US LLC or Hong Kong Company? Which Is Right for Your Online Business
We regularly speak with e-commerce and online service business owners who are deciding between a US LLC and a Hong Kong company. The question comes up for a few different reasons. Usually, people start with a US LLC and later look at Hong Kong as the business grows. Here's why.
Why most people start with a US LLC
A US LLC is the simplest, quickest, easiest and cheapest company structure to set up. That makes it the natural choice for someone just starting out.
In most cases, a single-member LLC owned by a non-US person is a disregarded entity. As long as it has no US trade or business, the US doesn't tax it. Instead, the profits are taxed where the owner (the UBO) is tax resident. It works almost like a limited liability freelancer company sitting on top of you as an individual.
That's why so many people who live in different countries, or travel full-time, run their e-commerce business through a US LLC.
If you're actually selling into the US, a US company is also the obvious tool. It gives you a local presence and access to local US payment processing.
Why people switch to Hong Kong
1. You add more people to the business
A disregarded LLC works because it has one owner. As soon as you add more members, it's taxed differently: by default as a partnership, or as a corporation if it elects to be one. For foreign owners, that brings partnership tax returns, K-1s for each member and, in some cases, US withholding.
Hong Kong is a more traditional company structure. You can have multiple shareholders and multiple directors, and the company doesn't change character as you scale and bring in partners or investors.
2. Payment processing
US LLCs often have trouble with payment processing unless there's a local US director. You can get Stripe, and a few others, but long term it can be challenging, because many US payment processors want a local US signatory to sign off.
Hong Kong is different. In our experience, you can get payment processing much more easily without needing a local director in Hong Kong. That's a big reason why so many e-commerce companies choose Hong Kong.
3. Accounting: light vs audited
A single-member LLC owned by a non-US person has very light accounting requirements. There are no audited statements, and you file one or two forms a year. Overall, it's a very relaxed company when it comes to accounting.
A Hong Kong company has to have audited accounts. You'll need a full audited set of accounts prepared by a CPA in Hong Kong, usually around 18 months after the company is incorporated, and then every year. It isn't very expensive, but it does add a little to the cost.
4. Proving your source of wealth
The audit is also a good thing. With an LLC, source of wealth can be a bit of a gray area, because you don't have any audited statements.
If you're a very international business owner, or a small business without a lot of tax returns you can share, a Hong Kong company is a great way to show your source of wealth. You have audited statements showing the dividends you've paid yourself, and you can have an employment contract with the company. That makes it much easier to prove your source of wealth in the future.
5. Global structuring
Hong Kong doesn't charge withholding tax on dividends. So if you have a Hong Kong company with a Cayman or BVI holding company on top of it, dividends can flow up to the holding company without being taxed or withheld on the way.
The US works differently. To use an LLC in a global structure, it generally needs to be taxed as a corporation rather than a disregarded entity. Otherwise it's just a pass-through, and the foreign holding company is effectively doing business in the US directly. Once the LLC is a corporation, the US is well known for withholding around 30% on dividends paid to a foreign parent, unless a double tax treaty reduces it.
That's why Hong Kong, much like the UK, is one of the best jurisdictions for group companies and global structures.
At a glance
| US LLC | Hong Kong company | |
|---|---|---|
| Best for | Solo founders starting out, and businesses selling into the US | Growing businesses with partners, investors or international customers |
| Owners | Simplest with one member; taxed as a partnership with two or more | Multiple shareholders and directors |
| Tax treatment | Single-member: usually disregarded, taxed where the owner lives | Taxed as a company in Hong Kong |
| Payment processing | Stripe and a few others; many US processors want a US signatory | Easier, without a local director |
| Accounting | Light; no audit, one or two forms a year | Annual audit by a Hong Kong CPA |
| Source of wealth | Harder to evidence | Audited accounts and dividend records |
| Group structures | Must be taxed as a corporation; dividends to a foreign parent face 30% withholding unless a treaty applies | No withholding tax on dividends |
So which one is right for you?
- A US LLC suits you if you're starting out on your own, want to keep things simple and cheap, or are selling mainly into the US.
- A Hong Kong company suits you if you're adding partners, need reliable payment processing, want to document your source of wealth, or are building a global structure.
Not sure which structure fits your business?
Follow the steps to apply to become a client, and our team will review your situation and recommend the right structure.
- Complete the short client application.
- Our team reviews your business and goals.
- We come back to you with a recommendation.
This article is general information, not legal or tax advice. Tax treatment depends on your personal circumstances and where you are resident; your home country may tax company profits under its own rules, and offshore holding companies have their own substance requirements. Payment providers set their own requirements and approval is never guaranteed.
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