If you intend on launching or extending your activities in Asia, Hong Kong is one of the first business hubs where you should consider doing so. Why is that? In the list below, GuideMeHongKong has narrowed down 7 key reasons why it is great setting-up and operating a business in Hong Kong.
1. Strategic Position in Asia
Hong Kong is the perfect location if you want to grow a business in Asia. Major cities in North East Asia are reachable in less than 5h flights, and Hong Kong International Airport is one of efficient worldwide, with over 100 airlines offering more than 180 destinations and over 1,000 flights a day. Besides, there is no or little time difference (up to 1-2h) between Hong Kong and major APAC hubs such as Singapore, Beijing, Shanghai, Taipei, Seoul, Tokyo, Bangalore, and Perth, which facilitates real time communications.
2. Gateway to China
Hong Kong’s proximity to Mainland China, both geographically and culturally, makes it the ideal springboard to invest therein. In fact, there is nowhere better than Hong Kong to gather the expertise, information and facilities needed to penetrate China market. Cross-border exchanges are easy and the regulatory framework encourages them. This includes the Arrangement for the Avoidance of Double Taxation concluded between Hong Kong and China, which clearly allocates the right to tax between the two jurisdictions, and the Closer Economic Partnership Arrangement (CEPA), which further entices Hong Kong businesses to access China market. In the future, Hong Kong shall also strengthen its strategic position in the region, while supporting the Greater Bay Area and Belt and Road Initiatives.
3. Friendly Tax Environment
Hong Kong relies on a territorial tax system, under which Hong Kong residents (both corporate and individuals) are only taxed on their Hong Kong income, while foreign-source income is not subject to Hong Kong tax.
Hong Kong companies are thus liable to profits tax on their Hong Kong income at the standard rates of 8.25% for the first 2 million HKD of profits and 16.5% beyond. Foreign-source income is in principle not subject to Hong Kong profits tax and companies deriving most of their profits from offshore activities may apply for an offshore income exemption, though such preferential tax treatment is not automatic and requires a prior tax investigation from the tax authorities.
Hong Kong individuals are subject to salaries tax on any income arising in or derived from an office, employment or pension in Hong Kong. Salaries tax is levied at progressive rates on the net chargeable income and is capped at 17%. Besides, the total salaries tax charged to an individual residing in Hong Kong shall not exceed 15% of that person’s net assessable income.
Hong Kong levy no tax on capital gains, dividends and/or interest, and withholding taxes only apply to certain types of royalties (paid to non-residents for the use of intangible assets located in Hong Kong). There is no Value Added Tax in Hong Kong (contrary to Mainland China), while Stamp and Custom Duties remain marginal.
These tax rates are much lower than what other Asian cities can offer.
4. Ease of Accounting and Tax Compliance Rules
Hong Kong accounting, tax and regulatory compliance are in line with international standards while remaining quite simple.
Companies established in Hong Kong are required to keep and file financial statements in accordance with local accounting standards. With a view to attract foreign investors, Hong Kong Accounting Standards (HKAS) and Financial Reporting Standards (HKFRS) are largely aligned with internationally accepted principles (i.e. IFRS), which is not the case in Mainland China where specific accounting standards have to be adopted. Besides, simplified standards are available in Hong Kong for Small and Medium Enterprises (SME).
Reporting obligations are quite straightforward. Hong Kong companies shall simply complete the 3 following yearly declarations:
(i) Annual Return: Within 42 days from the anniversary of their incorporation, companies shall submit an Annual Return to the Companies Registry, recording key information and changes occurred during the former year.
(ii) Employer’s Return: Every year in April, Hong Kong companies shall report the salaries paid to their staff (as well as to freelancers) and subject to Hong Kong taxation.
(iii) Profits Tax Return: At the end of their financial year, Hong Kong companies are required to complete and submit a Profits Tax Return to the Inland Revenue Department, together with a certified copy of their audit report. Hence, audit is mandatory in Hong Kong, though a tolerance can sometimes be awarded in practice by the tax authorities for very small businesses (this is not automatic and depends on particulars of the case).
5. Established Rule of Law
Hong Kong legal system is based on the Rule of Law and the independence of judiciary. Everyone in Hong Kong is equal before the law. Everyone has access to justice. Under the “One Country, Two Systems” principle, the laws previously in force before Hong Kong handover in 1997 (i.e. the Common Law, rules of equity, ordinances, subordinate legislation and customary law) have been maintained, in accordance with the Basic Law which has now become its constitutional roots. The legal system of Hong Kong is hence separate from the Mainland’s. Its stability and maturity remains a key factor for the international community and foreign investors.
6. Pool of Talents
Hong Kong is home to a diversity of talents, having the skills, knowledge, languages, multi-cultural background and international outlook to drive business in Asia. Selective immigration policies also enable overseas talents and investors to obtain Employment Visa and/or Investment Visa, to come, stay and work in Hong Kong. The lifestyle, international standards, and quality of Hong Kong’s education system, as well as the diversity of its universities programs draw the attention of more and more international profiles. In an effort to further attract international talents, Hong Kong recently issued a Talent List which pinpoints 11 professions that Hong Kong needs most, including asset management, marine insurance, FinTech, data science, cyber security, innovation and technology.
7. Supporting Innovation and Tech
While Shenzhen might be taking the lead regionally in terms of hardware production, Hong Kong is attracting more and more innovative and technology driven businesses, including FinTech projects. In fact, 4 Hong Kong Unicorns are FinTech related (i.e. WeLab, TNG, BitMex, and AirWallex). A growing number of initiatives are adopted to boost that trend, such as the multiplication of incubator programs, incentive schemes, funds, and R&D tax incentives.
These all make Hong Kong an attractive business centre in Asia, and an ideal “laboratory” to test and validate your potential of growth in the APAC region.