If you are looking to do business in the Asia Pacific region, Hong Kong is internationally recognised as one of the best places to be. With multinational access to the region, as well as acting as a 'gateway to China', Hong Kong is an important channel for inbound investors looking to develop corporate relationships throughout Asia.
A Special Administrative Region (SAR) of China, Hong Kong is a world renowned financial, trading, and business centre. It has a population of over 7.4m people, practises free trade through a free and liberal investment regime with virtually no trade barriers or discrimination against non-local investors. There is freedom of capital movement, an established rule of law, transparent and straightforward regulations, in addition to a low-tax system.
As a special administrative region of China, the city is also the preferred first stepping stone for many mainland Chinese businesses looking to pursue international opportunities and a conduit for investment in both directions.
If you are looking to set up a business in Hong Kong, below are the highlights of the requirements you should know before making a move.
Establishing a company in Hong Kong
Hong Kong is built on its ability to harness its status as a 'gateway to China' and the rest of Asia and is known to be business friendly. The World Bank ranks the jurisdiction fifth in the world for ease of doing business and third for establishing a company, thanks to its minimal procedures (two), time (one and a half days) and cost.
Hong Kong is also the easiest jurisdiction in Asia Pacific for accounting and tax compliance, according to TMF Group's Financial Complexity Index 2018.
Opening a bank account
Opening a bank account in Hong Kong can be complicated for a foreign company and this is unfortunate as it is a key aspect of doing business in the country, especially if the business is in its infancy. Reasons behind the complications include producing less or no profit, no physical presence in Hong Kong, companies of foreign nationals, complex ownership structure, and lack of financial history for new businesses. Ways around this could be using an offshore bank, which means having a bank account in another location such as a low tax jurisdiction outside the country.
Talents in Hong Kong
In early 2017, Food and Health Bureau identified future staffing shortages for at least nine occupations due to population aging issue. Paul Chan Mo-po, the Financial secretary of Hong Kong, suggested the suitability of importing foreign labour in the Budget 2018 to tackle the expected labour problem. In the period from December 2017 to February 2018, the total employment number was 3.87m and the seasonally adjusted unemployment rate stood at 2.9%. Regarding literacy, Hong Kong was ranked third by The Progress in International Reading Literacy Study (PIRLS) 2016 released in December 2017. Hence, it is not difficult for new businesses to fill positions in Hong Kong with skilled employees.
Budget 2018 & 2019
Hong Kong is working to enhance its competitive edge and maintain its economic sustainability. The advantageous budget changes for both corporates and individuals, with a particular focus on supporting innovation and developing the financial services industry, make Hong Kong an attractive place to work and invest.Tax requirements in Hong Kong.
Hong Kong has aligned its tax policy with its goal to become one of the most tax friendly environments in the world, with just three direct taxes, capped at between 15% and 16.5%, and with further allowances and deductions possible. This, and the lack of VAT, sales, dividends, estate, capital gains and withholding tax, is why Hong Kong has emerged as one of the preferred locations for most global entrepreneurs. The jurisdiction has also made submitting tax returns a straightforward process. However, with the vast number of tax incentives implemented in recent years, having local support is essential to maximise tax benefits.
Recent domestic tax changes in Hong Kong
2018 is bringing a change to profit tax rates to ensure the country is a competitive and alluring investment destination. The proposed changes include a two-tier escalating arrangement, with the first HK $2 m (US $0.256 m) of profits taxed at 8.25% and profits above that amount continue to be subject to 16.5%. For unincorporated businesses that are partnerships and sole proprietorships, the tax rates will be 7.5% and 15% respectively. New Research and Development tax deduction incentives provide a 300% tax deduction on the first HK $2 m of expenditure and the remaining expenditure with 200% deduction.
Customs and excise duty
Hong Kong is known for its easy customs procedures and free port status, both when importing or exporting, with duty excised on very few products. Duty is paid, for example, on liquors and tobacco. In the last few years, duty was dropped for the import of wine and beer, encouraging a thriving wine import, export and storage business.
According to the World Intellectual Property Organisation (WIPO), Hong Kong ranks among the world's top 20 centres for patents. The Customs and Excise Department is active and takes quick action against copyright piracy and trademark counterfeiting, making, Hong Kong a leader in the region in the fight against IP pirating.
Contact our local TMF Group experts
TMF Group has the local knowledge to help you identify the relevant tax and accountancy aspects in Hong Kong, and face any challenge or opportunity they may pose for your business. Whether you want to set up in Hong Kong or want to streamline your Hong Kong operations, we have the local knowledge to help. Talk to us today.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.