I started my journey as an entrepreneur back in February 2013. At this time, I had no idea about taxes, accounting, and business structures. I just wanted to get started. Since then, I read a lot of articles, listened to a ton of podcasts, and found out that a lot of location-independent entrepreneurs are basing their businesses in other countries than their countries of origin. Especially, the name of Hong Kong came up a lot in all the content I read. It seemed to be the ideal place to open an offshore company. So after getting a lot of information about it, I recently made the jump and went through the process of opening my company over there. And in this article, I will share all the steps of this process with you.
Warning: before following any of the steps you will find in this article, I really advice to meet with a lawyer to check that it is legal for your own situation. For example, as I settled back in Europe since I wrote this article, I decided to close my Hong Kong company as it was no longer a good option for me due to French CFC (Controlled Foreign Company) laws.
Why I Chose to Create an Offshore Business
The story began back in 2012, when I started working on my own online business. At that time, I was a French tax resident, I was mainly doing online freelancing work, and I needed some kind of business entity to be able to work legally. In France, the easiest way to get started online is to declare yourself as self-employed. It is very fast (less than a week to receive all the confirmation papers), it’s free, and there is no question asked. In about 5 days, I was ready to start working on my first online business.
However, two years later, as I gradually moved out of freelancing to build information websites, I quickly understood that were three major flaws in this self-employed status that would limit my growth. First, being self-employed is not like having a real business: you can’t deduce expenses at the end of the year. That basically means that you are fine as long as you don’t have any expenses. For some time, I only had to pay my website hosting fees, but after two years I wanted to get contractors working for me, and I also wanted to start my eCommerce website. And that was nearly impossible, because as a self-employed person I would be taxed on my total revenue, and not on my profit like a normal business. That would completely kill any profit I could make with eCommerce for example.
Of course, there is also the question of taxes. As a self-employed person, I was paying a flax tax rate of about 20% on my total revenue, including business & personal taxes. As I will find out later, that is actually not so bad in Europe. If I opened a regular business in France, I would have to pay 33% of taxes on my profits, a lot of fixed costs, and then personal income taxes on everything I would take out of the company as dividends. Needless to say, that would have killed my little online business.
Finally, there was the problem of not being diversified. I don’t believe that the current government in France is doing a good job, and I started to really fear for the money I had there. And for this reason I was not confident starting a new business and placing all my money in this country. For all theses reasons, I needed to find something else.
Before the Trip
I made a lot of research online, in order to find what I could to open a business somewhere else than in my own country. Ideally, I needed to go somewhere that doesn’t require a visa or permanent residence to open a business, somewhere where it was cheap to open a new business, and also a place with low corporate taxes. I also wanted a place with a stable government and with a good reputation in international business. And after a lot of researches, the name of Hong Kong came up a lot. For example, I read an excellent article on the topic by Dan Andrews on the TropicalMBA blog. It seemed that it was really easy to open a company & a company bank account there, there was 0% tax rate on any business done outside of Hong Kong (so perfect for an online business), and Hong Kong is a well known place for international business & banking. I decided to go for it and open a company there.
The first step before going there (you need to get there for at least a day to open the company bank account) was to find a local company to do all the paperwork for me. You might be tempted to do everything yourself, but what you need by law is to have a company to act as your company secretary. This is basically part of the fees that you will have to pay each year to keep the company up & running. They will also act as a virtual office for you. There are many company that proposes this service, but I went with Startitup.hk after reading good reviews about them. I also heard a lot of good things about Bridges.hk and JumpStart.
The next thing to do before the trip is to fill out their forms, pay (about $1000 including the first year of registration for your company and the setup fees), and then wait about two weeks for the paperwork to be done. After that, you will receive your official registration papers, meaning that your company was successfully created. The next step is to let the company you chose to do the paperwork for you make an appointment at a local bank, to open your company bank account. At this step, beware if you are from the US: usually you will get an appointment with a local HSBC branch, but due to recent US laws like FACTA, it seems that bankers in Hong Kong are quite reluctant to open new accounts. I heard about many US citizens that went there not knowing that and saw the HSBC banker just leaving the appointment after seeing a US passport. It seems that the best in that case is to go for a local branch of an US bank, like Citibank.
On the Ground
When you have your appointment at the bank, it is time to think about getting on the ground. I requested an appointment quickly, so I had to take my plane tickets on quite short notice (two weeks before the appointment). Therefore, I had to pay about $1000 to get there and come back to Europe. However, if you are not in a hurry, the trip to Hong Kong can be much cheaper. I went there with Aeroflot, but you will find many plane companies flying to Hong Kong depending of where you are flying from. As usual, I used AirBnB to book accommodation nearby the place of the meeting with the bank.
Everything was set, and I took my plane to Hong Kong with a three hours stop in Moscow. I arrived there on the morning of the meeting (which was in the early afternoon). First comment: don’t do that. My plane was delayed one hour and I was really stressed about missing my appointment with the company that organised everything for me, and I was scared that I would have to do it all over again. Fortunately it didn’t happen, and I arrived there on time. I met the guy that took care of my company creation, and sat down to have a chat.
This is when I had my first surprise: I believed that everything was already OK and that opening the bank account would just be about getting there, signing some paper, and goodbye. Well, not at all. I learned it will actually be more like an interview. They basically want to check that you are the real deal, and that you are not doing all that just to get a visa to have the right to work in Hong Kong. Therefore, don’t go there if you don’t have a business already up and running, you will be rejected. Second surprise: the guy I met told me to not mention taxes at all during the meeting with the bank, or it could end badly. Everybody knows there is 0% corporate tax in Hong Kong for transactions done outside of the country, but what the banker want to hear is that you are coming there to ‘extend your business in Asia’. No problem for me.
With all these advices in my head, we went to HSBC with somebody from the company that created my company for me. We waited for maybe 5 mins there, and a banker came to greet us and give me some paper to fill. Note that during that process, I was helped all the way by the person from the local company. After that, I gave a little speech about my online business and why it made sense to go to Hong Kong, and it seemed to please the banker in front of me. Another advice here: have something to show. I didn’t know that beforehand, but luckily I could show him all my websites & analytics dashboards to prove I had something up & running.
After a few jokes, he accepted to open a bank account for me, and we started the process. And then, I got another surprise when he asked me to give a piece of ID & proof of residence. My passport was fine for him, but he didn’t like the rental contract I brought him: he wanted a proof of residence in the form of a utility bill. However, after some discussion, he put the address on my passport into the system, and I managed to get all the papers sent to my current address anyway. But for sure, keep in mind to bring extra proof of address for the meeting. After that, he gave me some paper with my access code, my debit card with the bank account number on it, and it was done. I had my company in Hong Kong and a Hong Kong business bank account! It was time to head back home after a visit of Hong Kong later that night.
After the Company Has Been Created
After I got back in Europe, I quickly got the SMS confirmation that my bank account was activated. The first step after I came back was then to put some money on the Hong Kong bank account, first to pay the bank opening fee (about $50). For that task, I used TransferWise so I don’t have huge bank transfer fees to pay. In about a week, my money was over there.
The second step, and the longest, was to get all business activities over there, and to open a merchant account. A merchant account is basically what will allow you to receive payments. I went for Paypal quite naturally, as they are in Hong Kong and they are well known. In less than a day, my documents were verified and I had a business Paypal account up and running. Moving most of my online activities was easy: I am using oDesk to pay my contractors, and they accept Paypal. Same for some SaaS applications I am using to run my business, like website hosting. To sell my digital products, I am using Gumroad, which then directly transfer money to my Paypal account.
However, I had another surprise when I wanted to receive money from Amazon. Indeed, a significant part of my income comes from affiliate sales on Amazon & from the Kindle publishing platform. And I discovered Amazon don’t allow to be payed in Hong Kong other than by receiving bank cheques! That was not acceptable for an online business. Therefore, I searched online, and the solution I found was to use a third party service called Payoneer to accept payments from the US, and then transfer this money back to Hong Kong. I am still in the process to open an account there, so I will update this article when this is done.
I also had to prepare myself to use a real accounting software. Indeed, as a self-employed person, having your accounts on Excel sheets, with just what comes in and what comes out was enough. Not for a Hong Kong company. You need to have your accounts in order in a real double-entry bookkeeping software. I haven’t chosen my software yet, but I am looking at Xero which seems to be perfect for Hong Kong regulations. This is really important as you will need to file your account to the Hong Kong authorities at the end of each fiscal year, so they can check you are eligible for the 0% corporate tax rate.
Does It Makes Sense For Me?
So should you open your own business in Hong Kong? Well, as usual, it depends. You need to choose based on your current revenue first. I simply got an excel sheet and calculated my remaining income at the end of one year, based on my current yearly income, with two scenarios: self-employed in France, and with a company in Hong Kong. Because there are some additional expenses that comes with a Hong Kong company, like having a company acting as your company secretary (about $500 a year), it only made sense for me after a given level of yearly income. You also have to decide based on your available options in your country in terms of business entities. For examples, in some countries it is very easy and cheap to form a LLC (Limited Liability Company), whereas in France for example it was very costly and complicated. Finally, if you are doing any business with mainland China, it makes sense to form a Honk Kong business for that reason only.
As I made more research when coming back from Hong Kong, I also found out that there were other options available. I especially visited websites like Nomad Capitalist and Flag Theory to find out more about these other options. For example, one option that comes up a lot on these websites it to open a company in the British Virgin Islands (BVI). It seems that the process is even simpler, you don’t need to go there yourself, and you don’t have any accounting or auditing requirements. However, it is also more expensive (about $1000 per year to pay) and also it seems to be difficult to open a merchant account with a business in these countries. But that is something I might explore in the future.
So to wrap up this article, I want to ask: what about you? Do you have an online business and thinking about going offshore? Did you also go through this process of opening up an offshore company? Have you made another choice than Hong Kong? Share your experience in the comments!