when their company agency sends them a scanned HK government form. Here’s the quick list from the various forms.

* AR1 – Annual Return – confirming owners, address, shares. Cost 105HKD

* BRC – Business Registration Certificate – yearly required license to do business with a HK limited. Cost 2250 HKD

* Profit Tax Return – The IRD is now asking you to prepare your books, complete your audit, and pay your taxes. You have 60 days from when its issued to finish this.

* Salaries Tax – Do you have staff? Paying pension? If yes, declare it here.

* Other surveys, correspondence – Keep on top of them!

I hope this gives you a bit more confidence on doing business in Hong Kong! So many people forward me emails from various agencies and are confused at the standard copy/paste templates they get. And it looks scary, warning them of late fees and penalties if they are late or do something incorrect.

In Summary

Basically the ongoing annual costs of a Hong Kong company should be about HK$15,000 or more, depending on how much volume your business is doing. And if your company is doing higher volumes, paying a bit more shouldn’t break the bank.

I hope this helps you out!  Again, I can do more podcasts or blogs about this, as I still get a lot of questions about it. The main idea is there are 4 ways to incorporate a Hong Kong company:

  1. Domestic Hong Kong company. If you have staff or clients in Hong Kong, you will need to pay 16.5% tax and complete accounting and file audits yearly.
  2. Hong Kong company that will file an ‘Offshore Claim’. If you have no staff in Hong Kong and your company does not involve a business here (i.e. there is no profit arising in Hong Kong), you can file an Offshore Claim to the IRD for a chance of not paying the 16.5% tax. You still need to do the yearly accounting and audits even if you have obtained an approved Offshore Claim, but will not receive the Profits Tax Return for several years and so no need to file during the period.
  3. Mix of domestic and offshore Hong Kong company. If a percentage of your transactions are completed in Hong Kong and some offshore, you can do a mix of both (complicated, and normally not advised)
  4. Offshore Seychelles, BVI or other “island” company. I do not have experience with this, but many can help you. Some agencies can help too, and you can still open a Hong Kong bank account, fees for banking seem to be higher. But if companies research you, you may be seen as a higher risk. Plus banking is getting harder, and no way to get a merchant account there.

Any comments or feedback helps a lot, and can be used to create more blog posts and podcasts in the future. Cheers!

Want To Do Business With Us?

Enjoy our blog, podcast and want to support? Thinking to setup a Hong Kong company or have one and want to transfer your upkeep to us? We welcome new clients, let’s do it! This is the ultimate way to support our continued expansion of transparency in the market!

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Already have a Hong Kong company but tired of miscommunication with your current company secretary? Join our HKVIP clients and let us smooth out your ongoing company upkeep forms and processes.

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Matt
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Matt

Hi Michael,
another great post, bookmarked. Love the fees tables. Thanks a lot!

Michael Michelini
Guest

Thanks for the comment buddy

Pin Wang
Guest

Michael, you are dropping mad knowledge here.

Also, you are about to make some commission off of me 🙂

Michael Michelini
Guest

thanks Pin – ya these posts are epic but I want to cover everything- tired of these half-arsed articles – I got a bunch more in the queue coming soon

and thanks in advance for the commission, u the man!

Olof
Guest
Olof

Hi Michael, Thank you for a great article. Can you give some tips where to find more information about the Accounting (bookkeeping) part and it’s requirements? My 2-year-old HK Company just got a PTR request (even though my friends 12 year old HK company never received one…any thoughts?). My agency is about to give me a quote for both Accounting and Audit service, but I’m considering doing the Accounting myself. My company is very small (just me) and I also plan to do an offshore claim as none of my business is conducted in HK. What I am a bit… Read more »

Michael Michelini
Guest

Hey Olof, Apologies this one got lost! Better late than never right? As for getting a PTR request, it is more “luck of the draw” than age of a company. You can do your own accounting, but the auditor may need to still spend a lot of time to check it over -it depends if they want to check it in detail or they are Ok to look at it quickly – this depends on the firm as they are using their license and it could be a risk for them. As for accounting practices when using your unionpay –… Read more »

xtoprint
Guest
xtoprint

Hi Michal, Quick question on the loan agreement, do ypu have any particular format of agreement to suggest? What are the fiscal implications of the loan? How long can it last? Is it key the agreement is based not in HK as a location if the lender is not resident or working in HK? Look forward to hearing back from you. Thank you very much for your exremely useful blog.

Michael Michelini
Guest

Hi Xtoprint, Pretty hard to make a standard reply to this situation. I would look up on google Shareholder loan agreements. Normally there isn’t interest paid out, or at very low rate, as it is from the primary shareholder to keep the company operating. I’d suggest to only do it for a few years long. Living in HK or not shouldn’t matter in this case. Always hard to give legal advise publicly, so I have to put the general disclaimer to retain a HK CPA to get a 100% confident answer. I can provide consulting services as well so we… Read more »

Fraser Bewick
Guest
Fraser Bewick

Hi Michael, Your answers above are also helpful for me.Thanks. I have recently registered a small HK LTD which is hosted online and will receive transactions through Paypal. As most of the individual transaction amounts are small, but in high volume, the account receiving fees from HSBC and the agency bookkeeping fees (per page) are going to take a huge portion of the monies received. So, batching PP payments to the account and doing the book keeping myself (or through a mainland book keeper) makes sense financially for me. I am based in the mainland so I can arrange a… Read more »

Michael Michelini
Guest

Hi Fraser, thanks for the thorough comment – so happy you enjoy this post! Yes, bookkeeping does not have to be done in HK nor need any license. Just an audit report by a HK CPA once the profit tax return comes in. So you can use an accountant in Mainland China, USA, Philippines, etc. Just hope they know how to use bookkeeping software. Maybe better to use online accounting software (full disclosure, I’m a Quickbooks Pro advisor, they came to HK earlier this year, if you want to signup with me I’d appreciate that!) And for shareholder loan (the… Read more »

Fraser Bewick
Guest
Fraser Bewick

Hi Michael, Thanks for the reply. I would be happy to discuss more over email. Please let me know the best way to do so. It would be good timing as I am currently discussing a change in CS with a new agency in HK. I have looked at Wave for accounting software. Seems to be quite good – and free. Although I am not an accountant, tbh, so my opinion is largely aesthetic. I have never used any such software personally. I know there are a few out there such as Quickbooks, Talibro, etc. Going with a mainland accountant… Read more »

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[…] it cost to maintain a Hong Kong company on an ongoing basis? Check out my extensive blog post on costs to maintain a Hong Kong company if you want to go into more details, but here are some […]

Chris Thomas
Guest

Yep, this is great, thanks Michael… You’ll be receiving an affiliate commission from Bridges shortly from me too!

Michael Michelini
Guest

thank you Chris! Also see you’re coming to the HK office opening party! welcome and glad to be in contact! 🙂

M.B
Guest
M.B

To make the accounting as simple as possible, is it possible to just take cash from ATM and consider it as “dividend” and use just like we need (pro and personal use) ? This would allow not to detail all the small expenses like restaurant, taxi, etc… Correct me if I’m wrong but as there’s no whatsoever tax to pay, there’s no downside to do this right ? As a consultant imagine how easy it would make my accounting, I can easily ask my customers to pay me once a month (1 invoice/month) and just have a few ATM withdrawals… Read more »

Michael Michelini
Guest

Hi M.B.
Thanks for the comment – a ATM withdraw would still need to be accounted for. Is it a cash expense for taxis and restaurants? Or is it a dividend? Or an employment / salary payment? Just how you categorize this ATM withdraw.

I am working on a lower package for 100 transactions a year – i’ll send you an email.

Mike

Irinel
Guest
Irinel

Hi Michael Excellent article – it helped clarify some points. I have a question about your bookkeeping pricing. I sell a digital product through Paypal – the pricing is low and it generates thousands of monthly transactions (subscription payments, direct payments). Can this be integrated with your offer for bookkeeping ? How would the payment be around that ? Or is there an alternative ? recording a monthly payment from Paypal to the bank account in the books ? When using Paypal exclusively for the HK company – can we integrate hosting charges. affiliates .. made from Paypal into the… Read more »

Michael Michelini
Guest

Hi Irinel, Happy to hear you enjoy this post – it is a rather complex issue and many people wonder how to upkeep a Hong Kong company – as everyone is talking about OPENING It – but few talk about keeping it going! 🙂 Yes, you are someone we would love to work with – as most bookkeepers here just want to count each one and make large bills, if we can integrate your shopping cart together we can of course bargain a fair package. Its something I’ll have to discuss with you privately. Paypal is often used exclusively for… Read more »

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[…] And I’ve been on a writing rampage, just released a full blog post on yearly upkeep fees for a Hong Kong Limited company – read the article […]

Peter Tan
Guest
Peter Tan

Hi Michael. Just checking , how much is the general charges for Auditor to attend to claiming to offshore profit tax? Is this a one time or a year affair that we need to attend to ? And lasting , if the year is not making a profit , do we still need to attend to the claiming of offshore profit tax ? Thank you in advance the enlightenment.

Michael Michelini
Guest

Hi Peter,

I know this is an annoying answer, but “it depends” – the cost really depends on the amount of complexity of the business model, the amount of transactions, the amounts of countries, the riskiness of it being approved. Maybe between $3,000 to $7,000 USD.. and up depending on the volume and complexity.

As far as if the company isn’t making much profit – then it may not make sense to go through the process at all and just pay the 16.5% tax as it is lower than the fees for offshore

hope this helps.

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[…] not sure what the yearly upkeep fees for a Belize company are. But in Hong Kong, we have a guide covering the yearly fees you can check […]

Nacho PR
Guest
Nacho PR

Hello every one. I opened about 2 years ago a company in HK that operates outside of HK, so it needs to file for offshore company claim. The cost for doing this is 6000 HKD and it needs to be done every year. In addition, for auditing, tax filing and so on I have found out that it costs 10600 HKD every year. This amounts to 10600 HKD, plus the 4505 HKD for renewal of registration (Gov and accountant fees). I see myself amazed to see that an offshore company needs to pay so much, mostly to an accountant´s pocket,… Read more »

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