The unique status of “one country, two systems” of the Hong Kong Special Administrative Region of the People’s Republic of China, one of the largest economies in the world, provides ample opportunities for doing business both within Hong Kong and internationally.
Establishing a company in Hong Kong opens up new markets for sales, procurement, and personnel. The advantages include favorable taxation of profits based on the territorial principle, the absence of VAT, a wide range of corporate legal instruments based on English law, etc. Thanks to this, Hong Kong leads all world rankings for the accessibility and ease of doing business.
Benefits of opening a company in Hong Kong
Hong Kong is one of the most attractive and reliable jurisdictions for doing international business for the following reasons:
English language
English is the second official language in Hong Kong. This facilitates communication, as there is no need to hire a Chinese translator to interact with local government agencies, contractors or employees. It is enough to know English at a basic level, and you will be able to understand government documents, forms, laws.
Foreign citizen – founder and director
A citizen of any country of legal age can become a shareholder (founder) and director of the company, and there is no need to obtain visas and permits. There are no restrictions on the citizenship of participants and employees of the company in corporate and immigration legislation. Therefore, you will not have to hire a local director or other personnel to comply with immigration legislation, as is required in many other countries.
If a foreign director or shareholder plans to live and work in Hong Kong, a visa and permit will be required.
Ease and efficiency of setting up a business
The average time to register a company in Hong Kong is 3 days.
To set up a legal entity, copies of the identity documents of the shareholder and director of the company, taken from the originals or duly certified, as well as proof of their current residential address are required.
The minimum authorized capital in Hong Kong is only 1 Hong Kong dollar. It is considered normal practice to form an authorized capital of 1,000 to 10,000 Hong Kong dollars. However, there is an advantage: according to Hong Kong law, it can remain unpaid, and the payment can be deferred for an indefinite period.
No need to rent a physical office
The Companies Act obliges Hong Kong companies to have a registered address in Hong Kong. This address serves as the official point of contact between the company and the Hong Kong government authorities, to which notifications and documents are sent. The company is not required to conduct actual business activities at its registered address
The actual business may be located outside Hong Kong. For example, an office, warehouse located in another country, or even at the home address of the founder or director.
Remote opening of a bank account
Accepting a company with foreign shareholders for account opening requires additional verification by the bank. Local banks are no exception: opening an account in a classic bank in Hong Kong is possible for a foreign businessman, but it is not easy.
The good news is that not only Hong Kong banks provide settlement services. New generation Money Service Operators or Stored Value Facility companies (we may further call them as «payment systems» or «FinTech’s») have fully replaced classic banks in respect of payment solutions. Such companies have licenses that allow them to carry out domestic and international transfers, convert currencies and, depending on the license level, save money in accounts.
All operations of such payment systems are serviced by the largest banks in Hong Kong (DBS Bank, Standard Chartered, City Bank), and payment systems execute payment orders, provide user-friendly fintech experience, record transactions and balance on client accounts. The act as intermediaries between the client and the bank, providing its technical innovations in payments’ solutions. However, money transfers are possible thanks to the infrastructure of classic banks.
By opening an account in such payment systems, your company can enjoy all the advantages of Hong Kong traditional banking. These include the absence of currency controls, low fees for banking transactions both within Hong Kong and for SWIFT transfers, multi-currency accounts in almost all freely convertible currencies, which are processed on the same day and quickly reach their beneficiary destination.
A noticeable convenience of payment systems in Hong Kong is the ability to open an account remotely. They carry out the procedure of compliance remotely using technical know-how that meets the requirements of the law and significantly simplifies the procedure.
Another significant advantage of the procedure for opening an account in payment systems is a higher percentage of approvals. The principle of large banks “we do not consider small businesses” is not applicable, since the very concept of money service operators appeared to solve an existing problem in the market of international business transfers for small and medium businesses.
Companies are required to maintain transparency in their operations, conduct business in compliance with the law, make economically justified payments within the scope of their business activity and ensure that payments are not connected with any sanction elements.
Some payment systems can issue corporate cards for founders and employees. Using a corporate card allows you to pay for advertising costs on Google, Facebook and others, purchase tickets for business flights and office equipment for business needs, book hotels and make other business expenses.
Among the disadvantages of payment systems, the following can be highlighted:
- a limit on the maximum size of transactions volumes – it varies, but on average not more that than 1 million Hong Kong dollars per month. If necessary, the limit can be increased in proportion to business needs by submitting a request and documents;
- it is impossible to use the letter of credit form of settlements;
- it is impossible to issue a bank guarantee or receive a loan;
- it is impossible to issue a check;
- payment systems are not included in the national deposit insurance system.
Territorial approach to profit taxation
The main principle of the local territorial taxation system is that profits from sources within Hong Kong is subject to tax. Profit from sources outside Hong Kong is not subject to tax.
If all the answers refer to a territory other than Hong Kong, then the source of the profits is likely outside Hong Kong and therefore not subject to income tax.
What if your company’s source of profit is in Hong Kong?
No problem, because Hong Kong has some of the lowest corporate tax rates in the world! For example, the corporate tax rate is 8.25% if the company’s net profit does not exceed HK$2 million. If your business is more profitable, then profits over HK$2 million will be taxed at 16.5%.
Note that the 16.5% rate applies to profits that exceed HK$2 million. This means that the effective tax rate for large profits will be lower than 16.5%. Here’s an example:
Your Hong Kong company’s financial results for 2023–2024:
- revenue — USD 10,000,000 (approximately HKD 78,069,500);
- justified and confirmed expenses — USD 9,000,000 (approximately HKD 70,262,550);
- profit — USD 10,000,000 – USD 9,000,000 = USD 1,000,000 (approximately HKD 7,806,950).
The profits tax will be:
- 2,000,000 * 8.25% = 165,000 HKD
- (7,806,950 – 2,000,000) * 16.5% = 958,147 HKD
The total tax rate on the company’s annual profit will be 14.38%
If the source of the company’s profits for this financial year is located outside Hong Kong, then there will be no profit tax.
No VAT
Regardless of turnover, scope of activity or other parameters, companies registered in Hong Kong do not pay VAT. There is no such tax in Hong Kong, and there is no other tax that would indirectly replace VAT.
The absence of VAT significantly simplifies the life of entrepreneurs, since there is no need to report, fill out quarterly declarations, and calculate the amount of VAT to be offset and paid, while the business profit grows.
No tax on dividend payments
Dividends are not subject to withholding tax when transferring dividends to the company’s shareholders. Therefore, by decision of the board of directors (or sole director), the company’s shareholders can receive a portion of the company’s profits in the form of dividends without additional costs at the source of payment.
A healthy business practice is to pay dividends after the preparation and approval of audited financial statements, when the company’s profits are officially confirmed.
An interesting aspect of dividend rules in Hong Kong: The Companies Act allows for interim dividend payments from the company’s profits. The frequency of such payments is not regulated. Therefore, if the company, according to the interim financial statements, has sufficient profit, then part of it can be distributed among the shareholders before the reporting date. Subsequently, the reporting for the relevant financial year will include all interim dividend payments.
Capital gains in value are not taxable
If you sell an asset for more than you bought it for, and it is not the main activity of your Hong Kong company, then you will not have to pay capital gains tax.
Avoidance of Double Taxation
As of June 2024, Hong Kong has signed Double Taxation Agreements (DTAs) with 49 jurisdictions (including China, Vietnam, Thailand, the United Kingdom, the United Arab Emirates, Serbia, Spain, Saudi Arabia, Romania, Pakistan, India, Qatar, Mexico, Malaysia, Latvia, Indonesia, Austria, Bahrain, Bangladesh, the Russian Federation, Belgium, Canada, France, Georgia, Hungary, Ireland, Korea, the Netherlands, Malta, Portugal, Switzerland, South Africa, New Zealand, Mauritius, Luxembourg, Belarus , Liechtenstein, Kuwait, Japan, Italy, Ireland, Finland, Estonia, the Czech Republic, Croatia, Cambodia, Brunei and some others). The country is also negotiating with 16 more jurisdictions.
Simplified financial accounting
Mandatory requirements for accounting of business transactions in Hong Kong
- Preparation of the company’s annual financial statements.
- Conducting an audit of the company’s annual financial statements.
- Keeping of all primary documents on business transactions (record keeping) – invoices and / or contracts, other documents, if applicable to a particular case.
The reporting period is once a year. This means that once a year you need to report on the company’s financial results. The first financial year of the company may last up to 18 months.
It is not necessary to make accounting entries in the daily, monthly, quarterly report.
English legal system
The English legal system is in effect in the Hong Kong administrative region. Hong Kong is the only region in China where English law is used, and the only jurisdiction in the world that has a bilingual common law system – in English and Chinese.
English law provides an opportunity to use a wide range of tools for structuring transactions related to corporate law. It is convenient to develop any types of option agreements, prepare contracts for the purchase and sale of company shares.
A wide range of legal corporate tools is of interest to international investors due to the opportunity to work in a legal field familiar to them, which has proven itself in the practice of court decisions for several hundred years.
English law is widely used in international transactions due to its optionality. It allows the parties to formulate the terms of the contract quite flexibly, without looking back at the mandatory norms of local legislation.
No currency control
There is no state currency control in Hong Kong. Payments in any currency are freely made. As a rule, banks and financial institutions in Hong Kong offer the widest possible range of currencies for work.
However, transfers of entities must be carried out within the framework of their legitimate activities, be economically justified and documented. The absence of currency control does not mean the absence of control over transactions that are related to illegal activities.
Convenient geographical location and access to the Chinese market
Hong Kong is a major global hub through which you can trade with the East and West. A large port and international airport provide access to all world capitals.
Companies can cooperate with China both in import and export. However, it is not necessary to import products to Hong Kong. The region is actually part of China, but with its own legal and economic contours.
Duty-free trade
If you deliver goods to or from Hong Kong, you will find that customs duties are not levied. This has a positive effect on the cost of goods. Here is an example at the everyday level: Apple products can be bought in Hong Kong much cheaper than in those countries where duties and VAT are levied on the import of goods.
Visa-free
Hong Kong visa requirements vary depending on the nationality of the visitor and the purpose of the visit. Below are the main categories of visa requirements for different countries:
Visa-free
Citizens of many countries can enter Hong Kong without a visa for a certain period of time. For example:
- USA, Canada, Australia, New Zealand, EU countries: up to 90 days.
- UK: up to 180 days.
- Singapore, Malaysia, Thailand: up to 30 days.
- Russia: up to 14 days.
Visa on arrival
Citizens of some countries can obtain a visa on arrival in Hong Kong. However, such countries are few and far between and usually for short-term visits.
Visa required
Citizens of some countries must obtain a visa in advance to enter Hong Kong. For example:
- India: pre-registration is required for visa-free transit of up to 14 days.
- Pakistan, Nepal, Sri Lanka: visa required.
For accurate and up-to-date information, it is recommended to contact the Hong Kong consulates or official websites of the Hong Kong immigration authorities.
Low costs at starting a business
Starting a business in Hong Kong does not require significant expenses. The registration price starts from 990 US dollars, and includes secretarial services and a legal address for a year. There is no need to pay the authorized capital. These are relatively small expenses for entrepreneurs who are entering the international market.
Member of the Hague Apostille Convention
Hong Kong is a member of the Hague Apostille Convention, which establishes a simplified procedure for legalizing documents by affixing an apostille stamp. Apostilled documents of a company in Hong Kong are accepted by government agencies and banks of other countries that are members of this convention and do not require additional legalization. The same set of apostilled documents can be used in different countries participating in the convention.
SIM card
An important advantage of doing business in Hong Kong is the opportunity for a foreign citizen to purchase a permanent SIM card with a local number (+852…). In this case, there is no need to issue a document for permanent residence in the country; a valid identity document is sufficient. Having a local SIM card can have a positive effect on the reputation of your business and its perception by potential clients and partners.
Domain for a website
Similarly to a local domain for a website (for example, www.yourcompany.hk), a local domain can be registered both to your Hong Kong company and to its owner, regardless of his nationality. This can also have a positive effect on the external perception of the company.
South China Sea and beaches
When traveling to Hong Kong for tourism or business purposes, you have the opportunity to spend your leisure time on one of the beautiful beaches and swim in the South China Sea, which washes Hong Kong. For example, the picturesque Stanley Beach is only a 30-minute drive from the central or business district of Hong Kong, as well as other beaches.
Cuisine
Hong Kong has a unique and varied cuisine. It is largely represented by the Asian direction – not only local, but also Vietnamese, Thai, and dishes from other Asian countries. You will try dishes that you have never tasted before. It is an interesting gastronomic experience, and it is quite possible that some of the dishes will become your favorites.
Disadvantages of Hong Kong as a Jurisdiction for Setting Up and Running a Business
Difficulty in Opening a Corporate Account in Traditional Banks
Hong Kong banks serve international operations of both Chinese companies and many of the world’s largest companies. Given the size of China’s economy and trade turnover with other countries, measured in trillions of dollars, it is understandable why large banks lack the motivation to compete for servicing start-ups and small and medium-sized businesses.
As a rule, banks in Hong Kong have a clear profile of the potential client’s company:
- at least 1 year of operation;
- a history of work in the bank, the company’s account statement should present the company better than its marketing presentation;
- the company interacts within the framework of contracts with counterparties from China or Hong Kong;
- a recommendation from an existing client of the bank to which an application is submitted to open an account;
- the presence of local personnel in Hong Kong;
- the company’s actual place of business is Hong Kong;
- the foreign founder and director of the company have the appropriate visa to work and live in Hong Kong.
At the beginning of their activities, most companies cannot meet such requirements.
However, this disadvantage is more than compensated by the presence of Money Service Operators or Store Value Facility Operators. They have become a full-fledged alternative to banks and successfully cover the needs of small and medium businesses for local and international payments.
A company that has opened an account with such an operator, as a rule, has the details similar to the details of a classic bank in Hong Kong. For example:
Name of your company: “Your company Limited”
Bank account number: 7962872000001
Bank: DBS Bank (Hong Kong) Limited
SWIFT: DHBKHKHHXXX
Bank code: 016 Branch code: 478
Storage of funds and transfers are carried out within the Hong Kong bank through the interface of the payment method operator. At the level of use, as well as at the level of making payments, the difference between a bank and a payment system is not noticeable.
Rental cost of residential and commercial premises
The high interest from wealthy citizens of mainland China and the small size of the city itself are the reasons for the high competition in the real estate market. They are the reason for the high cost of a square meter in Hong Kong. Real estate prices in Hong Kong are among the highest in the world. However, the cost of real estate does not affect companies that conduct international activities.
According to the Companies Act, a Hong Kong company is required to have a registered address in Hong Kong, to which government agencies send notifications, declarations and other important documents. And the place of actual business may be outside Hong Kong.
In addition, the presence of an actual place of business of a Hong Kong company outside Hong Kong confirms that the source of its profit is generated outside Hong Kong.
Wages
In 2024, the minimum wage in Hong Kong is HK$40 per hour. With a 5-day, 8-hour workweek, the minimum wage is HK$7,040 per month.
However, the minimum wage is not a competitive rate for skilled personnel. The average salary of, for example, a sales manager will be HK$20,000 – HK$35,000 (approximately from US$2,500 to US$4,500). At the same time, the 13th salary at the end of the year is mandatory.
In contrast to the disadvantages, there are also advantages. Thus, the employer pays only 5% of the employee’s salary to the Mandatory Provident Fund. This is a favorable difference between Hong Kong and other countries, where the total payments from the employee’s salary range from 30 to 43%.
In addition, an employee in Hong Kong will almost always speak Chinese and English. This makes it quite a valuable unit, especially when working with China.
At the same time, it should be noted that the company is not obliged to hire local personnel. It can use the services of specialists in different parts of the world. In this case, paying them will be a legal business expense, and in Hong Kong you will not even have to pay a 5% deduction to the fund for a foreign specialist.
Business closure procedure
As in any other country in the world, it will take longer to close a business than to establish it. It cannot be said that this is a disadvantage of the jurisdiction, but for an entrepreneur, closing a business is an unpleasant moment, since the business project did not take off, did not generate profit, and the company still needs to be liquidated. But its obligations, stipulated by current laws, cannot be simply canceled. After all, a company is a legal entity with a certain set of rights and obligations both to counterparties and to the state in which it is registered.
The positive aspect is that the procedure for closing a legal entity in Hong Kong is absolutely transparent and predictable.
The most accessible way to liquidate a legal entity in Hong Kong is to deregister the company. This method is possible if the company has never started its activity or ceased it more than 3 months ago. It should also have no unfulfilled obligations. The deregistration process in Hong Kong lasts on average from 8 months. Until the moment of official deregistration, the company is obliged to comply with all the norms of the current legislation on companies and tax legislation of Hong Kong.
Another positive point is that the client does not have to personally participate in the deregistration process. To do this, you do not need to visit Hong Kong, all the work will be done by a professional secretary and liquidator.
Yes, the relatively long procedure of deregistration of a legal entity will require certain costs. This is comparable to the price of going through the procedure of legal liquidation of a legal entity in any other country in the world.
Mandatory financial statement audit requirement
An annual financial statement audit is mandatory in Hong Kong. On the one hand, this is extra effort and costs. On the other hand, the obligation to conduct an audit creates trust and a high reputation for Hong Kong on the part of counterparties and foreign banks. Receiving a positive opinion from an auditor in Hong Kong means that the financial statements are prepared correctly in full compliance with standards and laws.
Difficulty in obtaining a residence permit
You do not need to obtain a residence permit to do business in Hong Kong. The founder and director of the company can be a citizen of any country, and no special permits or visas are required for this. And you only need to obtain a residence permit if the founder needs to live permanently in Hong Kong.
Hong Kong is a densely populated city, and China is a country with one of the largest populations in the world. This is reflected in migration policy. Thus, the Hong Kong government benefits from granting residence permits to entrepreneurs or investors who contribute to the development of the city’s economy. This is the key criterion for assessing the possibility of obtaining a residence permit in Hong Kong for a business owner. A special commission, based on the provided business plan and other reliable data about the business, assesses its ability to positively influence the development of the city. The good news is that it is not difficult for the owner of such a business or one with such potential to obtain a residence permit in Hong Kong.
The key criterion for obtaining the right to reside and work for foreign employees is their unique experience or skills for business, which are not easy to find in the local market. Note that to work in a Hong Kong company, you do not need to obtain a work permit. So, if an employee works outside Hong Kong, then a permit is not required for this. It is necessary for the employee to live in Hong Kong.
Also, the actual residence of the founder of the business or his key employees in Hong Kong can affect the ability of the business to use the advantages of the territorial principle of taxation. In this case, the main activity and key decisions can be carried out and form a source of income in Hong Kong. Therefore, in the vast majority of cases, there is no need to obtain a residence permit in Hong Kong.