You can run a sole proprietorship or partnership in Hong Kong without incorporating, but you must apply to the Inland Revenue Department's Business Registration Office within one month of starting business. There is no separate legal entity, so the owner or partners carry unlimited personal liability for business debts. Profits are taxed at a lower two-tier rate than a company's.
A sole proprietorship is simply one individual trading, either under his or her own name or under a registered business name. A partnership is two or more persons carrying on business together with a view to profit, usually governed by the Partnership Ordinance (Cap. 38) and by any written partnership agreement. Neither structure creates a legal person, so the business cannot own property, sign contracts or be sued in its own name; the owner or the partners do those things personally.
The trade-off is cost against exposure. There is no incorporation fee, no company secretary, no statutory audit and no annual return. In exchange, a sole proprietor answers for every business debt with personal assets, and each partner in an ordinary partnership is jointly liable for the partnership's obligations, including those incurred by another partner acting in the ordinary course of business. That joint liability is why a written partnership agreement is worth paying a solicitor to draft.
The structure suits freelancers, consultants, small retailers and family businesses that want to start quickly. It is a poor fit when you expect to sign large leases, borrow substantially or take outside investors, since lenders and landlords will often ask for personal guarantees anyway and an investor cannot hold shares in a sole trader.
Every business operating in Hong Kong must be registered under the Business Registration Ordinance (Cap. 310). The application goes to the Business Registration Office of the Inland Revenue Department and must be made within one month of commencing business. You can apply online or on paper, and you choose a one-year or three-year certificate, with the matching fee.
The application records the business name, the nature of the business, the address, the owner's or partners' details and the commencement date. A business name need not be unique in the way a company name is, but you should check that it does not infringe an existing trade mark and that it does not imply a regulated activity such as banking or insurance without authorisation. Some trades also require a licence from the department responsible for them, for example food premises or travel agencies, and the Business Registration Certificate does not replace those licences.
The certificate must be displayed at the place of business. When the address, name or partners change, the Office must be told within one month, and when the business stops, you should notify it so the registration is cancelled rather than left to lapse.
Unincorporated businesses pay profits tax on assessable profits from a trade, profession or business carried on in Hong Kong. For the current two-tier structure, the first HK$2 million of assessable profits is taxed at 7.5 per cent for unincorporated businesses and the remainder at 15 per cent. If you also have a company or other connected entities, only one entity among them can claim the lower tier, so plan which one it will be before filing.
There is no separate salary for a sole proprietor. Drawings you take from the business are not an expense, and a salary you pay to yourself is not deductible. Likewise, in a partnership the partners' share of profit, not a payroll, is what is taxed. The Inland Revenue Department assesses the business profits in the name of the proprietor or the partnership. Some individuals then elect personal assessment, which aggregates income from different sources and applies allowances; whether this beats separate assessment depends on your other income, so ask your tax adviser to run both.
Because there is no VAT or GST in Hong Kong, an unincorporated business does not charge or account for tax on sales. Its financial tasks are keeping records, answering the profits tax return and, if it has staff, handling Mandatory Provident Fund contributions and the employer's return.
Unincorporated businesses must keep business records for seven years. Even where you are not obliged to submit audited accounts with the return, the Inland Revenue Department can ask you to explain figures, so a clean separation between personal and business bank movements saves hours. Open a dedicated business account as soon as you have one, and pay yourself through documented drawings.
Self-employed persons, including sole proprietors and partners, must also join an MPF scheme and contribute, in their own capacity, a mandatory 5 per cent of relevant income subject to the maximum level. Staff on payroll bring the employer duties of enrolment within 60 days and monthly contributions.
Revisit the structure when liability, financing or investors start to matter. Converting to a company is a transfer of the business to a new legal person; assets, contracts, bank accounts and employment relationships must be moved, and the old business registration cancelled. Do it at a financial year-end if possible, so the accounts of the two entities do not overlap.
A small business still needs a repeatable invoice. Put the business name, the registration number, a sequence number, the date, the customer, a description of the work, the amount, the payment terms and the account to pay into. Customers often query invoices with missing details, which slows payment more than any other single factor.
With 4invoices you can issue these as PDF invoices and keep them in an invoice archive. The templates do not pull in your FPS identifier or your Business Registration number automatically, so you type those details once and reuse them. 4invoices does not submit anything to the Inland Revenue Department.
Self-employed owners mix personal and business spending, making the tax return hard to prepare and business expenses hard to prove.
Keep business income and expenses in separate records from day one and file each invoice and receipt by category in your own archive. Deductibility is decided with your accountant and the IRD.
Home-made invoices miss the business details or payment information, so customers pay late and ask questions.
Issue PDF invoices showing your business name, address and payment details, which you enter yourself. Templates are not filled in automatically from FPS or Business Registration data.
You must apply for Business Registration within one month of starting business. You can choose a one-year or three-year certificate and apply through the Inland Revenue Department. The certificate then has to be displayed at your place of business. Changes of address, name or partners must be reported within one month. Check whether your trade also needs a separate licence from the relevant government department.
Yes. A sole proprietorship is not a separate legal entity, so creditors can claim against your personal assets for business debts. In an ordinary partnership each partner is jointly liable for the partnership's obligations. If that exposure worries you, consider incorporating a limited company, or ask a solicitor about other structures. Insurance can cover some risks but does not remove liability.
Unincorporated businesses pay profits tax under a two-tier structure: 7.5 per cent on the first HK$2 million of assessable profits and 15 per cent on the rest. Only one entity among a group of connected entities can claim the lower tier. The profits are assessed in the partnership's name and partners then report their shares. Ask your adviser how personal assessment affects your total tax.
Yes. Self-employed persons aged 18 to 64 must join an MPF scheme and contribute 5 per cent of relevant income, up to the maximum relevant income level. If you hire employees, you also have to enrol them within the statutory period and pay the employer's share. The MPF Authority publishes the current minimum and maximum levels, so check them before setting payroll.
Yes, but it is a transfer, not a rename. You incorporate a new company, move assets, customer contracts, bank accounts and staff to it, and then cancel the old registration. Stamp duty, tax treatment of the assets and landlord or customer consents may be involved. Do it with your accountant and a solicitor, ideally at a financial year-end.
PDF invoices and an invoice archive. Business Registration is handled with the IRD.
