By Vlad Cuc, specialist in company formation matters
A sole trader in Hong Kong, also known as a sole proprietorship is suitable for small scale businesses that are usually run by one business owner and have little or no business liabilities. This type of business structure is only recommendable in certain cases because a sole proprietorship does not offer protection for personal assets.
One advantage of the sole trader in Hong Kong is the fact that the company registration procedure is simple and faster than in the case of more complex business forms. For more options regarding business structures, our company formation representatives in Hong Kong are ready to offer you detailed descriptions for each type.
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Sole trader particularities and registration in Hong Kong
A sole trader in Hong Kong and its owner are regarded as one and the same, thus, the biggest particularity of this business form is that the owner is fully liable for all the debts and liabilities of the sole trader.
A sole trader in Hong Kong is relatively easy to incorporate. The only step is to register the business at the Business Registration Office belonging to the Inland Revenue Department. A Business Registration Certificate is issued and this certificate must be obtained within one month after commencing the business.
It is relevant to note that the Inland Revenue Department does not accept an application for registration for a sole trader that never existed or one that has not commenced operation at the time of registration. This means that simply starting the process to set up a sole trader in Hong Kong, but not using this business entity for commercial purposes, will mean that it cannot be registered for tax purposes.
The business owner must also select a name for the sole trader. The documents needed for registration are a Hong Kong identity card for resident owners and a copy of the passport or identity card for non-residents. Some types of businesses will also require a special business licence. The entrepreneur can apply for the necessary licenses after obtaining the Business Registration Certificate.
Our company registration consultants in Hong Kong can also help you open a bank account for your sole trader.
The main characteristics of the sole trader are summarized by our experts in this video:
Sole trader taxation in Hong Kong
Like any other type of company in Hong Kong, a sole trader must be registered and must observe the taxation principles. Tax returns must also be filed on an annual basis. Foreign investors who wish to open a sole trader in Hong Kong should seek the services of a Hong Kong company formation firm that can register the business on their behalf. Otherwise, foreigners who want to register a sole proprietorship in their name must apply for an investment visa before registering the sole proprietorship.
Businesses and individuals in Hong Kong are taxed according to certain principles. Our team that can help you open a company in HongKong lists the main tax basics for the sole proprietorship below:
- A sole trader in Hong Kong is taxed at a 15% rate;
- A natural person that owns more than one sole trader is taxed separately in relation to each sole proprietorship;
- The sole trader reports the profits and losses for this one-man business in the tax return for individuals;
- For those who own more than one sole proprietorship business, separate accounts and calculations are submitted for each of these sole traders when the gross income exceeds $2,000,000. The gross income refers to all types of income;
- Deductions are possible for those who open a sole trader in Hong Kong. Our accountants in Hong Kong can give you more details.
Sole traders interested in changing their business form, for example, to a partnership or a corporation, should know that the process will not mean that the IRD considers that the business ceases for tax purposes. Any change in business form or in ownership is to be notified to the Business Registration Office.
Our team that can help you with company incorporation in Hong Kong can also help you change a sole proprietorship to a partnership or vice versa.
Foreign sole traders in Hong Kong
There are no nationality restrictions for those who open a sole trader in Hong Kong, however, the same requirement to register the business applies to all founders, namely, to apply for business registration within one month of commencing the said business.
When the sole trader is a non-resident, the IRD will not accept the application if the foreigner fails to provide proof of activity commencement in the Special Administrative Region.
Foreign investors who are interested in opening a sole trader can seek the services of our Hong Kong company formation firm that can register the business on their behalf.
A foreigner cannot enter Hong Kong for tourism purposes and open a sole proprietorship in Hong Kong. This involves obtaining the right type of visa for business purposes, such as the visa for investment as entrepreneurs. The usual visa validity is 36 months, and it is issued by the Immigration Department.
If you want to open a Hong Kong company, we can help you with details about company or sole trader creation. Please contact our company formation specialists for assistance.