How to set up a sole proprietorship in Hong Kong: Benefits, tax, and registration guide

Setting up a business in Hong Kong can seem like an exciting idea, but it also comes with some not-so-exciting, yet crucial, steps. One of the first decisions you'll need to make is choosing the right business structure.

While some entrepreneurs may choose to incorporate their businesses, you can also operate a business without incorporating a company. This type of business is called sole proprietorship where individuals can go into business themselves.

You’ll have complete autonomy over your business. While this structure is simple, it’s still important to understand important tax and legal implications around your business. Let’s dive into what you might want to know about when setting up a sole proprietorship in Hong Kong!

What is a sole proprietorship?

If you’ve been researching how to start a business in Hong Kong, you’ve likely come across the term "sole proprietorship" multiple times. But what exactly does it mean in the Hong Kong context?

Simply put, a sole proprietorship is a business structure owned and operated by a single individual in the name of that person, regardless of the business's size. Setting up sole proprietorship in Hong Kong means your business is in an unincorporated business structure. This means you are solely responsible for all aspects of your business. While you can hire employees to help run the business, you alone are accountable for all risks and liabilities, including taxes, profits, losses, and debts.¹

This structure is the simplest and most flexible type of business to establish - and to switch. You can always choose to incorporate your business later, at which point it will transition to a different structure.²

Benefits of a sole proprietorship in Hong Kong

Deciding whether to operate as a sole proprietor can be a challenging decision. Let’s take a look at some of the key benefits of a sole proprietorship in Hong Kong:³

• Easy to set up: A sole proprietorship is the simplest business structure
• Minimal startup costs: You’ll only need to pay for the Business Registration Certificate 2,200 HKD (1-year renewal) or 5,720 HKD plus the levy fees of 300 HKD (3-year renewal).
• Full ownership: You retain complete control and decision-making power over your business.
• Lower tax rate: Sole proprietors will enjoy the marginal tax rate, which may be lower than the corporate rate.
• Ability to offset losses: Business losses can be offset against the proprietor's other income.

Thanks to these benefits of a sole proprietorship, this business structure is quite popular in Hong Kong. The registration process is so straightforward that even individuals can turn their hobbies into income-generating business. You may have already come across many sole proprietors like cleaners, freelance artists, designers. In fact, some of today’s larger companies may have started as sole proprietorships before switching up to other structures.

Sole Proprietorship vs Limited Company in Hong Kong

A sole proprietorship and a limited company in Hong Kong are both recognised business entities. At first glance, they might seem similar, especially since a limited company can also seem to be operated by just one owner. However, a sole proprietorship vs limited company differ greatly. The structure you choose will greatly impact how your business operates, your legal obligations, tax responsibilities, and your level of personal liability.

For starters, while sole proprietorship is run by one person with no distinction between the business and the owner, a limited company is a separate legal entity and can have one or more members. Let’s explore few other different things between the two structures:

What is the tax rate for a sole proprietorship in Hong Kong?

All businesses in Hong Kong, including sole proprietorships, are required to pay taxes. However, unlike corporate companies that file a Profits Tax Return, a sole proprietorship reports its business profit through the individual’s tax return (also known as the Individual Tax Return or Form BIR60).⁶ It is worth noting that Hong Kong has a territorial source principle of taxation, which means sole proprietors are only taxed on profits that are made within Hong Kong.⁷

The tax rate for a sole proprietorship in Hong Kong follows the two-tiered rates as below:

It’s still important to regularly check and update your tax rate on the Inland Revenue Department (IRD) website, as rates may vary depending on the annual budget. For example, in the 2024/25 year of assessment, you may be eligible for a 100% tax reduction under personal assessment, up to a maximum of 1,500 HKD per case.⁵

How to register sole proprietorship in Hong Kong

Don’t confuse obtaining a Business Registration Certificate with registering a company. Typically, company registration refers to registering under the Companies Ordinance, applicable to companies limited by shares or by guarantee. So this case does not apply to sole proprietorships.

Registering a sole proprietorship in Hong Kong simply means obtaining a Business Registration Certificate. It’s important to note that you must apply for business registration within one month of starting your business. You cannot register a business that has not yet commenced operations or has never operated.

The registration process can be completed online, by mail, or in person. Now, let’s walk through the steps for registering a sole proprietorship in Hong Kong:⁸

Step 1: Choose the type of company and create your business name

If you’ve decided to register your business as a sole proprietorship, there are a few important requirements to consider when choosing a business name.

You’re generally free to choose any name you like, as long as it meets the following criteria:

• Unique (not identical or too similar to existing registered names).
• Not infringe on any existing trademarks or intellectual property rights.
• Appropriate for public use, like not offensive or misleading.
• In Chinese only, English only or both Chinese and English.

To check if your name is not conflicting with other business names, you can search through the Cyber Search Centre's website.

Note: Your business name must not imply that it is incorporated or has any affiliation with the government or public authorities when such a connection does not exists

Step 2: Complete the Specimen of Application Form

If you choose to register a sole proprietorship physically and then send the application through post or in person, download a specimen of Form 1(a) from the IRD’s website. Complete it with all the required information.

If you prefer to register sole proprietorship online, you can do so via the "Application for Business Registration" service on theGovHK website. Follow the step-by-step instructions provided there. You will need your digital certificate, eTAX Password, MyGovHK Password or iAM Smart+ to authenticate the application.

Step 3: Submit Your Application and pay the fees

You can submit your sole proprietorship registration through one of the following methods:

• In person:

Visit the Business Registration Office at

2/F, Inland Revenue Centre,

5 Concorde Road, Kai Tak, Kowloon, Hong Kong

Make sure to bring your HKID along with your completed Form 1(a).

• By post:

Mail your completed Form 1(a) to:

P.O. Box 29015, Concorde Road Post Office, Kowloon, Hong Kong.
Include a crossed cheque in HKD to “The Government of HKSAR” to settle the registration fees.

• Online:

After you finish your application, sign and submit your application digitally. You can choose to make payment online by JCB, Visa, MasterCard, UnionPay, FPS or PPS.⁹

Managing your finances properly is essential as a sole proprietor. One of the best practices is to keep your personal and business finances separate.

Opening a dedicated business account can help smooth out various aspects of your operations, such as tax reporting, issuing invoices, and handling both local and international transfers.

While traditional banks in Hong Kong do offer business banking services, their fees and minimum balance requirements can be quite high. On the other hand, virtual banks may offer more flexibility and lower fees, but some may not support the currencies you need to transfer, or some do not offer business accounts at all.

Wise Business can offer all the answers to your concerns. Here are the great features that come with a Wise Business account:

• Free self-service account setup: Open your account online in minutes with no monthly fees and start enjoying hassle-free payment services right away.
• Manage global funds with ease: Get paid in 23+ currencies in one account, including local account numbers for 8+ major currencies, so you can receive local transfers for free.
• No hidden exchange rate markups: All fees are transparent, with real-time market exchange rates, and fees as low as 0.26%. Save more on every transaction.
• Instant cross-border payments: Send money to 140+ countries. Quick processing — over 60% of remittances arrive within 20 seconds. Track your payments in real-time.
• Easily handle bulk payments: Upload a CSV file and the system will process up to 1,000 payments at once. You can also integrate Wise’s API for fully automated payment workflows.
• Professional invoicing tool: Create and send invoices, add your account details or payment links, making payments simpler and quicker.
• Boost team collaboration: Add team members to your account, work together on payments, download statements, and track transactions more efficiently.

It’s quick and easy to open a Wise Business account, with a fully digital application, verification and on-boarding process. Sign up today to experience an efficient cross-border payment platform that helps streamline your business operations and improve your company’s competitiveness.

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1. SMELink - Company Types
2. Companies Registry - Business Registration & Miscellaneous
3. CLIC - What are the advantages and disadvantages of each type of business?
4. Inland Revenue Department - Two-tiered Profits Tax Rates Regime
5. GovHK - Tax Rates of Profits Tax
6. GovHK - Types of Tax Returns
7. Inland Revenue Department - A Simple Guide on The Territorial Source Principle of Taxation
8. Inland Revenue Department - "Business" Required to be Registered and Application for Business Registration
9. GovHK - Application for Business or Branch Registration