In Hong Kong, company formation combines two advantages that rarely come together: an internationally respected financial and trading centre based on English common law, and a tax system that does not tax profits earned abroad. The company can be 100% foreign-owned, practically no minimum capital is required, and Hong Kong levies neither VAT nor withholding tax on dividends. For e-commerce and international trade in particular, the Hong Kong limited company is therefore a particularly efficient structure.
Territorial taxation: foreign profits tax-free
Hong Kong taxes business profits on a territorial basis. Only profits arising in or derived from Hong Kong are taxable. Profits from business conducted outside Hong Kong remain tax-free for a Hong Kong limited company – even though the company is registered there and the money is later received in a Hong Kong account.
What matters is where the activities that generate the profit take place: if contracts are negotiated, concluded and performed outside Hong Kong, or services are rendered abroad, the profits are offshore. The exemption is claimed with an offshore claim in the annual profits tax return and supported by documents such as contracts, correspondence and invoices. Anyone setting up a company in Hong Kong with foreign profits in mind therefore designs the processes accordingly from day one.
For profits from Hong Kong itself, profits tax applies at two tiers: 8.25% on the first HKD 2 million (approx. €230,000) and 16.5% on the remainder. Since 2023, Hong Kong has additionally required economic substance for passive foreign income such as dividends, interest or royalties. For operating trading and e-commerce companies, territorial taxation remains the key advantage.
A Hong Kong company for e-commerce
For online sellers, Hong Kong combines several advantages. Proximity to manufacturers in China and Southeast Asia shortens purchasing and quality control, the free port levies no customs duties on most goods, and Hong Kong is one of the world’s great logistics hubs. Goods can be shipped directly from the supplier to the customer in Europe or North America without ever passing through Hong Kong.
The Hong Kong tax authority has set out its view on e-commerce clearly: the location of the server alone is not decisive. What counts is where the core operations of the business take place – purchasing, sales, marketing and fulfilment. If these activities are carried out outside Hong Kong, the profits can remain tax-free as offshore profits. For online sellers, company formation in Hong Kong is therefore particularly attractive, above all for those who run their business location-independently from a low-tax country.
VAT: the most common misconception
Because Hong Kong has no VAT, many sellers assume that a Hong Kong company owes no VAT in Europe either. This is the most common – and an expensive – misconception. VAT does not depend on where the seller is based, but on where the end customer is located.
When a Hong Kong limited company sells goods to consumers in the EU, the VAT of the customer’s country applies. For consignments from outside the EU worth up to €150, the Import One-Stop Shop (IOSS) allows the VAT of all EU countries to be declared in a single return; for digital services to consumers, the non-Union One-Stop Shop scheme is available. The €10,000 threshold below which VAT stays in the seller’s country only applies to sellers established in the EU – for a Hong Kong company, the obligation applies from the first euro.
Two situations are particularly important: when selling through major marketplaces, the marketplace itself often accounts for the VAT. When storing goods in the EU, for example in fulfilment warehouses, a VAT registration in that country is usually required. The European Commission explains all schemes on its One-Stop Shop portal; the right solution for the business model should be settled before formation.
The formation process
Company formation in Hong Kong is straightforward: anyone who wants to set up a company in Hong Kong can complete the process entirely remotely. The requirements are manageable:
- Check and reserve the name: an English and optionally a Chinese company name ending in “Limited”.
- Appoint shareholder and director: at least one shareholder and one director of any nationality; the director must be a natural person.
- Appoint a company secretary and registered address: both must be based in Hong Kong.
- Incorporate with the Companies Registry: incorporation and business registration are completed in one step, electronically usually within a few days.
- Set up the significant controllers register: it is kept at the registered office and is not public.
Once registered, the Hong Kong limited company can operate immediately. Ongoing support from the company secretary and accountants begins with the first financial year.
Accounting and obligations
The key obligations for bookkeeping, accounts, audit and VAT at a glance – so you know from the start what running your company involves.
| Obligation | Rule |
|---|---|
| Bookkeeping | Under Hong Kong accounting standards (HKFRS) |
| Annual accounts | Annually, audited, with the profits tax return |
| Statutory audit | Required for all active companies; Hong Kong CPA only |
| Tax return | Annual profits tax return; offshore claim for foreign profits |
| VAT: registration | No VAT in Hong Kong |
| VAT: returns | Not applicable; mind EU VAT on sales to EU customers |
| Ongoing register duties | Annual return, business registration renewal, significant controllers register |
The audited accounts are filed with the profits tax return at the Inland Revenue Department and also form the basis of the offshore claim – proper, ongoing bookkeeping is therefore the prerequisite for the tax exemption of foreign profits. The annual return goes to the Companies Registry.
As of 2026. Bookkeeping and filings are usually handled by specialised accountants in the target country.
Is a Hong Kong company right for you?
Whether a Hong Kong company is right for you depends above all on where your suppliers, clients and owners are located:
Suitable for
- E-commerce sellers with suppliers in Asia
- Trading companies with clients outside Hong Kong
- Holding companies for investments in Asia
- Sales and licensing companies for China
Less suitable for
- Business with customers mainly in Hong Kong itself
- Service providers without clients or partners in Asia
- Projects that require a company in the EU
- Sellers without a solution for EU VAT
If you want to build up staff and an office in Asia, you should also compare Singapore. For online business without an Asian focus, a US LLC is often the leaner solution, and if you want to relocate, Dubai is a location without personal income tax. All options are listed in the overview of all locations, and the tax comparison shows the rates side by side. Which structure fits in an individual case can be clarified in an initial consultation.
