Business in Hong Kong

 

More and more entrepreneurs & investors are choosing to set up their businesses overseas – especially in jurisdictions like Hong Kong.

Reasons behind that are to primarily facilitate entry into an international market and to benefit from tax friendly jurisdictions.

Hong Kong is considered as one of the best cities to establish and run a business, as it scores high on factors that matter to businesses.

Strategic location, productive workforce, stable economic and political environment, attractive tax regime, pro-business environment, world-class infrastructure, an effective legal system are some of the factors that continue to contribute to its success.

 

| TOP 9 Reasons for Hong Kong as Business Place

 

1 - Doing Business is easy

Hong Kong is an easy place to set up a business. It may take 1 to 2 weeks to open a company in Hong Kong. Apart from Hong Kong’s excellent infrastructure facilities, business premises are easily available. IP protection is taken seriously, with strict regulations in place.

In Hong Kong, various dispute resolution channels are available that businesses can avail of.
The simple and business friendly tax system draws foreign investors to the city.
Foreigners who wish to setup business in Hong Kong can easily relocate by applying for an appropriate work visa.

 

2 - Attractive Taxation Principles

For most of entrepreneurs, taxes are the main concern in evaluating a jurisdiction for setting up a business. In this regard, Hong Kong is one of the lowest tax jurisdictions in the world.

Personal income tax (salary tax) starts at 2.0% and goes up to 17.0% for income above HKD 120,000.

Corporate tax is set at 16.5% of assessable profits (only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong) for corporations and 15.0% for unincorporated businesses. Taxes on capital gains, withholding on dividends and interest do not exist, as well as there is no collection of social security benefits.

Furthermore, there is no sales tax or value added tax (VAT) in Hong Kong.

 

3 - World’s freest Economy

Hong Kong is driven by the principles of

  • free enterprise
  • free trade
  • free markets, open to all

By this Hong Kong is one of the world’s most dynamic economies. Its robust economy over the past two decades has contributed to the GDP growth at an average annual rate of 5.0% in real terms.

There are no restrictions on inward and outward investments, no foreign exchange controls and no foreign ownership restrictions.

Factors such as a sound banking system, almost no public debt, a strong legal system, sizable foreign exchange reserves and a strict anti-corruption regimen serve to strengthen Hong Kong’s position as a business friendly region.

Furthermore, Hong Kong Companies benefit from the Closer Economic Partnership Arrangement (CEPA) – a free trade agreement between the Central People’s Government and the Government of the Hong Kong Special Administrative Region (SAR). They gain preferential access to the Mainland China market – all goods qualified as Hong Kong origin may be exported to the Mainland tariff free. Moreover, Hong Kong service suppliers in 40 areas are eligible to receive preferential treatment in providing services in the Mainland.

 

4 - Strategic Location with a World Class Transportation System

Hong Kong is strategically located at the heart of the Asian continent. A 5 to 8 hours flight will connect you to most markets in the Asia-Pacific region. If you need to tap into the Mainland Chinese market you will find that Hong Kong is perfectly situated on the southeast coast of Mainland China, flanking the mouth of the Pearl River Delta. This facilitates travel to and from Hong Kong to Beijing, Shanghai and other major Chinese cities within a single day.

Hong Kong International Airport (IATA: HKIA) is the 5th busiest international passenger airport with 85 airlines servicing over 150 destinations. HKIA is often ranked as ‘Best Airport in the World’. Destinations include major cities in the Asia Pacific, North America, Europe and the Middle East and to about 40 destinations in mainland China. Cross-boundary ferries provide speedy sea transport to and from six mainland ports. The coach service covers more than 90 PRD cities and towns.

Hong Kong is also a focal point of all maritime activities in Southern China, by this one of the major ports of the world in terms of tonnage of shipping using its facilities, cargo handled and the number of passengers carried.

 

5 - Robust Infrastructure

Hong Kong is said to have one of the best Airports and busiest Ports in the world. Transportation services are efficient and connecting all major centers cheaply. Hong Kong is also the preferred Exhibition and Convention Centre for most businesses in the region. The Hong Kong Exhibition & Convention Centre has received several awards and accolades and is often voted as the ‘Best Convention & Exhibition Centre in Asia Pacific’.

Hong Kong is home to world-class industrial/business parks like Cyberport and the Hong Kong Science and Technology Parks.

These parks provide integrated infrastructure in one region that help reduce the per-business expense, and also help companies operate in a highly conducive, environment friendly setting.

Hong Kong’s telecom infrastructure is one of the most technically advanced in the world. Broadband coverage is available to virtually all commercial and residential buildings. Hong Kong’s open markets ensure there are several competitive mobile phone and Internet service providers.

Broadband Internet connection is available to over 98% of households in Hong Kong.

 

6 - Clean Governance

Hong Kong is a Special Administrative Region (SAR) of the People’s Republic of China with a high degree of autonomy in all matters except foreign and defense affairs. According to the Sino-British Joint Declaration (1984) and the Basic Law, Hong Kong retains its political, economic, and judicial systems.

This setup is often referred to as “One China, Two Systems”.

Most businesses choose to set up operations in Hong Kong as it believed to be politically stable with pro-business governance and free market principles. It is also cited as one of the most corruption-free economies in the world.

Hong Kong has even set up an anti-corruption watchdog – the Independent Commission Against Corruption (ICAC) – mandated to deal with both public and private sector corruption.

 

7 - Sound Legal Environment

Noted for its transparency, law & order is central to Hong Kong’s success. Hong Kong’s legal system is separate from Mainland China’s – English common law prevails. With the establishment of the International Arbitration Centre in 1985, Hong Kong has become a key center for arbitration in Asia and arbitration is now a popular method of dispute resolution in Hong Kong.

The law is committed to the protection of Intellectual Property Rights (IPR) and enforces stringent regulations for patents, copyrights, trademarks and registered designs. The specially set up Intellectual Property Department monitors the IP regime in Hong Kong and is reputed to have extensive experience in handling IP matters. There are distinct rules and regulations concerning trade and commerce, employment, taxation and other business-related areas, making it an attractive place to setup and operate a business.

 

8 - Liberal Immigration Policy

Hong Kong follows a liberal immigration policy. Nationals of about 170 countries and territories are allowed visa-free visits to Hong Kong for periods ranging from 7 to 180 days. Short-term visitors may conduct business negotiations and sign contracts by entering Hong Kong on a visitor visa or entry permit.

The government has introduced appropriate work visa provisions, anticipating the needs of business entrepreneurs who may wish to relocate to Hong Kong to run their business or who may want to hire foreign professionals to work in their company.

There are various policies and schemes for the employment of foreign professionals, employment of Mainland talents and professionals, those wishing to enter for investment etc. Hong Kong issues dependent visas and allows the holder to undertake almost any type of lawful employment.

 

9 - Productive Work Force

Hong Kong consists of a highly trained, well-educated and skilled workforce. The workforce consists of a local talent pool of experienced and entrepreneurial professionals who are known to be especially well versed with the business culture in the fast-growing Mainland cities.

Employees are generally considered to be hard-working, competitive and are constantly seeking to improve themselves. Although English is the language of communication in business settings, bulk of the workforce is also conversant with Cantonese and Mandarin, owing to the country’s link to China.

 

 

 

| Hong Kong at a Glance

 

 

| Advantages and Disadvantages of
Incorporating a Business in Hong Kong

Incorporating a company in Hong Kong provides several advantages, especially when it comes to taxation and the limit on business-related liabilities and debts.

However, it is important to note that this business entity has also some disadvantages which must be considered.
Here’s a rundown of the advantages and disadvantages of Hong Kong company incorporation:

1 - Advantages of Company Incorporation in Hong Kong

  • Foreign entrepreneurs can operate and setup a Hong Kong Company
  • Generally, it takes 1-2 weeks to setup a Company in Hong Kong
  • Hong Kong follows a territorial system of taxation, combined with a single-tier corporate taxation
  • Hong Kong has one of the fastest-growing economies in the world for several consecutive years
  • The country boasts world-class infrastructure which is one of the contributing factors to raise the business productivity Hong Kong is located at the heart of Asia region which makes this ideal for international foreign companies that are planning to tap the major Asian markets including China, Taiwan, Malaysia, India, and Australia
  • The country allows a corporation to be a 100 percent foreign-owned company

 

2 - Disadvantages of Company Incorporation in Hong Kong

  • Corporations are required to file their annual returns with the Companies Registry (CR, expect they are dormant and the Inland Revenue Department (IRD)
  • Individuals who declared bankruptcy in the past and have criminal records cannot serve as a company director
  • A business should designate a secretary who is a local resident or a local company
  • Under the corporate law, it is mandatory to conduct a paper meeting on an annual basis
  • While Hong Kong has a high standard of living, its cost of living is also high

 

 

 

 

 

 

 

We at MCI help entrepreneurs as our clients to setup their Hong Kong Company by assisting the incorporation of the Company and successfully securing all required work passes.

 

| Overview of Business Structures

Choosing the right business structure is essential to business success when it comes to incorporating a company. Your choice can affect your business’s image and reputation among clients and banks, administrative procedures, taxes, personal liabilities as well as the ability to expand your company operations.

To help you select the right business entity for your business success, we’ve provided you with an overview of the different type of business structures available to start your Hong Kong company incorporation process. Each entity is subject to different regulatory and tax rates that reflect their organization and ownership. We are also available for consultation if you have questions about a suitable business entity for your company incorporation.

  • Private Limited Company
  • Public Limited Company
  • Public Company Limited by Guarantee
  • Sole Proprietorship
  • General Partnership
  • Limited Partnership
  • Subsidiary Company
  • Branch Office
  • Representative Office

 

1 - Private Limited Company

A Private Limited Company is the most common and preferred business structure in Hong Kong. It protects its owner’s personal assets from liabilities incurred by the company as well as enjoys tax incentives and exemptions.

Your company is locally incorporated with the name of the venture including the suffix “Limited” and the number of shareholders is capped at 50. 100% foreign ownership is allowed in this set up. Appointed Director can be either an individual above the age of 18 or a Corporate Body – in both cases a local or also foreigner (!).

Hong Kong follows a territorial basis of taxation! Hence, only profits which arise in or derived from Hong Kong are subject to tax. There is no capital gains tax, withholding tax on dividends and interest and no sales tax or VAT in Hong Kong. Private Limited Company, Public Limited Company by Shares and Public Limited Company by Guarantee are all variations of this business structure.

Features At-a-Glance

  • Personal assets protection for Shareholders
  • Transferable ownership and appointment of additional shareholders to facilitate additional capital injection for business growth
  • Strong establishment of business credibility, professional commitment and vision
  • Enhanced professional business image maximizes potential loans from banks and other financial institutions
  • Perpetual existence with business operations unaffected by changes in the shareholders, or the holding pattern
  • Enjoys a highly competitive and effective corporate tax rate on territorial basis
  • Zero taxes on capital gains and dividends, due to the single-tier corporate taxation
  • Regular reviews of procedures from the Companies Ordinance of Hong Kong to enhance business growth and start-up companies

 

2 - Sole Proprietorship

A Sole Proprietorship is a business set up owned by one person who exercises decisive authority and responsibility of all assets and liabilities belonging to the business. The Sole Proprietor is not a separate legal entity from the business and therefore has full liability of the losses and debts of the business.

Features At-a-Glance

  • Business is not a separate legal entity from the owner
  • Sole Proprietor is fully liable for all debts and losses incurred during course of business
  • Profits of the sole proprietorship are treated nevertheless as corporate income and are being taxed with a 15% flat tax rate (considering territorial basis as well as single-tier corporate taxation)
  • Not perpetual nor transferable by part as business ceases with the death of owner
  • Sole Proprietorship cannot register another business firm as it is not a legal entity
  • Limited options for capital injection or expansion ptions as investors often hesitate to deal with non-incorporated entities
  • Sole Proprietorship requires annual renewal of registration

 

3 - Partnerships

A partnership eases the limitations of business expansion of a sole proprietorship by allowing two or more people to establish and co-own a business. With this business setup, you and your partner can acquire capital, talent and strategic assets based on mutual terms.

 

4 - General Partnership

A General Partnership acts very much like Sole Proprietorship because all partners are personally liable for all debts and liabilities incurred during the course of business. It is advisable for partners to approach a lawyer and draw up a Partnership Agreement that helps define the role, responsibilities and profits due to each partner. Each partner can also be held responsible for the actions of another partner.
Consequently, this setup is not a popular option among foreign individuals looking to incorporate a company.

Features At-a-Glance

  • Not a separate legal entity from the partners
  • More resources and sources of funds for business expansion as loans may be easier to acquire based on the combined assets of all partners
  • All partners are fully liable for the business
  • A partner can be made accountable for the loss caused by another partner
  • Profits are treated as corporate income and are being taxed with a 15% flat tax rate (considering territorial basis as well as single-tier corporate taxation)
  • Not perpetual as partnerships are automatically dissolved in the event of a partner’s death
  • Decisions relating to the partnership must be agreed by all partners

 

5 - Limited Partnership

A Limited Partnership requires a minimum of at least one general partner and one limited partner. The partners are responsible for all liability – but for the limited partner limited to the amount of his unpaid share capital. Limited partners cannot participate in the management of the partnership.

Features At-a-Glance

  • Minimum of 2 partners with at least 1 general partner and 1 limited partner
  • No limit on maximum number of partners
  • General partner has unlimited personal liability and is responsible for all actions, debts and obligations of the partnership
  • Limited partner is not liable for any debts and obligation beyond his agreed investment
  • Not a separate legal entity
  • Profits taxed at partners’ personal income tax rates if individual, or at the corporate tax rate if partner is a corporation

 

6 - Subsidiary Company

The subsidiary of a foreign company is considered a resident company, and therefore is entitled to tax principles and incentives as other locally incorporated companies in Hong Kong. It is essentially a private limited company, 100% owned by the foreign parent company.

Features At-a-Glance

  • Incorporated as a limited liability company
  • Has a distinct legal identity
  • Foreign parent company’s liability is limited to the value of the shares it subscribes into the subsidiary
  • Foreign parent company may own 100% of the subsidiary

 

7 - Branch Office

The Branch Office is treated as an extension of the foreign company without a distinct legal identity.

Features At-a-Glance

  • Acts as an extension of the foreign company
  • Not a separate legal identity
  • The foreign parent company is liable for the acts, losses and debts of its branch office
  • Considered non-resident for tax purposes

 

8 - Representative Office

For foreign companies, setting up a Hong Kong Representative Office is a good way to explore potential business opportunities before making a decision to set up a Branch Office or Subsidiary in Hong Kong. Representative Offices are not allowed to engage in commercial revenue-generating activities.

Features At-a-Glance

  • An extension of a foreign company
  • Not a separate legal identity
  • Cannot engage in commercial revenue-generating activities
  • Curtailed from negotiating any trading instruments or leasing of warehouses
  • Foreign parent company is liable for all acts, debts and liabilities of its Representative Office
  • Allowed to appoint limited number of staff, both local and foreign, to support the limited activities of the Representative Office

 

| Business Licenses and Permits

Fortunately, very few businesses require a license or permit in Hong Kong.

Hong Kong’s business licensing procedure is simple and straightforward. If an applicant follows the licensing procedure and complies with the documentation requirements and other criteria, there is no reason for a license to be rejected. But it is advisable to engage a professional services firm to utilize specific knowledge, save time and resources.

In general, it may take between 2 – 8 weeks to obtain a business license or permit.

Our available Whitepaper Hong Kong explains the following most common business licenses in Hong Kong:

  • Financial Services Company
  • Trading Company
  • Employment Agency
  • Travel Agency
  • Education Business
  • Event Management Company
  • Restaurant
  • Retail Shop

 

| Banking in Hong Kong

Hong Kong is one of the fastest growing international finance centers in the world. It services its domestic economy, China and the Southeast Asian region. Hong Kong’s banking industry is very robust with 71 of the world’s 100 largest banks having a presence here.

Hong Kong is also reputed for having a high quality of banking industry regulation. Currently, there are 148 licensed banks, 26 restricted license banks and 28 deposit taking companies in operation in Hong Kong. Of these 200 authorized institutions, 181 are beneficially owned by sovereign entities from 29 countries.

Factors that have contributed to the success of Hong Kong’s banking industry include:

  • Strong Domestic Banking Market:
    Still dominated by the HSBC Group that has become a strong international financial institution in its own right.
     
  • Growth of Foreign Banks:
    This was facilitated by a number of initiatives such as lifting restrictions on the number of branches a foreign bank could maintain and lifting restrictions on eligibility criteria for grant of banking licenses to foreign banks.
     
  • Regulatory Authorization:
    Additionally granted for a wide range of banking services from deposit taking, trade financing, loan syndication to foreign exchange trading etc.
     
  • Strong Emergence of the Private Banking Sector:
    Guaranteed due to Hong Kong’s strict anti-money laundering provisions, non-discriminatory low tax regime and availability of sophisticated wealth management services.

Most banks in Hong Kong cater to different types of clients – individuals, corporations or government agencies. These banks provide commercial banking (catering to businesses and corporations), retail banking (catering to individual members of the public) and private banking (catering to HNWI - High Net Worth Individuals) services.

 

Banking System

Hong Kong maintains a three-tier system of deposit-taking institutions:

  • Licensed Banks:
    In Hong Kong, only licensed banks can operate current and savings accounts, accept deposits of any size and maturity from the public and pay or collect checks drawn by or paid in by customers. There are currently 23 licensed banks incorporated in Hong Kong and 125 licensed banks incorporated outside Hong Kong.
     
  • Restricted License Banks:
    Restricted license banks are principally engaged in merchant banking and capital market activities. They can take deposits of any maturity of HK$ 500,000 and above. There are currently 14 restricted license banks incorporated in Hong Kong and 12 restricted license banks incorporated outside Hong Kong.
     
  • Deposit Taking Companies:
    Deposit taking companies are owned by or otherwise associated with banks. These companies engage in a range of specialized activities, including consumer finance and securities business. They may take deposits of HK$ 100,000 or above with an original term of maturity of at least three months. There are currently 28 locally incorporated deposit-taking companies.

 

Growth of the Private Banking Industry

Hong Kong is one of the premier wealth management centers in the world and Asia’s largest private banking market. Moreover, with Asia-Pacific positioned as the fastest growing wealth management market in the world, Hong Kong’s private banking industry has seen robust growth in recent years.

Swiss players such as UBS and Credit Suisse and other major players in the private banking industry such as Standard Chartered Bank and HSBC, provide a wide range of wealth management services such as advisory investment services, low risk asset growth, corporate product support, estate planning and so on.

Hong Kong’s private banking industry growth is attributable to its strict anti-money laundering laws and generous tax incentives. For example, there is no capital gains tax and no tax on overseas dividend income.

 

Major Banks in Hong Kong

  • BEA Bank of East Asia (HK)
  • BOC Bank of China (PRC)
  • Citibank (US)
  • DBS Development Bank Singapore (SG)
  • Hang Seng Bank (HK, principal member of HSBC Group)
  • HSBC Hong Kong Shanghai Banking Corporation (UK)
  • SCB Standard Chartered Bank (UK)
  • UOB United Overseas Bank (SG)

MCI Counselors Law & Tax is working in Hong Kong with the following Bank Institutes: DBS Development Bank of Singapore, HSBC Hong Kong Shanghai Banking Corporation, SCB Standard Chartered Bank, SG Société Générale, UOB United Overseas Bank.

In particular cases, the opening of bank accounts remote (via Dubai, Zurich and Singapore) is possible.

 

| Further Information

MCI Counselors Law & Tax is constantly present in Hong Kong with its own subsidiary, MCi Counselors Law & Tax (Asia) Ltd. (contact details see our imprint). We published a Whitepaper Hong Kong which can be requested by you via our Order Form in the Download Section.

Please don’t hesitate to contact us in case of any open questions.

Kindly understand that within offered Standard Packages no kind of tax relevant advice can be given. There are various options and further models available on demand. Kindly ask in that case for your individual quotation, based on a phone / Skype Consultation free of charge.

You need further information?
Just drop us an
E-Mail or use our Contact Form.

Document Release: 18.09.2012, variable

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