The “one country, two systems” concept provides startups in Hong Kong, as a Special Administrative Region (SAR) of China, with extensive opportunities for growth. Annually, the city ranks at the top of global ratings, indicating its openness to business activities. So, what could be the key advantages of opening a company in Hong Kong specifically for you?
Registration Process
First of all, it is worth noting the timelines, financial investment, and remote work format. For instance, registration takes 2 days, the minimum share capital threshold is 1 Hong Kong dollar, and there is a simplified procedure for document legalization via apostille. Overall, the costs at the company formation stage are very low compared to other jurisdictions. The lower threshold for business registration cost here starts from 990 US dollars.
In the SAR, renting a physical office is not mandatory, so it is more than feasible to conduct business outside of Hong Kong by opening a bank account remotely using modern payment systems. It is also convenient that non-residents can be both shareholders and directors without obtaining visas or permits. As for financial accounting, it is also in a simplified format with an annual reporting period. However, a local company secretary is required, and the storage of documents for most major types of financial and business operations is mandatory for audit purposes.
Taxation
Hong Kong offers a territorial principle of taxation. What does this mean? Profits tax is only levied on income sourced within the SAR. The following rates apply: 8.25% on profits up to 2 million Hong Kong dollars, and 16.5% on profits exceeding 2 million Hong Kong dollars. Also, companies do not pay VAT, which simplifies reporting and increases net profit.
Geographical Location for Import and Export
Being a major global hub for trade between East and West, Hong Kong has double taxation avoidance agreements with 49 jurisdictions. Its advantageous geographical location and access to Chinese markets provide ample opportunities for cooperation with mainland China on import and export. This enables duty-free trade, significantly reducing the cost of goods.
Legal Peculiarities
Regarding dividends for businesses in Hong Kong, there are also a number of pluses. The frequency of these profit distributions is not regulated, and interim dividends are permitted. Furthermore, a preferential regime is in place: dividends are transferred to shareholders without withholding tax at source, and capital gains are not subject to taxation.
Another attractive aspect for international investors of doing business in Hong Kong is the application of the English common law system, which allows for adapting contract terms according to business goals. In turn, the absence of foreign exchange control allows for making payments freely in any currency. It is important that transfers have a legal basis and are properly documented.
Risks
Are there any drawbacks or challenges to Hong Kong as a jurisdiction for establishing and running a business?There is always a chance of facing difficulties when opening a corporate account with traditional banks. But it is always possible to find an alternative in the form of payment service providers, which successfully meet the needs of small and medium-sized businesses.
High competition in some sectors is also a factor. For example, in the real estate market, fueled by interest from wealthy mainland Chinese citizens and Hong Kong’s small size. Moreover, prices for residential and office properties here are among the highest in the world. But this too is solvable – a company is entitled to register in Hong Kong and conduct its operations in other countries without additional expenses for renting or buying property.
Regarding financial relationships between the company and employees, there are some nuances, from the mandatory 13th-month salary at year-end to the employer’s 5% contribution to the Mandatory Provident Fund (MPF) scheme. However, you can hire foreign specialists without these contributions.
The procedure for closing a business in Hong Kong takes more time than its incorporation, although it is quite transparent and predictable. One of the most accessible methods of liquidation is deregistration of the company, provided it has not commenced operations or has ceased operations for more than 3 months and has no outstanding liabilities. The process takes from 8 months and costs approximately 3,500 US dollars.
An annual audit is mandatory here, which fosters a trustworthy reputation for Hong Kong. At this stage, receiving a clean audit opinion signifies the correctness of the financial statements. Overall, the requirement for an audit provides a basis for determining the profit or loss of Controlled Foreign Companies (CFCs) under Hong Kong legislation.
Difficulties in obtaining a right of abode can also arise, but it is not necessary for running a business if you have no plans related to permanent presence in the SAR. It is also worth considering that the ability to utilize the tax advantages of the territorial principle depends on the physical presence of the company’s founder or its key employees in Hong Kong. In general, the SAR Government provides the right of abode to entrepreneurs and investors who contribute favorably to the city’s economic development.
Opportunities
What else is worth noting?Tourists and citizens of other countries can visit Hong Kong visa-free for up to 14 days. English has the status of a second official language, which practically eliminates translation difficulties in both business and everyday communication. Without any problems, in Hong Kong you will have the opportunity to register and get a permanent SIM card with a number from a local provider, as well as purchase a regional domain for your company’s website.
The city provides great scope for shaping your lifestyle. This includes the possibility of leisure time on the beaches of the South China Sea, the experience of tasting unique and diverse Asian cuisine, and the opportunity to travel while running an international business without any restrictions. All of this together creates the foundation for forming your very own personal advantage, which outweighs any risks or drawbacks when starting a business in Hong Kong.
