If you’re an investor or entrepreneur, is incorporating a company in Hong Kong the best place for you to set up a business? Let’s find out.
Not only is Hong Kong considered a global financial center, but according to the Statista Global Business Cities Index, as of January 2022, Hong Kong is ranked as the top business city in the world.
Hong Kong was chosen as the top city based on these four factors: economy, operational & business environment, society & standard of living, and unlimited charisma.
While the grass is always greener on the other side in most spots in this scenario, there are a few brown patches, so while Hong Kong is considered to be the best city in the world to establish and run a business, there are a few things to keep in mind.
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Why Incorporate a Company in Hong Kong?
There are many reasons why Hong Kong ranks at the top of the business city list.
It’s Easy to Establish a Company in Hong Kong
Hong Kong Company registration is convenient, quick, fees cost-effective, and a straightforward process. In fact, the whole process to incorporate a company in Hong Kong only takes about a week.
Once you have the business registration certificate and certificate of incorporation from the Companies Registry, then your company should be up and running. Even the government fee for a registered business and business license is reasonable.
There are very few requirements for company formation in guide Hong Kong.
All it takes for a non-resident foreigner to establish a business is just one director and at least one shareholder, a minimum $1 Hong Kong’s dollar of share capital, a company name, a local office address, a description of business activities, and a company secretary based in Hong Kong who will maintain the company records.
You don’t have to be physically present in Hong Kong either to complete the company registration process. Your best bet is to have a firm represent you in Hong Kong Company Formation.
The firm will provide digital company formation services including electronic signature capabilities and a registered office address which must be a physical address.
Existing businesses are also welcome in Hong Kong and can begin operations right away without the hassle of the setup or bank account process.
It’s Easy to Operate a Company In or From Hong Kong
Not only is setting up a company in Hong Kong business easy but doing business there is a simple process as well. Exchange controls are often a barrier to trade among international countries.
The fact that companies in Hong Kong are not affected by exchange controls, makes it easier and more profitable to do business there since businesses can exchange currencies easily. Trade can also flow freely across the country’s borders.
You can just about run any type of legal business in Hong Kong. With that comes a lot of freedom and perks.
Hong Kong Company Incorporation – Gateway to International Market
Hong Kong is like a melting pot that is home to many different nationalities. This unique city consists of a multi-national population because it attracts a lot of foreigners mostly due to its liberal business policies, permits and low taxes.
It’s home to a large number of international banks and financial firms with corporate bank accounts available in multiple currencies.
It’s also home to many international trading companies, insurance companies, and asset management firms, all making it a global financial center.
Hong Kong is also known as an international transportation hub with its international airport, advanced railways, and efficient road links.
Since it’s a major import and export hub of Asia, it attracts the world’s leading freight and shipping companies. All of this makes it the leading product distribution center for all of Asia.
Strategic Location With China
Due to its location, Hong Kong also has an ‘in’ with the world’s second-largest economy and one of the world’s leading markets.
Since Hong Kong is a Special Administrative Region of mainland China, many businesses perceive that a Hong Kong company is an ideal way to serve the Chinese market, which is a great way to expand a customer base to other parts of the world.
China and the Hong Kong government also have a free trade agreement known as the Closer Economic Partnership Arrangement where China has eliminated tariffs on products originating in Hong Kong.
Not only that, but since Hong Kong is a founding member of the World Trade Organization, they strongly support free trade and no tariffs on imports or exports. This leads to the next education discussion on corporate income tax advantages.
There Are Significant Tax Advantages for Incorporation Businesses
There are many tax incentives for those looking into a incorporate Hong Kong company such as no taxes, minimal taxes, and tax breaks. This can save companies a lot of money and boost their global profits.
First off, if a Hong Kong company’s doesn’t have any operations physically taking place there, then the company is tax-exempt and you don’t have to pay taxes.
This is a significant tax advantage for entrepreneurs as well as established businesses.
Setting up offshore Hong Kong companies has become an attractive venture for business professionals.
This is due to the fact that there isn’t any capital gains tax, import, export, VAT, sales tax, or withholding tax. You can apply for an offshore company status with the Inland Revenue Department after you file your first annual profits tax return.
The tax rate is a significant advantage to businesses. The corporate tax rate or profits tax rate for companies in Hong Kong is one of the lowest in Asia. Currently, for 2022, the rate is 8.25% to 16.5%.
Hong Kong also has signed 40 international double-tax treaties which is a bilateral agreement between two countries with the goal of eliminating taxation of the same income in both countries, otherwise known as double taxation.
Liberal Immigration Policies for Prospective Company Owners
Hong Kong has some very liberal policies for those who live outside of the region but want to set up business there.
In fact, they go out of their way to accommodate foreigners who want to do business registration in their city. Visa-free visits are available to around 170 countries for up to 180 days.
There are several visas that cater just to the business sector. Investment visas allow foreign professionals to set up a business in Hong Kong.
The Quality Migrant Admission Scheme Visa is for people who want to conduct business or create employment opportunities in Hong Kong.
The Employment Visa is for hiring foreign employees in Hong Kong. Even with just an entry permit or visitor visa, you can still sign business contracts or conduct business negotiations.
Hong Kong Nurtures an Efficient Workforce
Hong Kong is home to some of the biggest brands in the world. Because of this exposure, the city caters to a multinational and professional workforce. The workforce is known to be highly skilled and multilingual.
Most local students speak Cantonese, English, and Mandarin. If you need to do business with the Chinese, then it is imperative that you have access to employees who can speak Mandarin and Cantonese.
Government Caters to a Hong Kong Business Friendly Environment
To start out with, Hong Kong’s government is stable, pro-business, and promotes free market principles. That in itself draws a lot of businesses to the area.
They also have something called the Independent Commission Against Corruption which is a watchdog for corruption in both the public and the private sector.
Because of this, Hong Kong is known to have one of the most corruption-free economies out of all of them. They also boast one of the lowest crime rates in the world.
A Growing Economy
Hong Kong has one economy that has been growing by leaps and bounds and it has been for some time. Hong Kong has the second most competitive economy in Asia and the seventh around the globe.
Their economy offers businesses a lot of freedom with their free enterprise, free trade, and free markets. There are a lot of opportunities for businesses to grow and profit.
Cons to the Hong Kong Company Formation Process
While the advantages far outweigh the disadvantages, there are some hassles and obstacles you’ll have to overcome when incorporating a new Hong Kong limited company.
Opening a Corporate Bank Account is Not As Easy As It Should Be For Hong Kong Companies
Although it’s easy to set up a business in Hong Kong, opening a corporate account with traditional banks can be a bit of a challenge.
Applying for a business bank account is time-consuming and costly, especially when there is no guarantee of being approved. In fact, approvals are getting harder and harder to come by. Banks are having to be very selective due to the high demand for business accounts.
The due diligence process itself is an excruciatingly slow one. There’s a lack of transparency during the process and back-end procedures are often ineffective.
All of the directors, bank account signatories, and corporate shareholders from the company must travel to Hong Kong and be physically present as part of the account opening interview which can be costly and inconvenient.
There’s also a lot of necessary paperwork involved, including all the necessary company’s documents it takes to prove the legitimacy of a Hong Kong open company.
The good news is that there are a lot of banks to choose from that provide the services to meet the needs of small and medium-sized businesses. There are even some Fintech solutions as an alternative.
You can also hire an agency to help you obtain all of the required documents and guide you through the process which will make things much easier.
Cash Flow Is An Issue for Small to Medium-Sized Businesses
Cash flow is one of the biggest issues for a local company in industry Hong Kong. It’s especially a challenge when it comes to receiving an online digital payment from a customer.
On average, it takes about a month or around 30 days to receive payment from a customer. This interruption of cash flow within a business can take a serious toll on a business.
This problem is not exclusive to Hong K. All markets have admitted to having this payroll issue as well.
High Cost of Living Makes Business Expenses High
Hong K is the most expensive city to live in. Not only are apartment rentals sky high but if you’re looking to rent an office space, then be prepared for sticker shock.
All other applicable business expenses are going to be just as high as well.
The good news is that qualified business expenses, such as rent, are deductible on the profits tax return.
There Are Some Cumbersome Company Regulations
While Hong Kong does offer liberal immigration policies, once a new company in Hong Kong is formed, qualifying for a working visa can be a cumbersome and complicated process.
International employees have to submit extensive work experience and educational credentials due to high skill thresholds. While this may seem like a highly selective process, it keeps the workforce in Hong Kong highly motivated and skilled.
Audited Financial Statements
There’s another regulation that must be met as well. Companies must also submit audited financial statements on an annual basis.
These financial statements must be submitted to the Inland Revenue Department. While they may take a little extra time to pull together, these financial statements are good to have on file when tax time rolls around.
New Laws
Also, a new law was passed in 2018 by the Hong Kong Companies Ordinance requiring that any company incorporated, except for those listed in the Hong Kong Stock Exchange, maintain a current register of significant controllers.
FAQ
What needs to be filed with the Inland Revenue Department?
The tax return and audited financial statements must be filed with this department. These returns are filed with the Companies Registry along with the annual registration fee. Any change in business address would also be filed with them.
What are the most common business entities registered in Hong Kong?
The most common business entity is the private limited company. Limited liability companies are separate legal entities that protect individuals from business risks. However, foreign investors have quite a few of business structures they can choose from.
What documents are evidence that your business has been incorporated?
The Companies Registry will issue the certificate of incorporation documents and the business registration certificate.
Is company formation a difficult process for a HK company?
Company formation is a simple and fast process in just 1-2 working days.
Is there a minimum share capital requirement for incorporated companies?
While there isn’t a minimum share capital requirement, most companies incorporated have at least one shareholder with one ordinary share.
How is Hong Kong ranked based on its economy?
It is ranked among the top countries in the world for economic development.
Can foreigners be both a director and a shareholder of a business in Hong Kong?
Yes, foreigners can be a sole director and a sole shareholder of a company in Hong Kong.
Does a business registration certificate need to be renewed?
Yes, it should be renewed annually or every three years to qualify as a valid business registration certificate.
Are there professional services that offer company registration services?
Yes, there are firms that offer company registration services.