Setting Up a Hong Kong or Offshore Entity: What to Confirm First
Author: Junanda ConsultingReviewed by: Junanda Service Team2026-09-19
Setting up a company in Hong Kong, China or elsewhere offshore is not in itself complicated. What is complicated is thinking through why the company is being set up, how it will be used once it exists, whether the maintenance costs can be sustained, and whether a compliant route is actually available. Many businesses register a company first and only then discover that they cannot open a bank account, that the business substance will not support the tax arrangement they had in mind, or that funds cannot be moved out of the Mainland. This article follows the sequence of purpose, tax, funding, cost and compliance route, and sets out what must be confirmed before an offshore entity is established.
Establish the purpose first
Different purposes call for entirely different structures and compliance requirements:
- Trading as an intermediary. Used to take on overseas orders and on-sell the goods, with attention to the matching of the goods flow, the funds flow and the documentation flow.
- Collecting and making payments. Used to centralise foreign exchange receipts and payments, with attention to whether a bank account can realistically be opened and to foreign exchange compliance.
- Financing. Used to bring in overseas investors, with attention to the equity structure and the ease of making subsequent changes.
- Holding. Used to hold equity in domestic and overseas subsidiaries, with attention to dividend repatriation and the application of tax treaties.
- Holding intellectual property. Used to hold trade marks and patents and to charge royalties, with attention to transfer pricing and withholding tax.
- Listing structure. Used for an overseas listing, with attention to the reorganisation route, regulatory filing and disclosure requirements.
Write the purpose down in a single sentence first, then work backwards to decide where the entity should be located, how many tiers are needed and what function each will perform.
Tax residence and economic substance
- Tax residence. Where a company is a tax resident determines whether it is taxed on worldwide income or only on locally sourced income. The tests usually involve the place of incorporation and the place of effective management, and specific rules are subject to the legislation of each jurisdiction.
- Source-based taxation. In Hong Kong SAR, for example, profits tax follows the territorial source principle. An offshore profits exemption claim must be made to the tax authority and supported by information demonstrating the business substance and the source of the profits. Whether it is granted depends on the facts and on the evidence produced; it does not apply automatically.
- Economic substance requirements. Some offshore jurisdictions impose economic substance requirements on particular activities, typically involving an adequate office presence, personnel and decision-making activity locally. Specific requirements are subject to the latest legislation in the jurisdiction concerned.
- Common risk. A registered address alone, with no personnel, no decision-making and no trace of real business activity, will neither support a tax arrangement nor persuade a bank to open an account.
Due diligence on the feasibility of opening a bank account
A bank account is the point on which the whole offshore structure stands or falls, and the following should be prepared in advance:
- KYC and CDD materials. Company registration documents, identity documents of shareholders and directors, information on the ultimate beneficial owners, and proof of address.
- Evidence that the business is genuine. Upstream and downstream contracts, invoices, logistics documents, the company website and business description, and an explanation of the flow of funds.
- An explanation of the relationships involved. The equity structure and a group structure chart, setting out the function of each entity.
- The commercial logic. Whether the scale of transactions is consistent with the size of the company, and whether the source of profits can be explained.
- Note. Account-opening policies differ considerably between banks and between jurisdictions, and change with the regulatory environment. It is advisable to speak to the bank or a professional adviser early.
Opening an account is not a natural consequence of completing a registration; it is a separate due diligence exercise. What the bank wants to know is whether this company is genuinely trading, where the money comes from and where it goes. Before registering, a business should therefore be clear about who its main customers and suppliers are, roughly how much it will transact each year, what the main settlement currencies will be, and whether it has a physical office and employees. The clearer those answers are, the more feasible the account opening becomes. Where the business model itself is vague, the company may remain in the awkward position of having an entity but no account for a long time.
Maintenance costs and ongoing obligations
- Registration and annual fees. The registration fee and the annual licence fee or annual charge.
- Company secretary and registered address. In Hong Kong SAR, for example, a local company is generally required to appoint a qualified company secretary and to maintain a registered address.
- Audit. In Hong Kong SAR, for example, a company is generally required to prepare financial statements annually and to have them audited. Specific requirements are subject to the latest rules of the Companies Registry and the tax authority.
- Tax filing. Profits tax returns, employer returns, and a possible offshore profits exemption claim.
- Other items. Accounting and bookkeeping, changes of director, changes of shareholding, and the liquidation costs on winding up.
| Item |
Main content |
Recurring? |
| Registration |
Incorporation, articles of association, first directors |
One-off |
| Secretary and address |
Company secretary, registered address |
Annually |
| Audit |
Annual audit of the financial statements |
Annually |
| Tax filing |
Profits tax return, employer return |
Annually |
| Changes |
Change of directors, shareholding or name |
As required |
| Winding up |
Liquidation and deregistration |
One-off |
The Mainland compliance route: ODI and foreign exchange registration
- A domestic enterprise investing overseas will generally need to complete outbound direct investment (ODI) filing or approval under the rules in force, and to complete the corresponding foreign exchange registration. Specific requirements are subject to the latest rules of the commerce, development and reform, and foreign exchange authorities.
- Sending investment funds overseas without completing the compliant formalities may mean that the funds cannot be remitted out, or cannot be brought back later.
- Where an offshore entity then invests back into the Mainland, foreign investment access and foreign exchange registration need to be coordinated.
- Treat how funds get out and how profits come back as a question that precedes the structure design, rather than something to be remedied afterwards.
The compliance route also requires a distinction between a new establishment and an acquisition, and between industrial and financial investment, since different types are subject to different administrative treatment. The sequence of filing and registration also matters. As a general rule, domestic approval or filing should be completed first, then the foreign exchange registration, and only then the remittance of funds and the establishment of the offshore company. Reversing that order tends to leave funds unable to leave the country, or an offshore company already established while the domestic formalities cannot be completed.
Where individuals establish or hold interests in an offshore entity, the rules on individual foreign exchange administration and outbound investment also need to be considered; the corporate route cannot simply be applied to them.
Information exchange, anti-money laundering and related-party pricing
- CRS. Under automatic exchange of financial account information mechanisms such as the Common Reporting Standard, information on offshore accounts may be exchanged with the jurisdiction in which the account holder is a tax resident. An offshore entity is not an information blind spot.
- Anti-money laundering. Banks scrutinise large, frequent or commercially unexplained transfers more closely, so the business and the flow of funds must be consistent.
- Transfer pricing. Transactions in goods, services, funds and intangibles between onshore and offshore entities should be priced on the arm's length principle, should match the functions performed, the risks assumed and the assets used by each party, and should be supported by retained documentation.
- Functional positioning. Each entity should have a clear role — sales, procurement, holding, financing or IP holding — and a structure that is one team under several names, with no genuine division of function, should be avoided.
Common Pitfalls
This article is general business information prepared by Junanda Consulting. Specific policy positions, tax rates, deadlines and procedural requirements are subject to the latest official versions issued by the competent authorities. To understand how these requirements apply to your business, please contact Junanda Consulting for further information and support.
