Doing Business In Hong Kong: The Ultimate Guide For Foreigners

Unlike countries with many restrictions on foreigners starting a business, Hong Kong is an ideal option. Below is a doing business in Hong Kong guide that will tell you all about the reasons why entrepreneurs prefer Hong Kong, the incorporation process, and the maintenance of a company in Hong Kong. 

Overview of Hong Kong economy

Being identified as a fast-growing economy in Asia, Hong Kong is the popular choice of jurisdiction for company incorporation. Even during the Covid19 outbreak, Hong Kong still holds the spotlight in terms of a country for doing business.

Update: In the third quarter of 2023, Hong Kong’s Gross Domestic Product (GDP) experienced a robust year-on-year growth of 4.1% in real terms; with GDP increasing by 2.9% in the first quarter and 1.5% in the second quarter of the same year.

The country remains popular as a financial hub and an international business center. UNCTAD World Investment Report 2023 revealed that Hong Kong attracted significant foreign direct investment (FDI) in 2022. The global FDI inflows to Hong Kong totaled US$117.7 billion, securing the 4th position globally. The top three countries ahead of Hong Kong include the United States, mainland China, and Singapore.

Such rankings highlight Hong Kong’s attractiveness as a destination for international investment, underscoring its pivotal role in the global economy and its ability to draw substantial foreign capital.

Why doing business in Hong Kong

There are many reasons to set up a new business in Hong Kong. Below are several highlights of this business-friendly environment:

Strategic location

Hong Kong is regarded as the heart of the Asia Pacific region, next to Mainland China, one of the world’s most elite markets. There are a large number of daily flights between Hong Kong and major business hubs of the world, meaning business people get more chances to internalize their business.

Free economy

In Hong Kong, foreign investors are granted tons of benefits thanks to its free trade policy, no restriction for onshore or offshore investment, free movements of capital, no tariff on goods import/ export, and no foreign exchange controls.

Ease of doing business

Hong Kong took 3^rd place in terms of the “Ease of Doing Business Rank” by the World Bank. The high ranking has reflected some good aspects of Hong Kong, especially the streamlined and time-saving company formation process. A Hong Kong company can be set up within 24 hours.

Simple & low tax system

Hong Kong’s tax system is advantageous. Only income derived within and from the country must be taxed. Three main types of tax in Hong Kong include profits tax, salaries tax, and property tax.

As Hong Kong follows the two-tier profits tax regime, the first HK$2 million of assessable profits for both corporations and unincorporated businesses is only taxed at -half the current tax rate.

Hong Kong’s tax system allows foreign entrepreneurs to save costs and maximize profits. It is clear why there are a large number of Hong Kong-based ones incorporated each year.

Transparent regulatory framework

The system of law in Hong Kong is outstandingly well-regulated and transparent. A set of rules regarding taxation, trade, and commerce, employment is in place with a sense of fairness. The business environment is also supported by distinct but friendly policies for overseas startups and entrepreneurs.

Remarkably, intellectual property protection is highly appreciated in Hong Kong. There are stringent provisions for patents, trademarks, copyrights, and other IP-related products, making it an appealing place for business setup.

Well-developed infrastructure

Hong Kong is well equipped with infrastructure facilities. Air and sea transport facilities, sophisticated telecommunication facilities, and innovative industrial parks are what make Hong Kong stand out.

Based on such convenience, investors can enjoy world-class amenities and reduce certain expenses when doing business in Hong Kong

Banking facilities

Hong Kong is deemed a premium financial and business hub in the Asia region. The banking system is of vital contribution to the country’s economy. A majority of the world’s strongest banks are headquartered in Hong Kong.

The city is also the biggest Renminbi (RMB) offshore business center that supports worldwide banks to carry out RMB transactions.

More information on Hong Kong’s three-tier banking system.

Immigration policy

Hong Kong is a dynamic place to live. Noticeably, the immigration policy in this country is quite friendly. About 170 nationalities are granted to visit Hong Kong without a visa unless the visit period exceeds 180 days.

With appropriate visas, foreign entrepreneurs can enter Hong Kong for work, business negotiations, or relocation to Hong Kong for business establishment.

Three typical types of visa and immigration models in Hong Kong that foreign investors must take notice of include the Investment Visa, Employment Visa, and Quality Migrant Admission Scheme.

Productive workforce

The labor force is another plus. Employees generally are hard-working and competitive. In the World Economic Forum’s Global Competitiveness Report 2022, Hong Kong placed 5^th in terms of the world’s best labor market. This achievement is a testament to the hard-working nature embedded in Hong Kong culture.

Key industries to do business in Hong Kong (For foreign entrepreneurs)

If you are confused about which business to launch in Hong Kong, do consider an industry in which you have more opportunities to grow.

Below are four potential business sectors that are worth starting up in the country.

Financial services

Being identified as the financial hub in Asia, Hong Kong attracts the top banks around the world to expand their businesses within the border. Besides banking services, a variety of financial services are also available in the country such as insurance, fund management, securities, and private equity.

The worldwide fintech industry is expected to be $332.5 billion by 2028, up from $112.5 billion in 2021. Fintech development is also a factor that keeps the financial industry moving forward.

Biotechnology

Many are employed in high-growth areas like health care, food and agriculture, biodegradable polymers, biofuels, and other environmental applications. Biotech goods, in particular, are critical to the development of novel medications that have the potential to save lives for years to come.

The worldwide biotechnology industry is predicted to reach $2.44 trillion by 2028, at a compound annual growth rate (CAGR) of 15.83%, according to Grand View Research. With such great potential and growth pace, it’s no surprise that the industry is drawing a lot of entrepreneurs and investors.

On-demand services

The success of services such as Uber, Netflix, GrubHub, and Amazon, which provide 1-click, 1-hour, or 1-day delivery, demonstrates consumers’ demand for near-instant pleasure. The year-over-year growth rate for this niche market is predicted to be slightly more than 52% in 2022.

Furthermore, internet on-demand home services are predicted to grow by $4.75 billion between 2021 and 2026.

Artificial Intelligence (AI)

According to MarketsandMarkets, the worldwide artificial intelligence (AI) market will be worth $309.6 billion by 2026, growing at a 39.7% CAGR. AI applications are expanding by the minute, from machine learning and predictive analytics to natural language processing and neural networks.

There are several methods to get started with AI, as well as numerous industries that will be influenced by its emergence, including logistics and delivery, customer relationship management, data analytics, marketing, human resources, and manufacturing.

The aforementioned industries are the four main economic pillars of Hong Kong. You can set up your business with one of them to facilitate the existing favorable conditions.

Hong Kong business formation manual (4 steps to go)

How to do a business in Hong Kong as a foreigner?

Knowing the procedure for setting up a company is the very first thing to do. BBCIncorp walks you through 4-step guide to navigate your Hong Kong company incorporation:

Step 1: Select the type of company

The first step is to decide what type of Hong Kong company will suit your business most.

Foreign entrepreneurs can incorporate a Hong Kong company under certain forms of business. A wise choice of Hong Kong company formation is relatively important since your choice can affect the company’s benefits, liabilities, and even administrative tasks as prescribed by Hong Kong provisions.

Some common types of business entities in Hong Kong include (private limited company is the most widely-chosen type):

Limited Liability Companies (LLC)

Members in an LLC shall not be personally liable for the company’s debt or liability. Hong Kong LLC is categorized into three types: Private Limited by Shares, Public Limited by Shares, and Company Limited by Guarantee.

Sole Proprietorship

This is the simplest corporate structure in Hong Kong as there is only a single owner in the company. The proprietor would be the sole beneficiary, but he/she is also the one responsible for the whole debts and liabilities of the company.

Partnership

When the company is formed by joining at least 2 members through a mutual agreement, that business entity is deemed a partnership in Hong Kong. Two types of partnership include Limited Partnership and General Partnership.

Other registration options for overseas entrepreneurs to expand their business to Hong Kong:

• Branch: This is an extension of the parent company. A Hong Kong branch office is a legal entity, but not a separate entity in its rights. It is the overseas parent company that shall take full responsibility for any debt or liability incurred by the branch office.
• Representative office: The key purpose of setting up a representative office is to test the market before penetrating it. The representative office has no legal standing in Hong Kong and is not allowed to engage in any profit-making activities in Hong Kong.
• Subsidiary Company: A subsidiary company is a company that is owned or controlled by another company. In Hong Kong, a subsidiary company is often set up to operate in a specific industry or market. Subsidiary companies can be either wholly owned by the parent company or partially owned.

You may get a bit confused when selecting your best-suited type of company for starting a business in Hong Kong. Then get in touch with a trusted incorporation service provider like BBCIncorp for practical advice! We help you save a lot of time and effort for incorporation!

Step 2: Choose a suitable company name

Naming a Hong Kong company must follow certain criteria set out by the Hong Kong government.

Typically, a company name in Hong Kong must be identical and must not be similar to any existing or already registered names in The Companies Registry’s Index of Company Names.

The company name with a high rate of approval should not contain any restricted terms or expressions as regulated in the Companies Order (Cap 622A). And there are other must-know requirements for choosing an eligible company name in Hong Kong.

Step 3: Determine the company structure

The next step is to decide on the corporate structure of your intended Hong Kong company. Particularly, a Hong Kong company must satisfy some requirements before running its business:

• At least 1 director who is a natural person (individual)
• At least 1 member who can be either a natural person (individual) or corporate
• Company secretary is compulsory and can be either a resident or corporate
• Registered address is required for company registration
• Issued share capital of the company

Step 4: Submit documents for incorporation

The final step in the incorporation process is to submit your application with the required documents to the Companies Registry.

In addition to the application form, you need to prepare some copies of your company particulars, their information of identification as well as company-related documents.

Before submission, make sure you have in hand the approval application for your company name with the Companies Registry as well.

Once you have finished this step, what you need to do is to wait for the result.

Key considerations when doing business in Hong Kong

Registering a company in Hong Kong is the key process. But, after all, there are still many other things for foreigners to do business in this country.

Below are several essential considerations:

Offshore claim

Offshore tax exemption is what foreign entrepreneurs should take note to legally earn tax benefits in Hong Kong.

Hong Kong allows offshore tax exemption for income generated outside the country. To enjoy this benefit, the company will need to apply for an offshore claim as regulated by the Hong Kong government. Offshore status for a Hong Kong company is simply a tax exemption letter issued by Hong Kong Inland Revenue Department.

Business account opening

Opening a bank account in Hong Kong is a must. Even though Hong Kong companies can choose offshore banks to open their bank accounts due to some difficulties, a bank in the same country is still the ideal one.

It should also be noted that the emergency of fintech products (i.e., Airwallex account) has facilitated a higher rate of success for opening a business account.

Trademark registration

It is not mandatory to conduct trademark registration in Hong Kong, but it is highly recommended. A registered trademark offers a high level of protection for your brand and gives your company exclusive rights to use it for goods or services. Trademark registration in Hong Kong is not complicated, but it may take time.

Business license and permit

Business activities in Hong Kong can be required to have a license or permit from a specific agency or a department of the Hong Kong government before operating. These business licenses and permits are a necessity, so make sure to research your particular obligations to avoid penalties.

Annual compliance requirements

For doing business in Hong Kong, there are some annual compliance requirements that every Hong Kong company must follow:

• Renewing company secretary, registered office, and business registration
• Holding Annual General Meetings
• Filing annual return and profits tax return
• Filing employer’s return
• Financial statements audit
• Keeping internal records

Significant Controller Register

This is effective from 1 March 2018 for all Hong Kong incorporated companies, other than entities having shares listed on the Stock Exchange. Accordingly, covered companies must determine significant controllers over their company and maintain the registration as requested by the Hong Kong authority.

Transfer pricing documentation

Transfer pricing (TP) compliance would be applied if your registered Hong Kong company engages in transactions with its associated entities. Note that income derived outside Hong Kong is still subject to this regime. Knowing whether your intended company is likely to be imposed on TP rule if doing business in Hong Kong is therefore very crucial. Here is the blog that BBCIncorp helps you to uncover 10 questions about Hong Kong transfer pricing!

“Dormant” status

While doing business in Hong Kong, you may want to take a temporary period to rest, update, or management of change in your business. If it is the case, sending your company to “dormant” status is a good idea. Key driving forces behind the popularity of the dormant company in Hong Kong are thanks to its ability of asset protection and minimal cost.

Company dissolution

This is not an expected situation, but it may be unavoidable in some cases. If you want to end up running your company, you can choose either to deregister or wind it up. The deregistration process is more recommended as it is convenient and simple to proceed with.

The bottom line

Doing business in Hong Kong involves more than just the process of setting up a company.

Foreign entrepreneurs navigating the Hong Kong business landscape must consider various aspects beyond the initial incorporation. This includes:

• Adhering to regulatory requirements
• Understanding the local market dynamics
• Establishing effective communication with stakeholders
• Staying informed about tax regulations
• Being well-prepared for annual maintenance and compliance requirement

To make sure your upcoming company moves smoothly, you must also take notice of certain compliance and consideration after the incorporation. It is well-advised that foreign entrepreneurs should conduct careful research on what they should do.

Engaging locally professional firms like BBCIncorp is a time-saving solution. We give startups and SMEs the best advice for their need of doing business in Hong Kong, how to incorporate a company, and what to deal with after incorporation along with customized packages.

Feel free to contact us if you need any help!

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