Unlike countries with many restrictions on foreigners to start a business, Hong Kong is an ideal option to go. Below is a doing business in Hong Kong guide that will tell you all about reasons why entrepreneurs prefer Hong Kong, the incorporation process, and the maintenance of a company in Hong Kong.
1. Why doing business in Hong Kong?
Entrepreneurs decide to opt for Hong Kong for setting up a new business because of many reasons. Below are several highlights about this business-friendly environment:
Strategic Location. Hong Kong is regarded as the heart of the Asia Pacific region. Its location is 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. Hong Kong is positioned as the world’s freest economy, according to Index of Economic Freedom, 2019. 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, no foreign exchange controls.
Ease Of Doing Business. Hong Kong took the 3rd place in terms of “Ease of Doing Business Rank” by the World Bank, following the 2nd rank of Singapore. 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 within just 24 hours.
Simple & Low Tax System. Hong Kong tax system is very attractive. 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 one half of its current tax rate.
Hong Kong tax system allows foreign entrepreneurs to save cost and maximum profits. It is crystal clear to understand why there are a large number of Hong Kong based companies 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. Business environment is also supported with 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, or 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 where to support worldwide banks to carry out RMB transactions. You can read more information: Hong Kong 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 are able to enter Hong Kong for work, business negotiations, or relocation to Hong Kong for business establishment.
Productive Workforce. The labor force is another plus. Employees generally are hard-working and competitive. The World Economic Forum: The Global Competitiveness Report 2019 placed Hong Kong in the 7th position in terms of the world’s best labor market.
2. Types of business entities in Hong Kong
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.
Below are the most common types of business entities in Hong Kong:
- Limited Liability Companies (LLC): Members in an LLC shall not 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 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 business to Hong Kong:
- Branch: This is actually an extension of the parent company. A Hong Kong branch office is a legal entity, but not a separate entity in its own 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. Representative office has no legal standing in Hong Kong, and it is not allowed to engage in any profit-making activities in Hong Kong.
An in-depth guide to each type of business in Hong Kong above is clearly explained here: Hong Kong Business Entity Types: Pros and Cons
3. How to start a Hong Kong company as a foreigner
In order to start a business in Hong Kong as a foreigner, knowing the procedure for setting up a company is the very first thing to go.
Below are 4 steps involved in Hong Kong company incorporation you need to know:
Step 1: Select type of company
The first step is to decide what type of Hong Kong company will suit your business most. As the most common structures, you can consider choosing either Limited Liability Company, Sole Proprietorship, Partnership, or foreign company offices like Branch or Representative Office. Prominent among those, a private limited company is the most widely-chosen type for doing business in Hong Kong.
You may get a bit confused when selecting your best-suited type of company for starting a business in Hong Kong. In such a case, it is a wise choice to find a trusted incorporation service provider like BBCIncorp to get the most practical advice. They also help foreigners to save a lot of time and money for incorporation!
Step 2: Choose company name
Naming a Hong Kong company must follow certain criteria set out by 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
- At least 1 member who can be either natural person or corporate
- Company secretary is compulsory and can be either a local 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 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.
To dig into more details of each step above, here is the blog for you: How to Set Up a company in Hong Kong: a Step-by-Step Guide
4. Other considerations for 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 further considerations that foreigners should take care of:
This is what foreign entrepreneurs should take note to legally earn tax benefits in Hong Kong.
Hong Kong allows offshore tax exemption for the income generated outside the country. To enjoy this benefit, the company will need to apply for an offshore claim as regulated by Hong Kong government. Offshore status for a Hong Kong company is simply a tax exemption letter issued by Hong Kong Inland Revenue Department.
Bank account opening
Opening a bank account in Hong Kong is a must. Despite the fact that Hong Kong companies can choose offshore banks to open their bank accounts as they find difficulty with the banking process in Hong Kong, a bank in the same country is still the most ideal one. Learn more: How to open a bank account in Hong Kong
It should also be noted that the emergency of fintech products (i.e., Neat bank account) has facilitated the higher rate of success for opening a Hong Kong bank account. Contact us if you need to know more about Hong Kong company formation with Neat bank accounts.
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 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 being conducted.
Note, however, that not every business in Hong Kong must comply with requirements for licenses and permits.
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 of internal records
This is the requirement 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 register 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!
While doing business in Hong Kong, you may want to take a temporary period of time for rest, update, or management of change in your business. If it is the case, sending your company in “dormant” status is a good idea. Key driving forces behind the popularity of dormant company in Hong Kong are thanks to its ability of asset protection and minimal cost.
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 deregistering or winding up it. The deregistration process is more recommended as it is convenient and simple to proceed.
5. The bottom line
Doing business in Hong Kong may require foreign entrepreneurs many things to do, rather than setting up a company in Hong Kong. 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 another 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, what to deal with after incorporation along with customized packages. Feel free to contact us if you need our help!