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Hong Kong is in the top 5 of the Doing Business international ranking released by The World Bank in 2016. This ranking is based on numerous criteria such as ease of doing business, trading across border or paying taxes. Regarding the criteria ease of starting a business, Hong Kong ranks at third place. Indeed, the statistics speak for themselves as more than 1.3 million companies have established in Hong Kong while there are more than 150,000 new incorporations per year. Why is this city so attractive? And why have so many companies incorporated or intend to set up here?
On top of its strategical location (easy access to the key Asian markets and half of the world’s population within less than 5 hours’ flight), the Hong Kong Special Administrative Region is a state of rights with its common law legal system and liberal economic rules stemming from its history as a British colony.
Regarding the corporate environment here are some facts and figures that you must know if you want to set up in Hong Kong:
- Director can be a non-resident i.e. he/ she/ it (corporate body) does not have to reside in Hong Kong
- Minimum capital of HKD 1
- Easy to incorporate and maintain
- Audit and tax filing are required for all companies
- Profits Tax rate of 16.5% (territorial tax system) and no tax on capital gains and dividends
- Offshore Profits Tax Exemption if you have no suppliers/customers/employees/banking facilities based in Hong Kong (for more detail refer to our article “Hong Kong Profits Tax Exemption Explained”)
- Social fare basically limited to Mandatory Provident Fund (MPF) for a maximum of 1,500 HKD/ months/ employee for the employer (and 1,500 HKD/ months for the employee).
- Salaries tax rate a maximum of 15%
- No sales tax or VAT / GST
Limited by its small local market (7.3 million habitants in a territory of 1,104 km2) but conscious of its strategic location, Hong Kong has setup an attractive system for worldwide investors to increase its internal funding capacity. With the implementation of tax incentives and free international trade rules Hong Kong serves capitalistic interests and has become one of the biggest financial hubs in the world. This evolution has created two main contrasting economies; a small local economy for everyday life needs and a huge international economy for services of big companies. In other words, there is limited intermediate economy for SMEs and startups. The business environment with tools such as funding solutions, entrepreneur programs or promotion of specialized industries, is poorly developed. However, the Hong Kong government has recently started to stimulate innovation, technology and new industries with R&D tax incentives for SMEs and a fund scheme for local technology startups (please see our Hong Kong – 2017 Policy address highlights article).
The only issue that has made Hong Kong less attractive recently is the difficulty in opening bank accounts. Indeed, the whole international community has strengthened their regulation against money laundering and terrorist financing. In that sense, the HKMA (Hong Kong Money Authority) is asking banks and financial institutions to get to know their customers better by asking tangible information on their customers’ business. So, as long as you plan to establish in Hong Kong with a tangible, well explained and provable business project, opening a corporate bank account should not be an issue. It will just take more time because of the due diligence requirements of the bank.
In conclusion, with quite a flexible legal environment and an advantageous taxation system, Hong Kong is one of the best places in Asia to establish a business.
Planning to develop your business or set up a company in Asia? Orbis would be pleased to support and share its experience with you to make your project feasible.
By Francois Bernard, Orbis Hong Kong Consultant.