Why You Should Set Up a New Business in Hong Kong This Year

Towering skyscrapers, double-decker trams on a busy road, bright neon street signs, and bustling harbours. These images of Hong Kong have enthralled the whole world for decades. In the 21st century, Hong Kong has evolved into a dynamic city with strong growth possibilities. 

The region retains its distinction as one of the world’s free commercial environments, with few regulatory limitations and a reputation for efficiency. It is often regarded as an ideal place for investors and entrepreneurs. This continues to ring true for Hong Kong as more and more companies and startups are launching their business in the vibrant metropolis. 

So what makes the Special Administrative Region so enticing to a lot of people? Let’s look at some compelling reasons why you should consider Hong Kong as your next business destination. 

• Low & Simple Tax System

Hong Kong is known around the world for its straightforward and low-tax structure, making it one of the most business-friendly places. Most foreign investors are attracted by the favourable tax system in Hong Kong. 

A business operating in Hong Kong benefits from the territorial source principle, for which any profits sourced outside Hong Kong is not subject to Profits Tax. The advantage of setting up a business in Hong Kong is that there is no capital gain tax, sales tax, VAT, or withholding tax on dividends and interests.

Corporations are taxed at a statutory tax rate of 16.5%, whereas unincorporated firms are taxed at 15%. Effective from the year of assessment 2018/2019, a Two-Tiered Profits Tax Regime has been implemented which lowers the tax rate for the first HK$2 million of assessable profits for both corporations and unincorporated companies to 8.25% and 7.5% respectively, with the remaining profits being taxed at the current tax rate of 16.5% for corporations and 15% for unincorporated companies. It aims to significantly reduce the tax burden of most tax-paying small and medium-sized enterprises. 

The two-tiered rates are available to only one “entity” within a group of “linked entities.” To accomplish this, the group must first determine which entity will benefit and then select accordingly.

• Accessible & Key Location 

Hong Kong is strategically located in a key area of the Asia Pacific, connected by air and sea travel to Asia’s strongest economies in Japan, South Korea, Taiwan, Southeast Asia and beyond.

Hong Kong’s proximity to some of the world’s largest and most robust economies have made it the most convenient base for doing business in Asia and has maximised opportunities for mutually convenient engagement with Asia’s key markets. 

Moreover, being one of Asia’s busiest aviation hubs, its award-winning airport serves flights to and from over 200 worldwide destinations. Hong Kong International Airport’s handy downtown check-in service and high-speed Airport Express train make business travel in and out of the city effortless and enjoyable. 

Few other cities can match Hong Kong’s fortuitous positioning in the heart of enterprising Asia. The city’s commercial and geographical access to the region’s high-growth markets, combined with its comprehensive international transport connections and economic advantages, make it Asia’s top spot for strategic events that get down to business both in Hong Kong and beyond.

• Main city in the Greater Bay Area 

Being the most international city in the Greater Bay Area, Hong Kong plays a key role in the Greater Bay Area development and also acts as a gateway to the Mainland Chinese market. Cities in the China coast have been transformed into major industrial hubs partly due to their accessibility to Hong Kong. 

The development of the Greater Bay Area further deepens the cooperation between Guangdong, Hong Kong and Macao, fully leverages the composite advantages of the three regions, facilitates in-depth integration within one another, and promotes coordinated regional economic development. Its long-term goal is to develop an international first-class bay area ideal for living, working and travelling.

As a result of Hong Kong’s role in the development of the Greater Bay Area, Hong Kong, Macao, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing are now integrated into one of the largest economic and business hubs in the world, contributing a colossal US$1669 billion in Gross Domestic Product (GDP) as of 2020. 

Through the development of the Greater Bay Area, Hong Kong companies are able to increase their market size and create more opportunities for Hong Kong businesses.

• Role in the Belt and Road Initiative (“B&R”)

Conveniently located at the centre of the Asia-Pacific region, Hong Kong has successfully acted as a central hub for communication and transport in the Asia-Pacific region. Hong Kong’s well-developed infrastructure and efficient high-end logistics services greatly supports and serves the B&R construction. 

As one of Asia’s top asset management centres, Hong Kong is able to meet the demand for wealth and risk management services generated by B&R projects. As a key link and the prime platform for the B&R, and with the Central Government’s support, Hong Kong can capitalise on its unique advantages to connect the Mainland with other B&R regions, in areas such as the international project financing, offshore Renminbi (RMB) business, professional services, as well as economic and trade co-operation.

• Free Market Economy

One of the benefits of establishing a business in Hong Kong is that the local economy is based on free trade, a free and open market, and free entrepreneurship. There are no limits on investments in Hong Kong, both inbound and outbound. There are also no limits on foreign ownership or foreign exchange controls.

Hong Kong’s free-market economy is also attributed to its large foreign exchange reserves, low public debt, a robust banking system, a strong legal system, a business-friendly environment, and a tough anti-corruption regime. All these characteristics help the region to stand as a promising commercial destination.

• Full Business Ownership

A foreigner can hold 100% of a firm that is formed and based in Hong Kong, and the law does not impose any local residency restrictions. This permits a foreigner to be the sole shareholder and director. Another advantage of launching a business in Hong Kong is that you do not need a physical address to do business there. Only a registered office address is required. Additionally, businesses can open multi-currency bank accounts.

The company is also eligible for offshore company status if the directors are not Hong Kong citizens. In that situation, you only have to pay taxes on profits made within Hong Kong’s jurisdiction. Having this autonomy and ownership makes Hong Kong a desirable location for businesses.

• Support to Small and Medium Enterprises (“SMEs”)

The HKSAR government understands that vitality and business performance are critical to the advancement of the economy. Thus, the Trade and Industry Department has initiated multiple services aimed at facilitating the development of SMEs in Hong Kong and helping them improve their competitiveness to help them achieve wealth and success.

To achieve the objective, the Trade and Industry Department provides SMEs with a comprehensive range of free business information through the Support and Consultation Centre, a first stop provider of business information and advisory services as well as offers various funding schemes to SMEs.

Conclusion

When considering where to base your business, Hong Kong is a great option. The prime location, low tax rates, and free and open market of Hong Kong, together with the development of the Belt & Road Initiative and Greater Bay Area brings great opportunities to a wide spectrum of businesses. Connect with our company incorporation experts at Ledgen to start incorporating your business in Hong Kong. 

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