Did you know that Milton Friedman, a renowned economist and free trade advocate considered Hong Kong as his favorite economy?
Friedman’s fascination with Hong Kong and the theory of free trade started in the 1960s. He theorized that free enterprise and the free market have a positive impact on economic growth.
A recent survey validates Friedman’s theory, as Hong Kong currently ranks number one as the world’s freest economy. This Asian financial hub beat 165 countries and territories in the “Freedom to Trade Internationally” and “Regulation” categories, according to the Fraser Institute annual report in 2021.
With its promising economic image, many foreign investors are looking to set up a business in Hong Kong. Some are looking to establish a liaison office, a branch, or a private limited company.
Read on to learn why a forward-looking foreign entrepreneur is interested in investing in the world’s freest economy.
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Why choose to incorporate in Hong Kong
Easy to set up a Hong Kong company
One of the factors that attract investors in one of Asia’s major financial hubs is the ease of Hong Kong company formation.
In contrast to the restrictive rules of many countries in Asia, the Companies Ordinance of Hong Kong has less stringent requirements and procedures for foreign investors.
Here are the easy steps to step up a Hong Kong company:
Decide the company type and name
If you are looking to register a business entity in Hong Kong, the first step is to choose the company type. You can establish a limited company, a branch office of a parent company, or a representative office.
Many foreign entrepreneurs and companies conducting business in Hong Kong prefer a private limited company structure.
With a limited company incorporated in Hong Kong, you can take advantage of easy company registration and profits tax benefits available to incorporated Hong Kong companies.
Remember, however, that when selecting a company name, you should not have one similar to a company name listed in the Companies Registry index of companies.
A detailed discussion on how to pick a company name in Hong Kong is presented in this article.
Incorporate the company
After choosing a company name and your preferred business structure, you can go through the company registration fairly quickly.
However, note that if you are incorporating a private limited company, you will need at least one director and one company secretary. Moreover, you will need to prepare the incorporation documents for a new company in Hong Kong.
Here are the incorporation documents you will need:
- article of association
- incorporation form
- certificate of incorporation
- business registration certificate
Strategic location in Asia
Hong Kong’s central location in Asia makes it close to many of the region’s fast-growing markets, making it an excellent commercial center.
With its strategic location, only a few cities around the globe can match Hong Kong’s strategic location.
And if you ask people to identify one thing special about Hong Kong, an answer that most likely comes up is the Hong Kong International Airport.
Named as one of the world’s best airports, Hong Kong International Airport serves as a pivot point for many international airlines, making it one of the busiest airports across the globe. It boasts of flights that cater to more than 220 major places in the world, including approximately 50 Mainland destinations.
The Hong Kong International Airport helps in making the city a golden center for business, where half of the world is reachable in a 5-hour flight.
A forward-looking investor knows that setting up a Hong Kong business will allow them to gain better access to many of Asia’s growing markets.
Hong Kong’s international connections offer vast economic benefits even for a non-Hong Kong company.
For foreigners and Hong Kong residents, the city is considered one of the best places to conduct business operations in Asia.
Ease of filing taxes
In 2020, the World Bank ranked Hong Kong as having the most business-friendly tax system in the world.
The favorable tax system makes it an attractive place for investors to do business in Hong Kong.
It became a major financial hub because of its simple tax structure and laws that limit the tax liabilities of foreign residents and companies.
Hong Kong has a simple tax system that a taxpayer takes only about 35 hours and three payments to complete the tax obligations on average.
Low taxes
Residents and non-residents in Hong Kong enjoy very low taxes as well as a simple tax system.
The profits tax is computed at 8.25% on the 1st HK$2M and 16.5% onward
for both local and foreign companies, without any VAT and other sales taxes. And you are likely to pay less after adjustments for certain deductions such as the following:
- expenses incurred in the process of generating the assessable profit
- tax depreciation allowance
- capital expenditure associated with research and development, the amount paid in the purchase of intellectual property rights
Tax incentives by the Inland Revenue Department
Taxes can reduce the amount of your investment, which means excessive taxes can affect your earning potential.
The Inland Revenue Department provided incentives for incorporated businesses in Hong Kong. For example, the IRD offers tax concessions to profits arising from qualifying debt instruments.
You can read about the tax incentives available to a Hong Kong business here.
Another reason that attracts investors to set up their business in Hong Kong is that there are no sales and withholding taxes.
Further, you are not obliged to pay capital gains tax for the sale of your assets, except for speculative transactions where the trading gains are taxable as profit tax.
Regardless of the business structures, or whether you are a resident or a non-Hong Kong resident, you are obliged to pay only the tax on the profit earned within the jurisdiction of Hong Kong.
World’s freest economy
Hong Kong earned its status as the freest economy as a result of its policy mix that promotes positive non-interventionism.
A free-trade policy
The Hong Kong Government has long adopted a market-driven free trade policy that requires minimal government interference.
The welcoming business policies and receptive community in Hong Kong pose lesser business risks to foreign investors.
A free port for imported goods
Except for hard alcohol, tobacco, methyl alcohol, and hydrocarbon oil, Hong Kong does not impose customs tariffs.
It is a free port, which means it does not have customs duties for imported goods.
Moreover, as a free-market economy, Hong Kong imposes low taxes and does not collect sales tax, withholding tax, or tax from dividends and interest from savings.
Less restrictive immigration policies
With its less restrictive immigration policies, investors find it easy to establish their business in Hong Kong.
In addition, HK’s immigration policies are attractive to talented individuals and professionals who can help enrich the city’s workforce.
Hong Kong government supports a visa-free entry policy for overseas investors
The immigration process is likely one of your concerns as an investor looking to start a business in Hong Kong.
Cheer up!
As part of its policy to welcome investors in the city, Hong Kong allows a visa-free visit of 7 to 10 days to nationals of more than 170 states.
The HK government has made visa provisions that business owners can use to move their employees to Hong Kong. Here are the visas you can get for your employees:
- Employment Visa
- Quality Migrant Admission Scheme Visa
- Investment visa
- Permanent Resident visa
You may inquire and apply for the entry permit or visa from any Chinese diplomatic and consular mission office near you.
A welcoming business community
Investors have all the reasons to do business in Hong Kong, with the city’s favorable business environment, an independent judiciary, and the most welcoming tax and free trade policies.
Offers easier access to Mainland China
Doing business in Hong Kong brings a wide range of opportunities, such as a possible business expansion to the Greater China market.
Hong Kong is an ideal base for businesses looking to enter the Chinese market given their proximity and similarities of language, culture, and social norms.
Investors enjoy full ownership of your Hong Kong company
The absence of residency requirements in setting up a business in Hong Kong allows foreign investors to enjoy full ownership of their business.
World-class infrastructure
Hong Kong prides itself on its world-class infrastructure.
And blackouts are not part of the common Hong Kong experiences as the city currently enjoys a state-of-the-art and sufficient supply of electricity.
It has a fully digitized telecommunications system, where you can connect even in the underground tunnels.
Intellectual property protection
Hong Kong adopted stringent laws that protect intellectual property rights. Under the Intellectual Property Department, you are assured of the protection of your trademarks, copyrights, and patents.
Enjoy an international lifestyle in Hong Kong
How about an invigorating and cosmopolitan lifestyle in the heart of Asia.
Hong Kong is a city of mixed eastern and western culture where you can immerse yourself in its museums, art centres, and cultural events.
FAQs
What is the purpose of a tax treaty network?
In order to foster international cooperation, Hong Kong entered into tax treaties with other jurisdictions.
Other than fostering global cooperation, tax treaties prevent double taxation that is often detrimental to international businesses.
Generally, Hong Kong enters into tax treaties to:
- prevent double taxation as a result of overlapping tax systems
- support tax rules and their application to international transactions
- fend off tax evasions strategies
- facilitate international trade and investments
What are the requirements to register a company in Hong Kong?
- a local mailing address in Hong Kong (Can be offered by service provider)
- one company secretary
- a minimum of one shareholder
- one human director
- your designated representative
What are the steps to incorporate a company in Hong Kong?
Step 1: Choose a business name for your proposed company and secure a certificate of incorporation at the Companies Registry.
Step 2: Submit the following documents at the Companies Registry.
- the incorporation form or NNC1
- a copy of your articles of incorporation
- the Notice of Business Registration Office or IRBR1
Step 3: Pay the required fees
What are the documents required when incorporating a non-HK company?
A non-Hong Kong company is incorporated in another jurisdiction but with an established business operation in Hong Kong.
These foreign companies are required to apply for registration within a month of being a place of business in HK.
You can submit the following documents either in hardcopy or online:
- Form NN1
- Certified copy of the instrument that defines the company’s structure
- Certified copy of the entity’s latest published accounts
- Form IRBR2
You can learn more about how to set up and register a company in Hong Kong in this article.
Wrap-Up
If you are looking to expand your business in one of the most unrivaled business locations, contact us!
As your trusted partner, ReachTop KSHK CPA will find ways to help in your business growth.