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Ultimate Guide to Starting a Business in Hong Kong for US Businesses
Hong Kong, a Special Administrative Region (SAR) of China, is one of the investment hubs with the highest potential in the world for US investors. For over 20 years, Hong Kong has developed a business-oriented economy with its administration going to every length to achieve one thing: making every business on the island succeed. It has also been ranked at the top of the annual Index of Economic Freedom for more than two decades.
For American business people looking to expand their business empires, Hong Kong is a proven launchpad to success. The sky’s the limit on this island. This article is a comprehensive guide for American business people looking to invest in Hong Kong.
Important Facts About Hong Kong You Should Know
When opening a business offshore, it is important to have a clear picture of the target jurisdiction’s economic conditions. Here’s a closer look at important facts about Hong Kong:
- Hong Kong has a total landmass of 1,104-square kilometres and a population of 7.5 million people. This means it is one of the most densely populated regions in the world.
- The Hong Kong GDP was USD 439.459 billion in 2020. Although it recently recorded a decline because of COVID-19 and political unrest, it is expected to grow by 4.6% in 2021.
- In Hong Kong, 90% of food is imported because the island does not have much land for agriculture.
- The service sector in Hong Kong contributes about 92% of the total economic output for the island.
Special Benefits of Taking Your Business to Hong Kong
Offshore investors are driven by specific objectives, such as optimising profits, expanding their businesses and strengthening their brands. The great thing about Hong Kong is that it supports you in achieving your objectives to make your business succeed. Here’s a closer look at the main benefits to expect when taking your business to Hong Kong.
1. An Attractive Tax Regime
One of the primary reasons American business people want to invest in Hong Kong is the favourable low-tax regime. In Hong Kong, there is a two-tiered tax rate regime, which is carefully designed to help promote growth. Here’s how it works:
- A tax rate of 8.25% for profits not exceeding HKD 2 million.
- A tax rate of 16.5% for profits exceeding HKD 2 million.
This two-tiered profit tax rate system is considered one of the most competitive in Asia and indeed the world because most countries have tax rates higher than 17%. You can also take advantage of tax exemptions for gains from outside Hong Kong. In addition, Hong Kong does not have the following:
i) Dividend tax.
ii) Capital gains tax.
iii) Hotel accommodation tax.
iv) Withholding tax.
ii) Capital gains tax.
iii) Hotel accommodation tax.
iv) Withholding tax.
2. Hong Kong is One of the World's Freest Economies: A Comparison with the US
In 2020, Hong Kong was ranked number three with a score of 85.2 on the World Bank's ease of Doing Business Report, which assesses the ease of doing business in 190 countries. The US followed at number six with a score of 84.0. Indeed, Hong Kong has been ranked at the top for about 20 years, showing its commitment to offering investors the best environment for doing business.
Although Hong Kong and the USA are awesome for investors, the Hong Kong administration, probably because of its autonomy from mainland China has made bigger strides in its pro-business policies, monetary freedom, and protecting minority investors.
3. Free Trade Economy
In 2019, Hong Kong retained its top position as one of the freest economies in the world, a position it has held for about 20 years according to the Heritage Foundation. The top rating is due to its outstanding monetary freedom, pro-business policies, and the transparency of the Hong Kong administration.
Hong Kong allows investors to open businesses in all sectors, including consulting, manufacturing, e-commerce, trading, and even financial services. Furthermore, a company can open a bank account with no restrictions from the Hong Kong administration.
To make it easier for investors, Hong Kong serves as a free port, meaning that it does not charge tax for goods imported to the island, except for selected items such as tobacco and hydrocarbon oils. Even for products that require licenses for shipping to and from Hong Kong, the licensing process is remarkably straightforward.
For the above reasons, Hong Kong is considered one of the easiest jurisdictions in which to do business. These are unique factors that make Hong Kong the first choice when it comes to both businesses and expansions.
4. Easy Access to Mainland China
Positioned on the southeast coast of China, Hong Kong appeals to investors because it makes access to Mainland China very easy. You can travel to Chinese cities for business in a single day. Indeed, many investors consider it the main gateway to China.
Another incredible thing about Hong Kong is that it not only serves as the gateway to mainland China but countries all over East Asia too. Hong Kong signed a free trade agreement (FTA) with ASEAN in 2017, which serves as a crucial tool for developing business networks, investments, dispute resolution mechanisms, and protecting intellectual property.
5. Hong Kong Boasts a World-Class Infrastructure
Hong Kong is the envy of many jurisdictions in the region because of two crucial factors: its strategic location in the heart of East Asia and its world-class infrastructure. Once you register a business in Hong Kong, it takes fewer than eight hours to reach any country in the region. In 2019, Hong Kong International Airport was reported to be one of the busiest airports in the world.
In addition to its well-developed air transport, the jurisdiction is also an incredible shipping and telecoms hub. The natural conditions of Victoria Harbour make it the perfect place to handle all types of vessels. So, whether your business is in the import-export niche or whether you simply want to source raw materials from outside the island, the process will be very smooth.
6. An Educated and Productive Workforce
For your business to thrive, it is important to have a highly qualified and enthusiastic workforce. In Hong Kong, you get access to a highly trained and energetic workforce that can help you rapidly grow your enterprise. You will also be pleased to hear that Hong Kong residents adapt very well to international businesses because English is their second official language after Chinese.
Business Formation Options in Hong Kong
Now that you know the benefits that come with opening a business in Hong Kong, the next step is selecting your preferred business model. So, what is the best business format for your company in Hong Kong?
There are five types of businesses that a US business person can form in Hong Kong, including limited liability companies, public limited liability companies, partnerships, sole traders, and branch offices:
- Limited Liability Company
This is the most popular business format among both foreigners and locals in Hong Kong. Its registration is straightforward and works well for small, medium, and large enterprises. If you opt for a limited liability company in Hong Kong, there are no requirements for the minimum share capital but the number of shareholders is capped at 50.
The biggest advantage of opening a limited liability company in Hong Kong is that it is a separate legal entity. This means that your liability to the company is only limited to your shareholding. In the event of a loss or bankruptcy, no one will come for your personal assets to meet the costs.
- Public Limited Liability Company
A public limited liability company in Hong Kong works as a private limited liability business but the shares can be offered to the public. The capital of the company is divided into shares that are traded on the stock market. The main advantage of a public limited liability company is that it can raise a lot of capital for rapid expansion.
If you have a business, small or medium-sized enterprise, it is advisable to start as a private limited liability company and make it public after achieving significant growth. This will give you a huge capital boost to expand into other countries in Asia and around the world.
- Sole Proprietorship Business
A sole proprietorship is the most basic type of business you can establish in Hong Kong. As the name suggests, the company is owned and run by a single owner. Although it is simple, this type of business is the riskiest because it does not offer any form of protection for your personal assets.
If you are a US business person expanding into Hong Kong, it is advisable to avoid selecting this form of business entity. Instead of risking your finances and other assets, it is advisable to opt for an entity that can protect your assets, with a good example being a limited liability company.
- Partnership
The next type of company that you can form is a partnership. This is a business organisation that is owned by two people or businesses, meaning that all the decisions are made after striking an agreement. However, you have to be prepared to share profits.
- Representative Office
A representative office is favoured by foreign companies that are looking to establish a place of business and enter into agreements such as commercial leases. It is worth noting that these companies are not allowed to conduct profit-making activities that can accrue income tax in Hong Kong. Therefore, you should only consider using these entities for activities such as market research, networking, holding business meetings, and scouting for partners.
Company Registration in Hong Kong
The process of company registration in Hong Kong is guided by the Companies Ordinance, which defines all the requirements to follow. Here are the main steps to follow when incorporating a business in Hong Kong as an American business person.
Step One: Select the Preferred Company Structure and Name
As has already been mentioned, there are different types of companies that you can select, and it is advisable to compare the advantages and disadvantages of each. This is very important because the type of business will define the subsequent steps. For example, if you opt for a partnership, the next step will be looking for a potential partner.
Once you have selected your preferred business entity, the next step is selecting your preferred name. This must be unique to avoid any conflicts of interest when doing business in Hong Kong. Make sure to also check the Guidelines on Registration of Company Names for Hong Kong Companies.
Step Two: Prepare the Required Documents
Once you have the approved name for your business, it’s time to get all the documents required for registration, which include:
- A Hong Kong company incorporation application form.
- The company’s articles of association.
- Copies of passports, proof of residency, and bank reference letters for non-resident directors and shareholders.
- Copies of Hong Kong identity cards for resident directors and shareholders.
- Notice to the business registration office.
- The address of the company.
- Copies of the passport or identity card of the resident company secretary.
Step Three: Submit the Documents to the Registry
Finally, you need to submit the above documents to the Companies Registry, pay the required fees, and wait for the processing to be completed. This will take about five to seven days. Note that if there is any information missing or if any additional documents are required, you may be required to provide them.
Register Your Company With the Help of an Agency
While Hong Kong has indeed put a lot of effort into simplifying company registration, it still involves a lot of work. For example, you have to prepare the documents and fly all the way to Hong Kong to file them with the Companies Registry. If you are busy back in the US or not in the legal field, preparing some of these documents can be a tall order.
The best alternative is using a firm of experts to register your company in Hong Kong. The Companies Ordinance allows foreigners to use agencies to assist them in company registration. Here are some of the special benefits that you get by using an agency to register a Hong Kong company.
- Agencies are run by experts in company registration: Having been in Hong Kong for years, experts in these agencies can help you to understand the registration process and complete all the documents professionally.
- They can assist you in quickly completing the registration process: Instead of taking a lot of time preparing documents for registration, the agency you select can do the job quickly. This means you can have your company up and running fast.
- An agency can serve as your company secretary: For your company registration to be approved, one of the essentials is a company secretary. Instead of incurring huge costs searching for a resident company secretary, an agency can serve as one. The agency can also serve as your company address.
- The agency can guide you during the early phase of company establishment in Hong Kong: It is important to be aware that the Hong Kong business environment can be very competitive. Therefore, you need to have good strategies and professional agencies can help you to craft them.
As they have helped other companies coming to Hong Kong, it is easy for agencies to tell you what strategies work and which do not. This is a great way to increase the chances of success for your business.
- A good agency will also come in handy to help you with secretarial and business compliance services. For example, you can rely on the agency to file returns correctly and for preparing the Significant Controllers Register (SGR).
An agency can be your most important ally during company registration and establishment in Hong Kong. It’s like having an experienced driver at the steering wheel and you massively increase your chances of success.
If you’re an American business person looking to invest offshore, Hong Kong is one of the best jurisdictions available. Hong Kong’s supportive administration and simplified business registration process, among other benefits, will give your enterprise the power it needs for success. Make sure to also have an agency of experts on your side to help you with registration and crafting the best strategies.