Published: 19 Jun 2019
Updated: 08 Feb 2024
Category: Hong Kong , Business & Market Insights

A Step-by-Step Guide to Doing Business in Hong Kong

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Hong Kong remains its regional appeal as a global financial centre and a preferred locality for business operations among international diplomats and business executives alike. Earlier in September, the Finance Secretary Paul Chan continued the momentum in promoting the appeal of the city with a tour across several European cities. In October last year, Hong Kong’s landmark M+ art museum also joined in and hosted an event with a clear mission to boost the city’s appeal, with hundreds of foreign diplomats and business chambers present. In December, Hong Kong’s Monetary Authority held another major banking conference that would strengthen and showcase Hong Kong’s vibrancy and further reinforce the business appeal of the city.

 

7 Reasons Why It's Great Doing Business in Hong Kong
 

1. Strategic Position in Asia

Hong Kong is the perfect location if you want to grow a business in Asia. Major cities in North East Asia are reachable in less than 5h flights, and Hong Kong International Airport is one of the most efficient worldwide, with over 100 airlines offering more than 180 destinations and over 1,000 flights a day. Besides, there is no or little time difference (up to 1-2h) between Hong Kong and major APAC hubs such as Singapore, Beijing, Shanghai, Taipei, Seoul, Tokyo, Bangalore, and Perth, which facilitates real time communications.
 

2. Gateway to China

Hong Kong’s proximity to Mainland China, both geographically and culturally, makes it the ideal springboard to invest therein. In fact, there is nowhere better than Hong Kong to gather the expertise, information and facilities needed to penetrate China market. Cross-border exchanges are easy and the regulatory framework encourages them. This includes the Arrangement for the Avoidance of Double Taxation concluded between Hong Kong and China, which clearly allocates the right to tax between the two jurisdictions, and the Closer Economic Partnership Arrangement (CEPA), which further entices Hong Kong businesses to access China market. In the future, Hong Kong shall also strengthen its strategic position in the region, while supporting the Greater Bay Area and Belt and Road Initiatives.
 

3. Friendly Tax Environment

Hong Kong relies on a territorial tax system, under which Hong Kong residents (both corporate and individuals) are only taxed on their Hong Kong income, while foreign-source income is not subject to Hong Kong tax.

Hong Kong companies are thus liable to profits tax on their Hong Kong income at the standard rates of 8.25% for the first 2 million HKD of profits and 16.5% beyond. Foreign-source income is in principle not subject to Hong Kong profits tax and companies deriving most of their profits from offshore activities may apply for an offshore income exemption, though such preferential tax treatment is not automatic and requires a prior tax investigation from the tax authorities.

Hong Kong individuals are subject to salaries tax on any income arising in or derived from an office, employment or pension in Hong Kong. Salaries tax is levied at progressive rates on the net chargeable income and is capped at 17%. Besides, the total salaries tax charged to an individual residing in Hong Kong shall not exceed 15% of that person’s net assessable income.

Hong Kong levy no tax on capital gains, dividends and/or interest, and withholding taxes only apply to certain types of royalties (paid to non-residents for the use of intangible assets located in Hong Kong). There is no Value Added Tax in Hong Kong (contrary to Mainland China), while Stamp and Custom Duties remain marginal.

These tax rates are much lower than what other Asian cities can offer.
 

4. Ease of Accounting and Tax Compliance Rules

Hong Kong accounting, tax and regulatory compliance are in line with international standards while remaining quite simple.

Companies established in Hong Kong are required to keep and file financial statements in accordance with local accounting standards. With a view to attract foreign investors, Hong Kong Accounting Standards (HKAS) and Financial Reporting Standards (HKFRS) are largely aligned with internationally accepted principles (i.e. IFRS), which is not the case in Mainland China where specific accounting standards have to be adopted. Besides, simplified standards are available in Hong Kong for Small and Medium Enterprises (SME).

Reporting obligations are quite straightforward. Hong Kong companies shall simply complete the 3 following yearly declarations:

(i) Annual Return: Within 42 days from the anniversary of their incorporation, companies shall submit an Annual Return to the Companies Registry, recording key information and changes occurred during the former year.

(ii) Employer’s Return: Every year in April, Hong Kong companies shall report the salaries paid to their staff (as well as to freelancers) and subject to Hong Kong taxation.

(iii) Profits Tax Return: At the end of their financial year, Hong Kong companies are required to complete and submit a Profits Tax Return to the Inland Revenue Department, together with a certified copy of their audit report. Hence, audit is mandatory in Hong Kong, though a tolerance can sometimes be awarded in practice by the tax authorities for very small businesses (this is not automatic and depends on particulars of the case).
 

5. Established Rule of Law

Hong Kong legal system is based on the Rule of Law and the independence of judiciary. Everyone in Hong Kong is equal before the law. Everyone has access to justice. Under the “One Country, Two Systems” principle, the laws previously in force before Hong Kong handover in 1997 (i.e. the Common Law, rules of equity, ordinances, subordinate legislation and customary law) have been maintained, in accordance with the Basic Law which has now become its constitutional roots. The legal system of Hong Kong is hence separate from the Mainland’s. Its stability and maturity remains a key factor for the international community and foreign investors.
 

6. Pool of Talents

Hong Kong is home to a diversity of talents, having the skills, knowledge, languages, multi-cultural background and international outlook to drive business in Asia. Selective immigration policies also enable overseas talents and investors to obtain Employment Visa and/or Investment Visa, to come, stay and work in Hong Kong. The lifestyle, international standards, and quality of Hong Kong’s education system, as well as the diversity of its universities programs draw the attention of more and more international profiles. In an effort to further attract international talents, Hong Kong recently issued a Talent List which pinpoints 11 professions that Hong Kong needs most, including asset management, marine insurance, FinTech, data science, cyber security, innovation and technology.
 

7. Supporting Innovation and Tech

While Shenzhen might be taking the lead regionally in terms of hardware production, Hong Kong is attracting more and more innovative and technology driven businesses, including FinTech projects. In fact, 4 Hong Kong Unicorns are FinTech related (i.e. WeLab, TNG, BitMex, and AirWallex). A growing number of initiatives are adopted to boost that trend, such as the multiplication of incubator programs, incentive schemes, funds, and R&D tax incentives.

These all make Hong Kong an attractive business centre in Asia, and an ideal “laboratory” to test and validate your potential of growth in the APAC region.

 

Key Considerations for Doing Business in Hong Kong

The establishment of businesses in Hong Kong has more appeals than a mere gateway to China and the rest of Asia. A number of approaches can help navigate the complexity. As a starter, determining the most suitable business structure for a venture is a crucial step forward, this includes sole proprietorship, partnership, limited liability company, and more. Next, the registration of a business with the Hong Kong Companies Registry and the reviewing of relevant laws and legislations for compliance to obtain the relevant permits and license will further put a business on the map. It is also essential to register for a business bank account to facilitate financial transactions both domestically and internationally. The next step entails an adherence to visa requirements during the talent recruitment process and the search for a flexible office workspace as an increasingly popular solution for those seeking flexible terms and conditions.

 

A Step-by-Step Guide to Doing Business in Hong Kong

Choose a Business Name

As a starter, choose a business name. This name should strike a balance between being strategic and technical in a way that is distinguishable from the competitors. The guidelines to be considered include defining the brand behind the business and the product(s) or service(s) that the business provides. It is also worthwhile to ensure that the name is a meaningful one. To put this into context, Tesla is a name that conjugates imageries of electrics and technology. Furthermore, the name should not be bounded in the sense that does not allow for innovative changes at any given time in the future. For instance, Pizza hut might not be able to justify a menu that largely deviates from pizza, while Kodak is an example of a household brand that encapsulates products from films to advance chemical materials. Furthermore, the name should exhibit distinctiveness that sets it apart from the rest of the competitors.

Business Registration

The determining of a proprietary name for a business is essential to the business registration process with the Hong Kong Companies Registry. The Island revenue Centre defines a business as the following:
•    “any form of trade, commerce, craftsmanship, profession, calling or other activity carried on for the purpose of gain (whether through a brick-and-mortar presence or the internet)”;
•    “any club which provides facilities, services and exclusive club premises to its members for social intercourse or recreation”;
•    “every company incorporated in Hong Kong under the Companies Ordinance or non-Hong Kong company that has established a place of business in Hong Kong, regardless of whether it is actually carrying on any business in Hong Kong”;
•    “every non-Hong Kong company that has a representative or liaison office in Hong Kong, or has let out its property situated in Hong Kong, regardless of whether it has established a place of business in Hong Kong; and”
•    “every limited partnership fund registered under the Limited Partnership Fund Ordinance, regardless of whether it is actually carrying on any business in Hong Kong”.

Upon section of an appropriate name for registration with the Inland Revenue Department. A business may choose to register the business name in either English, Chinese or both in Hong Kong. Chinese business names may include English alphabets but must not contain any English words.

Taxation: Register for taxes, including profits tax and employer's return

The review of relevant laws and schemes applicable to the nature of a trade and full compliance is a necessity. According to a report from KPMG, there are a number of developments that could affect the process of profits tax filing, including:
•    “Changes to the profits tax returns”
•    “Any new return filing requirements”
•     “Any new profits tax legislation”
•     “Any new profits tax cases”
Hence, a business should consider any changes to existing policies or the introduction of a any new legislation in order to evaluate its profits tax filing positions and to consult its tax adviser, where necessary.

Obtain Licenses

The reviewing of relevant laws and legislations for compliance to obtain the relevant permits and license will further put a business on the map. It is essential to be families with the types of licenses or permits required for the operation of a business and to consult the relevant governmental agency or bureau for the correct and up to date information. While Hong Kong has substantially well operational environment, there are structure in place that monitors each trade to provide consumers rights. Some examples of trade specified licenses for businesses in Hong Kong include the Hong Kong Financial Service License, Hong Kong Employment Agency License, Hong Koong Travel Agency License or Hong Kong Trademark Registration, just to name a few. Hence, it is crucial to check with the relevant governmental authority if the trade that a business operates in requires any license or permits. If so, the necessary steps and requirements in attaining them.

Open a Bank Account

It is also essential to register for a business bank account to facilitate financial transactions both domestically and internationally.

Visa Requirements

The Hong Kong Immigration Service is the governmental Institution that effectively control and enforcing the immigration laws in order to uphold Hong Kong’s strength as an international financial and trade centre. As a business require the right talent to thrive, the employer is advise to study the guidance notes issued by The Hong Kong Immigration service issues that aids in understanding of the application process of visa as well as the handling of nationality matters. 

Physical Office

The next step entails the search for a flexible office workspace as an increasingly popular solution for those seeking flexible terms and conditions.

Hiring

Be familiarise with the Employment Ordinance, as well as visa requirements to ensure a seamless talent recruitment process.


Read More

Navigating the Legal and Regulatory Landscape in Hong Kong

The unique legal and regulatory frameworks across different jurisdictions within the region can be difficult to navigate but not impossible to manage. For instance, Intellectual property rights are protected in Hong Kong under various ordinances, including the Copyright Ordinance, Prevention of Copyright Privacy Ordinance, Trademarks Ordinance and the Trade Descriptions Ordinance just to name a few. A creditable business should also comply with the stipulations enlisted in the Employment ordinance as the main legislation that makes up the labor laws in Hong Kong. The Personal Data (Privacy) Ordinance is also of crucial importance as it outlines the manner in which personal data should be collected and used, complemented by other provisions imposing further compliance requirements.

 

Managing Finances for Your Business in Hong Kong

The financial cycle of a business often requires advance tax planning in optimising tax strategy to understand tax liability. There are practical guidelines to accounting and reporting that could be adopted to maintain accurate financial records with regard to reporting requirements and related compliance issues. Commercially speaking, a business should also be mindful of fluctuating currency exchange rates, especially for international transactions, as this may have a profound impact on the profitability of a business.

 

Understanding the Business Culture in Hong Kong

While an understanding of the technical criteria such as the legal framework of a jurisdiction is essential to a business operation, an immersive approach to assimilating into the local business culture cannot be overlooked in the long-term success of a business. Business mannerisms include punctuality and a quest to be on time for business meetings and professional appointments, dress code and business attire is another aspect that often differs depending on local customary practices.

 

Building Successful Networks and Partnerships in Hong Kong

There is a number of approaches that aid in the development of successful networks and partnerships in Hong Kong. One such approach is to actively join in various industry-specific chambers of commerce to connect with peers. In conjunction, it is also effective to participate in business associations or industry trade organisations in efforts to expand one’s industry knowledge and personal networks. Finally, social events and gatherings are less structured in nature but just as helpful in broadening one’s reach to potential partners, collaborators and clients.

 

Hong Kong’s regional appeal as a global financial centre has largely been anchored with efforts from both the governmental and commercial sectors recently. This report covers both the technical and operational strategies that predicates on notions of the strategic positioning of Hong Kong for international trade, the city’s rule of law, tax environment, accounting and tax policies, talent recruitment, innovation, and technology, as well as other key considerations that will help a business succeed within the larger context market vulnerability and the global economy.

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