Hong Kong Company Incorporation Guide (6) - Share Capital and Capital Duty
1. Authorised and Paid up Capital
(1) Authorised Capital
As stated in Hong Kong Incorporation Guide (3), the Memorandum of Association of a company will have to be registered with the Companies Registrered. Normally, the Memorandum of Association will contain a Capital Clause. The Capital Clause will state the nominal capital of the company, i.e. the value in money of the shares which the company is authorised to issue and the number of shares into which it is divided together with the amount of each share, for example: "The capital of the company is HKD10,000 divided into 10,000 shares of HKD1.00 each".
(2) Issued and Paid up Capital
The issued capital is the sum equal to the nominal value of all shares which the company has actually issued and the paid up capital is the amount paid; the balance which has yet to be paid is termed uncalled capital.
The Companies Ordinance does not impose any restrictions as to the minimum amount of authorised or/and issued and paid up capital.
2. Calcualtion of Capital Duty
(1) Capital Duty at Incorporation
At the time of incorporation, a company is required to pay a capital duty of 0.1% on the nominal value of its share capital, subject to a cap of HKD30,000.
In addition, capital duty of 0.1% applies to increases in authorized share capital (capped at HKD30,000 per increase) of a company. In addition, should any shares be issued at a premium, i.e. an amount in excess of the par value, capital duty at the same rate will be applied to the premium.
Example 1:
Mr. A intends to set up a private company in Hong Kong with a authorized capital of HKD10,000 and an issued and paid up capital of HKD1. How much of capital duty he needs to pay to the Hong Kong Companies Registry?
Answer:
| Capital Duty |
= Authorised Capital x 0.1% |
| |
= HKD10,000 x 0.1% |
| |
= HKD10
|
Example 2:
Mr. B intends to set up a private company in Hong Kong with a authorized capital of HKD30,000,000 and an issued and paid up capital of HKD1. How much of capital duty he needs to pay to the Hong Kong Companies Registry?
Answer:
| Capital Duty |
= Authorised Capital x 0.1% |
| |
= HKD30,000,000 x 0.1% |
| |
= HKD30,000
|
Example 3:
Mr. C intends to set up a private company in Hong Kong with a authorized capital of HKD50,000,000 and an issued and paid up capital of HKD1. How much of capital duty he needs to pay to the Hong Kong Companies Registry?
Answer:
| Capital Duty |
= Authorised Capital x 0.1% |
| |
= HKD50,000,000 x 0.1% |
| |
= HKD50,000
|
However, as capital duty is capped at HKD30,000, therefore Mr. C needs to pay only HKD30,000 as capital duty to the Hong Kong Government.
(2) Capital Duty at Increase of Authorised Capital
Example 4:
Mr. D registered private company in Hong Kong with an authorized capital of HKD10,000, divided into 10,000 shares of HKD1 each. At the time of incorporation, one share is issued to its founder member at par. Now that Mr. D intends to increase the authorized capital of its company from HKD10,000 to HKD20,000,000, an increase of 19,990,000 shares of HKD1 each. How much of capital duty he needs to pay to the Hong Kong Companies Registry at the time of increase?
Answer:
| Capital Duty |
= Authorised Capital x 0.1% - Capital Duty Paid up to the current increase |
| |
= HKD20,000,000 x 0.1% - (HKD10,000 x 0.1%) |
| |
= HKD20,000 ?HKD10
|
| |
= HKD19,990 |
Example 5:
Mr. E registered private company in Hong Kong with an authorized capital of HKD10,000, divided into 10,000 shares of HKD1 each. At the time of incorporation, one share was issued to its founder member at par. Now that Mr. E intends to issue 500 shares at HKD1,000 each, that is, at a premium of HKD999 each share. How much of capital duty he needs to pay to the Hong Kong Companies Registry at the time of allotment?
Answer:
| Capital Duty |
= Total Premium x 0.1% |
| |
= HKD999 x 500 shares x 0.1% |
| |
= HKD499.50
|
Capital duty is rounded to nearest dollar, so the capital duty payable therefore is HKD500.
(3) Capital Duty at Issue and Allotment of Shares
The issue and allotment of shares attracts no capital duty, unless the shares are issued and allotted at a premium and the capital duty paid previously has not yet exceeded the cap of HKD30,000.
Example 6:
Mr. F registered private company in Hong Kong with an authorized capital of HKD1,000,000, divided into 1,000,000 shares of HKD1 each. At the time of incorporation, one share was issued to its founder member at par. Now that Mr. F intends to issue all remaining shares to himself and a new investor at par. How much of capital duty he needs to pay to the Hong Kong Companies Registry at the time of allotment?
Answer:
Since the intended allotment does not require an increase in its authorised capital and shares are not issued at a premium, there is no capital duty to be paid.
3. Capital Duty Vs Capital Gain Tax
Capital Duty is imposed on the promoter/founder of a company and charged at 0.1% on the amount of authorised capital, subject to a cap of HKD30,000.
Capital Gain Tax is a tax assessed on profits realized (Capital Gain) from the sale of a capital asset, such as stock and real estate property. Capital Gain in turn is defined as the amount by which an asset’s selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn’t been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.
Hong Kong does not tax capital gains.
|
