Sole Proprietorship Hong Kong

The Sole Proprietorship

It is the simplest form of business structure, as it is owned and operated by only one individual. The sole proprietorship is a good business structure for individuals seeking to establish a simple business in Hong Kong and it can be registered within one (1) day.

The owner holds the complete control of the company and retain all profits, he has a personal responsibility for the liability of the capital, assets and other liabilities. Thus, the sole proprietorship represents a significant financial risk for an entrepreneur willing to engage in business ventures. All about Sole Proprietorship Hong Kong just below.

Comparing the sole proprietorship with partnerships and limited companies

As an example, individuals who register limited companies in Hong Kong will have a limited liability over capital related debts and outstandings. On the opposite, partners in a partnership have liabilities over the assets and liabilities of the business. 

Similarly to the sole proprietorships, the partnership is not considered as a company in Hong Kong because it does not hold a separate corporate identity, the owner and the partners of the partnership have a personal liability within their business.

Thus, an individual willing to start a business in Hong Kong can carefully consider what type of business structure is the most suited for their needs. If they have one or several partners and are willing to engage in a new and innovative business venture, we would recommend to register a limited company. This will allow to raise capital and limit the liability of the founders.

Although, if the business plan is proven and does not require a high capital, a partnership could be the best solution.

Finally, if an entrepreneur is willing to start a business on its own and have a straightforward and simple business idea, the sole proprietorship can be the best suited structure.

Check our Accounting services Hong Kong, Bookkeeping services Hong Kong, Corporate secretarial services Hong Kong, and How to register a business in Hong Kong.

Sole Proprietorship Hong Kong

What are the advantages of opening a sole proprietorship in Hong Kong?

Because the sole proprietorship is not a separate legal entity from its owner / sole proprietor, the proprietor is responsible for all the debts and liabilities linked to the sole proprietorship.  

Nonetheless, this also means that filing and compliance requirements for the sole proprietorship are less demanding than for a regular company in Hong Kong.

Because the sole proprietorship is a not a separate legal entity from its proprietor, it benefits from a de facto tax rate of profits of only 15%.

There is no requirement to register a corporate office or address, as the owner can conduct his activity within his personal address where he can provide his services or sell his products.

Filing tax returns for a sole proprietor

The sole proprietorship still requires filing the profits tax return with the Inland revenue Department (IRD) because it is regarded as the extension of the liabilities and responsibilities of the sole proprietor. Thence, the profits of the sole proprietorship are taxed as profits for the individual. But, if the business gross income stands below HKD 2,000,000 per year, there is no requirement to attach financial statements to the tax return. 

The new businesses registered in Hong Kong will receive a notification related to tax returns 18 months after the incorporation date.

Starting a sole proprietorship in Hong Kong

The business registration for a sole proprietorship cannot be applied before the business has started. Indeed, according to the Business Registration Ordinance (Cap. 310) a sole proprietorship’s application for business registration must be sent after commencement of the business and within 30 days of the commencement date.

Foreigners willing to start a new sole proprietorship in Hong Kong may fall in a tricky situation as visitors are not allowed to join or establish a business during their stay. Hence, foreigners can apply for an investment visa prior the opening of their sole proprietorship.

About the investment Visa in Hong Kong to open a sole proprietorship

The investment visa or Investment as entrepreneurs under the General Employment Policy (GEP) is a specific visa that will allow a foreigner to start or join a business in Hong Kong. 

The visa application processing time is on average 4 weeks and is subject to several significant requirements for eligibility:

  • No criminal records
  • Education diplomas relevant to the business sector related to the application
  • Demonstrating that the applicant will produce a substantial contribution to the economy of the Hong Kong Special Administrative Region (SAR). This requirement involves producing and drafting the following documents:
    • Business Plan – a 2-year business plan that demonstrates that the business is suitable and able to grow and develop in Hong Kong. The business plan’s exhaustivity should extend to producing market analysis, market positioning, business direction, sales targets, product marketing strategy, etc.
      Business focused on key areas of development in Hong Kong are more likely to be accepted according to the Immigration Department.
      The Business plan should include 2 years of:
      • Profit and Loss projections, 
      • cash flow statement and 
      • balance sheet. 
    • Business turnover – In the business plan, a projection of the turnover should be included that will help assess the suitability of the business in Hong Kong.
    • Financial resources – the applicant shall submit statements of their available financial resources such as personal and company bank accounts to establish the financial ability of the applicant. Documents dated from the previous year are recommended. If an audited financial report is available, it should be attached to the application.
    • Investment Sum – The applicant should demonstrate through documents the sum of the investment.
    • Jobs created locally – Through an organizational chart, the applicant should point out the number of local jobs created and the corresponding seniorities.
    • New technology or skills – This is applicable if the applicant wants to demonstrate a competitive advantage provided from new technology or skills

You can learn more about on the business investment by reading our article that covers the topic!

Considerations for the Hong Kong Investment Visa

The investment visa applied to set up a sole proprietorship in Hong Kong is thus a very cumbersome process which requires to demonstrate significant positive impact on the economy of Hong Kong (and before the start of the said business).

Although, at the same time, a foreigner is not allowed to start and conduct business without the appropriate visa. 

By working with MyBusiness in Asia you ensure to maximize your chances of getting your Investment Visa approved and starting your sole proprietorship. Indeed, our team of experts has extensive experience in the immigration matters in Hong Kong in addition to knowledge to open companies and register them.

Registration of a sole proprietorship

To have the sole proprietorship registered with the Hong Kong Inland revenue Department (IRD), the candidate must:

  • Submit a completed application form that you can find on the website of the IRD.
  • Pay the business registration fees and levy. The table of the IRD indicates the amount based on the duration of the registration certificate and date of application.
  • Produce a proof of identity that vary based on the nature of the applicant:
    • Individuals will need to provide a copy of the local Identity Card or Passport.
    • Body corporate will need to provide a copy of the Certificate of Incorporation of the company that is either (translated, where applicable) in English or Mandarin
  • Select a name for the sole proprietorship that is either a Chinese name, an English name or both a Chinese and English name.

Electronic signature for registration documents in Hong Kong

If you want to register a business sin Hong Kong and more specifically a sole proprietorship, the business registration application will need to be printed and signed with wet ink. In Hong Kong, the e-signature of documents is recognized according to the Electronic Transactions Ordinance (Cap. 553) but not applicable to some documents that required to be filed with local authorities.

You can learn more about the electric and wet ink signatures requirements by reading our article relating to signing in Hong Kong.

Accounting for sole proprietorships

The owner of a sole proprietorship is responsible for the company’s debt and liability. Therefore, maintaining a proper bookkeeping and accounting is vital for sole proprietorships and the persons behind it.

To comply with the law, the owner can resort to companies such as MyBusiness in Asia which provide corporate accounting services.

Because by law the sole proprietorships have limited compliance needs, MBiA is able to support your business by offering a set of affordable services such as to register a company office address, apply for a bank or corporate account, handle tax returns.

After setting up the sole proprietorship

Applying for a business license is a requirement in Hong Kong to operate certain types of business such as financial services, import/exports activities, educational related activities, or restaurants, etc. The process can be tedious and requires specific information documents.

As a key part of starting and running your company and/or sole proprietorship, MyBusiness in Asia is able to assist you with the application and obtaining the required business licenses and certificates.

Opening of a bank account in Hong Kong

To run your business, your clients and suppliers will need to be able to send and receive your payments. That is why the common step after registering a business is to open a bank account amongst one of the recognized local banks. This allows to easily manage payments and getting loan and credits facilities. 

However, opening the bank account can be a stringent process that requires physical presence and increased due diligence requirements for foreigners. MBiA is able to assist you with the opening of your bank account in Hong Kong thanks to the extensive experience with our existing clients!

An alternative to the bank account: the business account

Financial technology companies now offer solutions for businesses to operate and deal with their payments, they hold financial institutions licenses and can facilitate the payments required by most business owners. The advantages include significantly lower fees than traditional banks and smoother due diligence processes that make the opening of the account faster and easier.

MyBusiness in Asia offers to open a business account for you, free of charge!

How to close your sole proprietorship?

Unlike companies, the sole proprietorship is not a perpetual entity. If the owner deceases or stops carrying its activity, the entity will be closed.

In that case the Company Registry (CR) can de register the business or when the sole proprietorship is considered defunct.  Also, the Business Names Registration Act will require the owner of the sole proprietorship to send a declaration of having ceased to carry business.

Sole Proprietorship Hong Kong : Are you ready?

Compared to regular companies or a partnership, the sole proprietorships are simple structures to register. The capital requirements are low but there is no limited liability of the owner. The personal responsibility of the proprietor can be engaged by law. 

As such, the limited company can be a more suitable structure but requires some additional compliance and filing requirements such as a registered address and office, producing financial statements. On the other hand, this enables companies to raise capital more easily and access different forms of financing.

Regardless of your preferred business structure, MyBusiness in Asia can accompany you and find the best suited services for your business needs.

Financial Statements XBRL Format