How to do Business in Hong Kong (by Belinda Wong)

//How to do Business in Hong Kong (by Belinda Wong)

How to do Business in Hong Kong (by Belinda Wong)

Doing Business in Hong Kong (author: Belinda Wong)

Abstract: This article provides a road map for conducting business in Hong Kong with an emphasis on the legal and tax compliance requirements as well as a glimpse of social life. Enjoy the article about How to do Business in Hong Kong. Also read our article about Hong Kong company registration

Keywords: companies ordinance, cyberport, Hong Kong Science and Technology Park, Hong Kong Special Administrative Region, Hong Kong Stock Exchange, International Financial Centre, Hong Kong company registration, How to do Business in Hong Kong, Company incorporation Hong Kong, Hong Kong Secretary services,
Offshore banking Hong Kong.

Geographical Location

How to do Business in Hong Kong

Hong Kong (HK) is a small city located at the southern tip of the Guangdong Province (GD) of China, with a population of just over 7 million. It is a special adminis-trative region (SAR) of China. People can visit Shenzhen­and GD by train, bus, private car, ferry, and other modes of transportation. The Guangzhou–Shenzhen–Hong Kong Express Rail Link having become fully operational, the physical distance between HK and Mainland China has become even shorter. The Hong Kong Zhuhai­ Macau­ Bridge has now been opened for traffic. This bridge shortens the travel time between HK and Zhuhai/­ Macau significantly. These new transportation facilities enable citizens to travel from one city to the next within an hour. There should be more human interactions to improve mutual understanding and eliminate cultural differences.

HK is an international city with an airport located on the Lantau Islands. People can fly out of HK and land in most other Asian cities within 4 hours. Communication facilities can be easily arranged, with diverse choices of-fered by a number of telecommunication companies.

HK as an International Financial Center

As of July 2018, over 1.4 million companies were incor-porated under the Companies Ordinance (Cap 622) (CO) and over 10,000 foreign companies registered as non-HK companies. Some of these non-HK companies are used for listing in the Stock Exchanges of Hong Kong Limited (HKEx). HK has been among the top five international financial centers for the past decade. Com-panies from more than 20 jurisdictions can seek listing in HK.

To enable HK to remain competitive, HKEx has introduced the following new rules in the year 2018:

■■         Companies with weighted voting rights granted to their senior executives who are considered crucial to the business growth of their companies can be listed in HK. The weighted voting right is capped at 10 times. No further issue of this type of shares is allowed after listing. The author-ity of the corporate governance committee of these companies is enhanced to ensure that the interests of minority sharehold-ers are safeguarded.

■■         Biotechnology companies with no revenue but whose core products are regulated or to be regulated by regulatory authorities in the US/UK/other countries can seek listing.

■■         Greater China companies can also have secondary listing in HK.

■■         A delisting arrangement is now in place for those listed companies whose shares have been suspended for trading for 18 months or more.

The new listing regime attracts quite a number of innovative and biotech compa-nies going for listing. This will definitely help HK remain a leading international fi-nancial center.

The Chinese Gold & Silver Exchange So-ciety (CGSE) has also boosted HK as one of the leading players in the precious metal market. HKEx has acquired the London Metal Exchange and also registered a sub-sidiary in Qianhai, Shenzhen. Since CGSE has a foothold in Qianhai, it is expected that there should be some synergies be-tween the Qianhai subsidiaries of HKEx and CGSE. More metal trading products are expected to be in the market in the future.

On the other hand, the Securities and Futures Commission has introduced the open-ended fund companies with a view to expanding the asset management industry.

More choices are available to the industry.

 

Opportunities

 

Belt and Road Initiative (Initiative)

The Belt and Road Initiative was first pro-posed by President Xi Jinpeng in October 2013 in Indonesia to enhance the connec-tivity and cooperation among the countries in the land-based Silk Road Economic Belt and the oceangoing Maritime Silk Road. Up to now, more and more countries and ju-risdictions have signed governmental co-operation agreements to participate in this Initiative. The Government of the Hong Kong Special Administrative Region (HK-SAR) also sees this as an engine of growth and development. HK can have a leading role in the financing of infrastructure proj-ects besides capitalizing on the professional knowledge of the talent pool, including expertise in designing and building infra-structure. HKSAR has stepped up commu-nication with the central authorities for a deeper understanding of the policy direc-tion and implementation of this Initiative. Coordination with enterprises and cham-bers of commerce in HK to explore busi-ness opportunities is ongoing.

Various government departments and statutory bodies are pushing hard on this Ini-tiative. The Hong Kong Monetary Authority­ Infrastructure Financing Facilitation Office was set up with a mandate to facilitate in-frastructure investments and other types of investments. This is a platform for the exchange of information and marketing as well as development of products. So far, seminars, summits, and discussions have been held among interested parties with a view to advancing some of the projects.

The Hong Kong Trade Development Council (HKTDC) has also echoed the HK-SAR’s efforts and has been holding Belt and Road Summits, during which free advisory service and business matchings are also ar-ranged for the participants. A HKTDC Belt and Road Portal is set up to provide infor-mation to the general public.

Greater Bay Area

Greater Bay Area is the scheme to link up 11 cities in the GD region, of which 2 are SAR (Macau and HK) and 9 are cities, namely, Shenzhen, Guangzhou, Zhuhai, Foshan, Jiangmen,­ Zhaoqing, Huizhou, and ­Dongguan, Zhongshan. These cities are in different stages of development, with HK, Shenzhen,­ and Guangzhou in the top tier, as part of a national plan in which each city builds up its own niches while working with other cities to enhance the whole region’s economic strength and competitiveness.

This scheme was included in Premier Li Keqiang’s work report in 2017. Since then, there have been meetings among the se-nior officials of these cities to work out an implementation plan to allow the residents and goods to move more freely within the region. HK aims to further cement its po-sition as an international financial center and innovation hub to create more busi-ness and job openings not only for locals but also for expatriates.

ASEAN

In 2017, HK entered into a free trade agree-ment and an investment agreement with ASEAN (Association of Southeast­ Asian

Nations),­ which has 10 member countries:­ Brunei, Cambodia, Indonesia, Laos, Malaysia,­Myanmar, Philippines, Singapore,­ Thailand,­ and Vietnam.

ASEAN is HK’s second largest trading partner, after the Mainland of China. As many doors have been opened and tariffs lowered, interest in expanding business with and investing in these countries is likely to be stirred.

 

Legal Requirements

Incorporation of Hong Kong Business, Company incorporation Hong Kong

Company incorporation Hong KongOne of the reasons why HK has so many companies is its simple corporate legal requirements. HK follows the common law legal system. Management of a company is in the hands of the board of directors. The rights and obligations of its members are defined in the CO and the articles of association of the company. Most businesses are conducted through private com-panies limited with share capital. This type of companies requires only one direc-tor, being a natural person, and one share-holder who can also be the director. The shareholder can be a corporation. A mini-mum of one share has to be issued on in-corporation, and it can be denominated in any currency. No minimum paid-up capital or working capital is needed. The company can be funded through director or share-holder loan. There is no residency require-ment for the director and/or shareholder. Company incorporation Hong Kong doesn’t happen overnicht.

There is a need to appoint a company secretary and for the maintenance of a reg-istered office address. If the sole director is also the sole shareholder, the company sec-retary must be another individual or cor-poration not solely controlled by the same person. These services can be provided by a trust or company service provider (TCSP) for a fee. On March 1, 2018, all TCSPs must register with the Registry of the TCSP. Names and addresses of the TCSP can be found on the website of this Registry. Any-one carrying on a TCSP business without a license is in breach of the laws, and legal proceedings are a possibility. There are secretary services Hong Kong available.

HK has always been known for its high rental costs. However, unless a company wishes to rent Grade A office space and unless its director and staff live in luxuri-ous residential areas, rental costs could be found to be reasonable. There are lots of coworking spaces available to meet the budgets of small- to medium- sized companies and startups.

secretary services Hong KongNominee director or shareholder is not a popular arrangement in HK. Effective from March 1, 2018, any person with a share-holding of more than 25 percent or entitled to more than 25 percent profits or who has controlling power over the appointment or removal of the board of directors will be deemed to be a controller, and his or her personal particulars have to be entered into the Significant Controllers Register. This register is available for inspection only by those persons whose personal particulars are in the register or by the law enforce-ment officer as specified in the CO.

Incorporation is an easy task. Director and/or shareholder resident overseas does not have to come to HK for this purpose. Signed documents can be handed in to the Companies Registry (CR) and incorpora-tion is complete within a few working days. If the director or shareholder is in HK or holding a digital certificate acceptable to the CR, he or she can go directly to the CR or through a computer to have online reg-istration. Online incorporation can be com-pleted within 24 hours.

There is no restriction on the nature of business a HK company can conduct; any-thing legal is permitted. However, there are certain businesses that require specific licenses, for example, banking, insurance, financial services, and drugs. The relevant government authorities can be consulted on the licensing requirements and applica-tion procedures.

Documents filed with the CR can be downloaded from its website for a small fee, normally US$3-4 per document. Peo-ple planning to have business transactions with companies incorporated or registered in HK can, at all times, be able to check their corporate details to ascertain whether they are in compliance with the filing re-quirements under the CO. A certain level of transparency is available.

A business registration certificate has to be applied for when arranging incorpora-tion and is valid for 1 year, renewable on receipt of a demand note.

Once incorporated, a HK company has to comply with the preparation and filing of an annual return, which is made up to the anniversary date of incorporation (applica-ble to private companies limited with share capital) and also holding of an annual gen-eral meeting (AGM) to adopt the audited financial statements. The holding of AGM can be dispensed with if agreed to by all the shareholders. There are filing requirements for change of director/company secretary/ registered office address, etc.

Opening of Bank Account

Although it is not a statutory requirement to have a bank account opened, it would be conducive to business operation. Most banks would require the director/share-holder/bank signatory to come to HK for a ‘‘know your client’’ meeting. Information about the business background of the per-sons involved in the operation of the com-pany as well as its business plan have to be submitted and discussed with the bank of-ficer. Whether an account can be opened is at the sole discretion of the bank.

Once an account is opened, funds can be transferred freely in and out of HK, because there is no foreign exchange control.

Transactions through a bank account in HK could also help establish the tax residency of a company

Work Visa

Any expatriate working in HK as a direc-tor, business owner, or an employee needs to apply for a work visa. There are differ-ent types of visas, some of which could also cover the spouses and children of the appli-cants. HK welcomes expatriates with skills of advantage to its business and further technological development. Application for a visa should be made to the Immigration Department. Measures are also available to expedite applications for executives work-ing for innovative technology companies.

Health Care System

HK provides both public and private health care to its citizens. Although not manda-tory, some companies arrange medical in-surance cover to provide better health care to their employees. Individuals can also ar-range their own insurance cover.

Employee Benefits and Protection

It is mandatory, however, to arrange em-ployee compensation insurance to cover employees in the event of injury or death during work.

Mandatory provident funds (MPFs) have to be arranged for employees. The em-ployer and the employee are each required to make regular mandatory contribu-tions of 5 percent of the employee’s rel-evant income to an MPF scheme, subject to a minimum and a maximum of $7,100 and $30,000, respectively. A small further increase in contribution is in the pipeline.

Tax System

Offshore banking Hong KongHK is taxed on a territorial basis that is, prof-its derived from HK are taxable, whereas expenses incurred in earning these profits are deductible. Those profits derived out-side of HK are not liable to pay corporate tax provided the offshore profits have the consent of the Inland Revenue Department (IRD). It is a practice of the IRD that if a HK company has not commenced business or its first-year corporate tax return indicates a loss, the IRD may not insist on the filing of a corporate tax return by the company in the following year(s). Audited financial statements may not have to be filed either! This gives businessmen outside of HK the perception that HK has offshore companies that do not have to file corporate tax returns or prepare audited financial statements. This is far from the truth. Preparation of audited financial statements is mandatory under the CO and there is no exemption, irrespective of the business turnover of a HK company or whether the company has any business transaction during the year. In some cases, companies had been claim-ing offshore profits for years, and the IRD required those companies to declare their countries of tax residency. Offshore banking Hong Kong is very common.

Recently, the Inland Revenue Ordinance has been amended to accommodate auto-matic exchange of financial information and common reporting standard.

Taxwise, HK remains competitive. In the current fiscal year, April 2018 to March 2019, new tax ratios have been introduced:

■■         Corporate tax: 8.25 percent on the first HK$2 million profits and 16.5 percent on the balance. If the company has one or more connected entities, the two-tiered profit tax rates would apply only to the one that is nominated. An entity is a “con-nected entity” of another entity if:

  1. one of them has control over the other;
  2. both of them are under the control of the same entity; or
  3. in the case of the first entity being a natural person carrying on a sole pro-prietorship business, the other entity is the same person carrying on another sole proprietorship business.

■■         Corporate treasury center: 8.25 percent on profits.

■■         Research and Development: 300 percent tax deduction on the first HK$2 million qualifying expenditure and 200 percent deduction on the balance.

■■         Salaries tax: standard rate is 15 percent and taxed at progressive rates with vari-ous personal allowances.

■■         Tax breaks for aircraft leasing are in the pipeline to enable HK to have a big slice of this industry.

■■         Active negotiations are underway to en-ter into more tax treaties with countries around the globe to minimize double tax-ation as this could hinder it from being a hub for cross-border trade and invest-ments. Notable among such treaties is the Closer Economic Partnership Agreement (CEPA) signed between the Mainland of China and HK. CEPA covers trade in goods and services, investment as well as eco-nomic and technical cooperation. Trade and investment between the two regions have been strengthened. Long-term eco-nomic development and integration could be enhanced. Many products enjoy zero tariff, and specified trade services can en-joy national treatment. A certificate has to be applied for to enjoy the preferential treatment.

■■         Transfer of shares in a company is sub-ject to a 0.2 percent stamp duty, and real estate transactions are subject to a progressive tax based on the value of the property.

■■         HK does not have capital gains tax, sales or VAT, or estate duty.

Customs Duties

HK is a free trade port. There are no cus-toms duties on the import and export of goods, although it is necessary to check the flow of goods. This is done by the Customs and Excise Department, whose objectives are to facilitate passenger and cargo clear-ance. At the same time, there are stringent controls on the import of military weapons without any hindrance to the free flow of advanced technology for legitimate com-mercial, industrial, and research use. Dec-laration and/or certificate of origin for the import and export of certain types of goods are required.

Any Help Available?

Expatriates wishing to establish businesses in HK can contact InvestHK, the govern-ment agency that focuses on promot-ing and attracting foreign businesses into HK. There are also other statutory bod-ies with different mandates for businesses and trades, for example, HKTDC with its mission to promote HK products and ser-vices to the world. Exhibitions are held at the exhibition centers here, and trade mis-sions are also undertaken to various other cities to make HK further known around the globe.

Traditionally, the role of Hong Kong Pro-ductivity Council is to support the manu-facturers and to enhance as well as facilitate technology transfer.

As part of this effort, funds are made available to companies to enhance their brand names and use of technology to improve efficiency. The Council is now also tasked with introducing new busi-ness systems and high technologies to create high-value-added manufacturing ­industries in HK.

The Government of HKSAR, recognizing the importance of innovation and technol-ogy to further the growth of the commu-nity, has provided substantial amounts of funding in the current fiscal year as follows:

 

■■         HK$10 billion each for innovation and technology and for the establishment of technology research clusters.

■■         HK$10 billion for a science and technol-ogy park and HK$200 million to Cyberport to support their incubatees and to attract overseas enterprises and talent to HK.

Cyberport and the Hong Kong Science and Technology Park (“HKSTP”) have, over the years, incubated more than 1,000 startups that focus on different industries. Their incubation programs are successful in attracting the younger generation to be entrepreneurs. Local universities also have incubation and entrepreneur centers to foster the entrepreneur spirit among their students.

Furthermore, the HKSAR and Shenzhen­ governments are now developing the 87-hectare Lok Ma Chau Loop into a Hong Kong/Shenzhen Innovation and Technol-ogy Park managed by HKSTP and owned by HK. Residents of Shenzhen can apply to work in the park, which is expected to be operational in the year 2020. HK$20 bil-lion has been set aside for its early stage development.

The Innovation and Technology Com-mission announced, on August 22, 2018, the launch of the Technology Talent Scheme to nurture and bring together more technol-ogy talent on a pilot basis for 5 years. There are two initiatives under the scheme—the postdoctoral hub program and the reindus-trialization and technology training pro-gram (RTTP). A monthly allowance will be provided to each postdoctoral talent for up to 24 months. The RTTP subsidizes lo-cal companies on a 2:1 matching basis to train their local staff in advanced technol-ogies for an initial period of 5 years with a funding of HK$500 million. These new initiatives demonstrate that the HKSAR is committed to maintaining its position as an innovative and technology center.

Education

HK has 10 universities, some of which rank within the top 100 universities in the world. There are also community colleges and vocational training schools that provide a vast range of subjects. Expatriates who de-cide to work in HK can continue to pursue their academic interests. Should they bring their children along, they can have them admitted to international schools for non-locals. These young people can continue their university education in HK if their academic results meet entry requirements.

Business and Networks

Over 100 countries and territories have consulates and representative offices in HK, many of which have also incorporated chambers of commerce here to connect their own nationals with the local busi-ness community. There are also several lo-cal chambers of commerce that have long served local businessmen and also wel-comed expatriates joining them as mem-bers. Some of these local chambers have representatives in the Legislative Council, where their members’ opinions and inter-ests are heard.

Social life can be fascinating to people who wish to build up large personal net-works. There are very many social groups, one of which is meetup.com. Some of the groups are engaged in fostering business alignments besides organizing leisure or athletic activities. Seminars are organized by some coworking spaces to upgrade the business knowledge of the participants, and these are beneficial for the purpose of building up business networks.

how to do business in Hong Kong

The HK Tourism Board organizes festive activities throughout the year not only to attract tourists but also to provide enter-tainment to the local residents. Bars and restaurants are plentiful. Sports such as hiking, swimming, and ball games are ac-cessible to everyone.

Come visit HK both to work and for leisure!

 

Questions?

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By | 2019-05-08T09:22:54+00:00 May 7th, 2019|Categories: Uncategorized|0 Comments

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