Top Ten Reasons for Setting Up a Company in Hong Kong
1. Swift business set up with 100% foreign ownership
Hong Kong is one of the top global cities for setting up a business. Opening a company is relatively quick and easy, company registration costs are low and the overall environment encourages businesses to thrive. There are no restrictions on inbound or outbound investment and there are no nationality restrictions on company ownership. Foreigners can invest in almost any business and own up to 100% of the equity.
A Hong Kong Private Limited Company is the company type typically formed for small to medium-sized businesses (SMEs) or trading companies in Hong Kong. A company can be incorporated at the Companies Registry (Hong Kong) with any amount of share capital. There is no statutory requirement for the minimum amount of paid-up capital.
There is no requirement for shareholders to be Hong Kong residents and the director can be the company’s sole shareholder. Private limited companies can be registered in one to two working days, but pre-registered companies are also available for immediate use.
A private limited company that is incorporated in Hong Kong can take advantage of all the tax benefits and concessions available to any fully incorporated business in Hong Kong, including the Closer Economic Partnership Arrangement (CEPA), a free trade agreement with Mainland China.
2. Low, simple and competitive tax system
Businesses and individuals in Hong Kong enjoy one of the most tax-friendly systems in the world. Only three direct taxes are imposed and there are generous allowances and deductions to reduce the tax payable.
- Two-tiered profits tax – For corporations the rate is 8.25% for the first HKD2 million of assessable profits, rising to 16.5% for profits above that amount. For unincorporated businesses (partnerships and sole proprietorships), the tax rates are correspondingly set at 7.5% and 15%.
- Salaries tax with standard rate of 15%
- Property tax of 15%
There is no sales tax or VAT, no withholding tax on dividends and interest, no capital gains tax, no tax on dividends and no inheritance tax, no global tax and no wine duty.
All profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from trade, profession or business are taxable in Hong Kong. There is therefore no distinction made between residents and non-residents. A resident of Hong Kong can therefore receive profits from abroad without incurring tax in Hong Kong even if they are remitted to Hong Kong.
There are also various tax incentive regimes available:
- Profit tax exemption for mutual funds, CISs, Unit Trusts
- Profit tax exemption for qualifying debt instruments
- CTC tax regime
- Offshore fund exemption regime
- Unified fund regime
3. One of the world’s freest economies
The economy of Hong Kong is a highly developed free-market economy characterised by low taxation, almost free port trade and well-established international financial market, highly dependent on international trade and finance – the value of goods and services trade, including the sizeable share of re-exports, is about four times GDP.
Hong Kong has no tariffs on imported goods, and it levies excise duties on only four commodities: hard alcohol, tobacco, oil and methyl alcohol. There are no quotas or dumping laws. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.
The Hong Kong Stock Exchange is a favourable destination for international firms and firms from mainland China to be listed due to Hong Kong’s highly internationalised and modernised financial industry along with its capital market in Asia, its size, regulations and available financial tools, which are comparable to London and New York.
Hong Kong is ranked the world’s second freest economy among 186 economies in the 2020 Index of Economic Freedom, published by the US think-tank Heritage Foundation, with a score of 89.1. Hong Kong’s economy was rated as the freest in the world from 1995 through 2019 but its overall score decreased by 1.1 this year, due largely to the political and social unrest which dampened investment inflows.
4. Straightforward access to China and the Greater Bay Area
As a Special Administrative Region (SAR) of China, Hong Kong enjoys a highly active and cooperative business relationship with the Mainland. It is both the country’s leading conduit for foreign investment and its primary offshore capital-raising centre.
The Greater Bay Area (GBA) project was first announced by the Chinese government in 2016 to spearhead growth and innovation in the nation’s traditional manufacturing and innovation hub. It is an ambitious national plan aimed at integrating the two Special Administrative Regions of Hong Kong and Macao, together with the nine cities across the Pearl River Delta – Guangzhou, Huizhou, Dongguan, Shenzhen, Jiangmen, Zhuhai, Zhongshan, Foshan and Zhaoqing – to ease the flow of goods, people and capital within the region.
The GBA is now the largest urban area in the world with a combined population of 72 million people and a current total GDP of about USD1.65 trillion – equivalent to the world’s 11th-largest economy behind Canada and ahead of Russia – and provides a potential market 10 times the size of Hong Kong. The Guangdong Province, which includes the megacities of Shenzhen and Guangzhou, generates about 14% of China’s national GDP alone.
As the most open and international city in the GBA, Hong Kong is known for its status as an international financial hub. Within the GBA, Hong Kong’s main areas of focus are Fintech, biomedicine, AI and robotics, ‘smart city’ and Internet of Things’ (IoT) technology, electronics and clean energy – all of which enjoy strong government support through the Innovation & Technology Fund.
5. Robust legal system based on English common law
Hong Kong is the only common law jurisdiction within China and has built well-established commercial case law that is highly regarded by the international business community and foreign investors. The common law system is maintained under Article 8 of the Basic Law and the Law Reform Commission aims to maintain a reputation for excellence in law reform, both internationally and in Hong Kong.
The Hong Kong judiciary’s long-established institutional framework guarantees the judicial independence explicitly set out in the Basic Law. Highly respected judges from the senior courts of other jurisdictions are invited to sit on the Court of Final Appeal as non-permanent judges to adjudicate a wide range of cases, from commercial and criminal to constitutional cases.
According to the World Economic Forum’s 2019 judicial independence rankings, which is a ranking of courts that are not subject to improper influence from the other branches of government or from private or partisan interests, Hong Kong ranks first in Asia and eighth overall globally, for judicial independence.
In respect of arbitration-related matters, Hong Kong’s arbitration ordinance is based on the United Nations Commission on International Trade Law Model Law which reflects international best practice. The Hong Kong courts have a specialist arbitration list containing judges with extensive experience in arbitration. They have long been renowned for their pro-arbitration stance and neutrality in their decision-making process.
Arbitral institutions operating in Hong Kong such as the Hong Kong International Arbitration Centre (HKIAC) and International Chamber of Arbitration are renowned globally for their independence, integrity, and transparency.
Hong Kong also has a unique advantage for arbitrations involving interests in mainland China. The “arrangement concerning mutual assistance in aid of arbitral proceedings by the court of mainland and of the Hong Kong special administrative region” came into effect on 1 October 2019. Hong Kong thus became the first and only jurisdiction outside the mainland where the mainland courts can grant interim measures in aid of a foreign arbitration if administered by an institution.
6. Accessibility and infrastructure
Hong Kong has a superb infrastructure, which meets its population’s needs and contributes to the efficiency and growth of the economy. Hong Kong has an advanced land, sea and air transport and communications system.
Advanced port and air cargo facilities has ensured Hong Kong’s place as one of the largest trading entities in the world, whilst also servicing a large portion of cargo in and out of Mainland China.
Hong Kong has one of the world’s most reliable and efficient transport systems. Commuters can choose from buses, ferries, taxis, trains and trams to reach their destination. Whether meeting clients or travelling to work, Hong Kong’s transport system has created a truly connected city that businesses can benefit from.
Opened in 2018, the Guangzhou-Shenzhen-Hong Kong Express Rail Link ensures speedy rail travel between the three cities. Whether for client meetings or expanding your operations, Guangzhou will soon only be a 50-minute rail ride away. With the recently completed Hong Kong-Zhuhai-Macao Bridge, Hong Kong will benefit from a better connection to key cities in the Pearl River Delta.
Hong Kong offers reliable, high-speed Internet connectivity. Household broadband penetration is 94.7% with a Fibre-to-Home / Fibre-to-Building penetration rate of 76.6% and the second fastest broadband in the world. Businesses can therefore enjoy reliable and secure communications throughout the territory.
7. A highly advantageous business base
Strategically located at the centre of Asia – all the region’s key markets are within a four-hour flight and half of the world’s population is within a five-hour flight – it is easy to see why over 8,000 businesses and companies have made Hong Kong their home. Many have placed their strategic functions, including sales, operations, research and development (R&D), distribution, regional headquarters and corporate treasury centres in the city.
The Hong Kong government endorses policies that are “market driven with minimal government interference”. Foreign investment is welcomed and there is no policy to protect the local industry against foreign competitors. The Hong Kong business community is also receptive to foreign investment.
English is the language of business in Hong Kong and immigration policies are designed to attract professionals, talented individuals and investors to ensure the city’s continued competitiveness and enrich the quality of Hong Kong’s workforce.
Hong Kong’s proximity to, and close and unique relationship with, mainland China, has made it the gateway to mainland China for business. There are numerous business opportunities given Hong Kong’s expertise in finance and marketing, sophisticated infrastructure, and access to mainland China’s manufacturing base. A majority of Hong Kong manufacturers has moved production to South China’s Pearl River Delta (PRD), with Hong Kong functioning as the region’s services and trade hub. Mainland China is Hong Kong’s largest trading partner.
The Closer Economic Partnership Arrangement (CEPA) offers Hong Kong’s products and firms preferential access to the Mainland’s market. CEPA goes beyond China’s World Trade Organisation (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors.
Overseas companies can also benefit from CEPA. For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA if they satisfy eligibility criteria of a ‘Hong Kong Service Supplier’ (for example, they must be engaged in business operation in Hong Kong for three to five years) or by partnering with or acquiring a CEPA-qualified company.
8. Innovation and technology enjoys strong government support
Hong Kong remains one of the most competitive cities in the world, with progress in its innovation and technology environment Hong Kong rose to 3rd place in the World Economic Forum’s competitiveness ranking and 13th in the Global Innovation Index ranking in 2019, despite ongoing political turmoil.
The development of innovation and technology (I&T) has been a top priority for the Hong Kong government, which has committed HK$100 billion to introduce various I&T policy initiatives with focuses on developing four areas of strength: artificial intelligence and robotics, biotechnology, financial technologies and smart city.
In recent years, the government has significantly stepped-up support for scientific research and I&T sectors by developing infrastructure, promoting research & development, nurturing talent, promoting re-industrialisation and enhancing financial support to enterprises.
In terms of I&T infrastructure, the development of the Hong Kong-Shenzhen Innovation and Technology Park, an 87-hectare world-class innovation hub, is well underway, along with the Data Technology Hub, the Advanced Manufacturing Centre in Tseung Kwan O and Cyperport 5, with expected completion dates in 2020, 2022 and 2024 respectively.
In addition, two research clusters – Health@InnoHK and AIR@InnoHK at Hong Kong Science & Technology Parks Corporation (HKSTP) – will significantly enhance research collaboration between local, Mainland and world-renowned universities and reinforce Hong Kong’s widely recognised R&D capabilities.
The funding landscape for start-ups in Hong Kong is maturing, with a total of US$ 720 million invested in Hong Kong-based start-ups by October 2019. The new listing regime of the Hong Kong Stock Exchange has allowed technology companies with weighted voting rights, pre-revenue and pre-profit biotechnology companies to raise funds in Hong Kong. This has led to a number of high-profile public listings of innovative firms in the Hong Kong Stock Exchange.
In addition, the government has also set up a co-investment fund with a pilot group of venture capitalist firms named Innovation and Technology Venture Fund (ITVF) to stimulate private investment in local start-ups.
9. Competitive international financial platform
With its strengths in banking, capital markets and asset management, Hong Kong provides an all-encompassing and high-quality financial platform for investors, financiers, asset managers, funds and financial institutions from all over the world. Hong Kong is also a preferred location for corporate treasury centres.
The quality of Hong Kong’s banking system enables it to play a key role in the region and offer a wide variety of products and services. Hong Kong is Asia’s largest banking hub for Chinese and international banks with 200 authorised banking institutions, including the world’s largest, and 70 of the world’s top 100. In light of the rapid technological advancements, a number of initiatives have been launched to move Hong Kong into a new era of Smart Banking.
Hong Kong’s highly liberal, liquid and deep securities market has attracted many international banks and securities houses to build a presence, providing another critical channel for companies to raise funds in the form of equity and debt. Having Asia’s deepest international capital market, Hong Kong is among the world’s largest equity fundraising centres and the third largest bond centre in Asia ex-Japan.
It is common for corporates to use corporate treasury centres (CTCs) to simplify and centralise their treasury activities. Being an international financial centre with a full range of services available, Hong Kong is an ideal hub for corporate treasury activities. To encourage more corporates setting up their CTCs in Hong Kong, the government has also introduced tax incentives.
10. Business friendly immigration and high standards of living.
Hong Kong has business friendly immigration policies. It offers visa-free entry for visitors from over 170 countries and territories who can stay for between seven to 180 days, as well as dedicated visa schemes for entry for investment as entrepreneurs and for employment in R&D roles.
Short-term visitors can make the most of Hong Kong’s light-touch visa policies and are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit. Foreign nationals working in Hong Kong for longer periods of time require a visa before they can live or work in Hong Kong.
- Employment Visa – To employ overseas staff, you must demonstrate that a prospective employee has special skills, knowledge or experience not readily available in Hong Kong. The proposed employee must be sponsored by an employer in Hong Kong.
- Entrepreneur Visa –The applicant should be in a position to make substantial contribution to the economy of the HKSAR, with consideration factors or startup businesses. Their start-up business may be considered favourably if it is supported by a government-backed incubation programme.
- The Technology Talent Admission Scheme (TechTAS) – TechTAS provides a fast-track arrangement for eligible companies to admit overseas and Mainland technology talent to undertake research and development work in the areas of artificial intelligence, biotechnology, cybersecurity, data analytics, financial technologies, material science, robotics, 5G communications, digital entertainment, green technology, integrated circuit design, Internet-of-Things or microelectronics.
People who successfully apply for a visa can bring their spouse and dependent children under the age of 18, provided they have sufficient funds and suitable accommodation. The limit on their stay is the same as the visa holder – who is officially the ‘sponsor’. A spouse holding a Dependant visa can undertake any type of lawful employment in Hong Kong.
Hong Kong is a vibrant, exciting city that reflects the mix of Chinese roots with influences from its time managed by the British. Somehow, Hong Kong manages to balance traditional Chinese culture with a fast paced, modern lifestyle. The diverse nature of Hong Kong means there are many international schools for expat children and a wide range of healthcare services.
