Hong Kong Sole Proprietorship Registration
A sole-proprietorship type of business structure makes sense only for very small one-man type businesses that don’t carry any business liabilities. Unlike a private limited company, a sole proprietorship does not offer protection of personal assets and limited liability to its owner. It is often difficult for sole proprietorships to raise capital and expand their business as investors hesitate to deal with non-incorporated entities. We do not recommend that entrepreneurs use sole proprietorship as a form of business entity to conduct their business.
Sole Proprietorship: Key Facts
- Sole proprietorships are not an incorporated entity and the owner and business are considered one and the same. The sole proprietor is responsible for all debts and liabilities. In cases of debts incurred, there is no protection of personal assets.
- All sole proprietorships must register with the Inland Revenue Department’s Business Registration Office.
- If you carry on more than one business, you should apply for a Business Registration Certificate for each of the businesses. Each business may have its own business name.
- Sole proprietorships are taxed at the rate of 15% on their assessable profits. Tax return must be filed with the Inland Revenue Department on an annual basis.
- If the registered particulars of the business have changed, you must notify the Inland Revenue Department in writing within one month of the change.
- The Business Registration Certificate should be renewed, one month before expiry on an annual basis or once every three years, depending on whether your Certificate is valid for one year or three years.
Considerations for Foreigners
Foreigners who wish to set up a sole proprietorship in Hong Kong are advised to engage a professional services firm to act as their Hong Kong resident agent and register the business on their behalf. In addition, foreigners interested in relocating to Hong Kong in order to operate their sole-proprietorship must apply for an Investment Visa. Note that you are required to register your sole proprietorship in Hong Kong prior to applying for the Investment Visa. One of the eligibility criteria under the Investment Visa is that you must prove that you will make a substantial contribution to the economy of Hong Kong by demonstrating that your business will create jobs for the local workforce, that you will utilize the services of local service providers, suppliers, manufacturers etc. and that you will be able to make a significant contribution in the specific market that you are entering into. Since there is less scope of satisfying these conditions under the sole proprietorship business structure, the chances of the Investment Visa approval for sole proprietors are usually low.
As a result, most foreign professionals choose to incorporate a private limited company instead of a sole proprietorship. To find out how to incorporate a Hong Kong company, see Hong Kong Company Registration Guide.
The only requirement for Hong Kong sole proprietorships is to register their business with the Inland Revenue Department’s Business Registration Office and obtain a Business Registration Certificate. Business Registration must be done within one month from the date of commencement of business. The business registration number that appears on the Business Registration Certificate is also the sole proprietorship’s profits tax filing number.
The registration procedure involves
- Selection of an appropriate business name. It is important to keep the following factors in mind while choosing a business name:
- A sole proprietorship may be registered with an English name, a Chinese name, or an English and a Chinese name.
- For a Chinese name, you may include English alphabets, but not English words.
- The name should not suggest that the business is incorporated with limited liability.
- The name should not suggest a connection with the Government or any public body when no such connection exists or has existed.
- The name should neither infringe on trademarks nor be offensive or otherwise contrary to public interest.
- Registration of the business with the Inland Revenue Department’s Business Registration Office
Registration of the sole proprietorship and obtaining the Business Registration Certificate can be completed within 1 day, provided all the documents are found to be in order and there no objections against the chosen business name. The Business Registration Certificate must be conspicuously displayed on the office premises at all times.
In order to register a sole proprietorship business in Hong Kong, the following documents/information are required.
- Complete application form, including proposed business name
- For resident owners: Hong Kong identity card
- For non-resident owners: A copy of the owner’s passport or identity card
Post Registration Formalities
Apply for a Business License
Once you have registered your business with the Inland Revenue Department, you may also require a business license before you can actually start your business operations, depending on the nature of your proposed business activities. For instance, you require a business license for operating the following types of businesses: restaurants, educational institutes, travel agencies, financial services, import/export, etc.
For more information on business licenses, refer to Business Licenses in Hong Kong. The firm you have engaged to aid in your business registration can advise and assist you on the business licensing requirement and procedure.
Open a Bank Account
Once you have registered your business with the Inland Revenue Department, you can proceed to open a corporate bank account with any of the major banks in Hong Kong. Some of the banks in Hong Kong require the physical presence of the business owner as part of their due diligence procedure in opening a bank account. However, there are certain banks that do not require you to personally be present at the time of opening an account. The professional services firm you choose will guide you on choosing an appropriate bank depending on your requirements and provide you with the necessary information.
Filing Change of Particulars or Cessation of Business
Any change in the registered particulars of the business, such as change of business address, change of business name or change in nature of business must be intimated to the IRD in writing within 1 month of the change. You must also notify the IRD about the cessation of your business within 1 month of cessation.
Filing Tax Return
As per Hong Kong company law, sole proprietorships formed in Hong Kong must file their profits tax return on an annual basis. Generally, a newly registered business will receive (from IRD) its first tax return filing notification 18 months after the date of registration. Normally, the tax return should be filed within one month from the date of notification issue.
Small businesses whose gross income does not exceed HKD 500,000 are not required to attach any financial statements along with the tax return. However, they must prepare the accounts, complete the tax return in accordance with the accounts prepared, and retain the accounts and documents for inspection by tax authorities.
Sole proprietorship businesses whose income exceeds HKD 500,000 will have to submit the following documents along with their tax return:
- A certified copy of the company’s balance sheet and Profit & Loss Account relating to the basis period.
- A tax computation indicating how the amount of assessable of profits (or adjusted losses) has been arrived at.
Renewal of Business Registration Certificate
The Business Registration Certificate should be renewed one month before expiry on an annual basis or once every three years, depending on whether the Certificate is valid for one year or three years.
A sole proprietorship is the easiest and least expensive business structure to set up. Registration can be done within a day’s time, with minimal documentation and formalities. However, the main disadvantage is the personal liability exposure of the sole proprietor and a perception of a small business among clients and suppliers. Therefore, we normally do not recommend this type of entity to entrepreneurs. Instead, we recommend that they incorporate a private limited Hong Kong company.