Benefits of Setting Up a Company in Hong Kong

For entrepreneurs or international businesses planning to expand their operations to the Asian market, Hong Kong stands out as one of the most suitable options.

If you’re exploring this region for your next business venture and questioning its suitability, this article will walk you through the benefits and challenges of establishing a company in Hong Kong.

7 Benefits of Setting Up a Company in Hong Kong

1. 100% Foreign Ownership 

Unlike many other jurisdictions that require local partnerships for several sectors, Hong Kong permits 100% foreign ownership of companies. This policy provides you with full control over your business, including decision-making powers. 

Moreover, Hong Kong does not mandate shareholders to be residents of the city or require them to have a resident director. Foreign directors can hold 100% shares of their businesses established in Hong Kong.

2. Company Formation is Easy

Another aspect that makes Hong Kong suitable for setting up a company as a foreigner is the ease of business registration. There are no bureaucratic delays, no minimum amount of share capital, and no restrictions on business investments whether they are inbound or outbound. Furthermore, the process remains the same regardless of your nationality.

Given the appropriate documentation and your business activity, our business formation experts can help you set up your company in Hong Kong within one day.

3. Favorable Tax Regime for Companies Registered in Hong Kong

Hong Kong’s tax regime serves as a critical factor that makes it an appealing destination for foreign businesses. Holding companies, regional headquarters, startups, investment firms, and private equity firms of various types choose to incorporate in Hong Kong to benefit from the favorable tax rates.

Here is an overview of major tax benefits that foreign companies can take advantage of by registering their company in Hong Kong:

• Territorial Taxation: Only income generated within Hong Kong is taxed. Income from outside Hong Kong is usually exempt.
• No Value-Added Tax (VAT): Hong Kong does not impose VAT, contrasting with other countries like the UK (20%) and Germany (19%).
• No Tax on Capital Gains: Profits from the sale of assets such as stocks, bonds, and real estate are not taxed.
• No Withholding Tax: No withholding tax on dividends and interest paid to non-resident individuals and companies.

4. Easy Access to Mainland China for Companies Established in Hong Kong

While not paying VAT, withholding taxes, or any taxes on corporate gains sounds great, another important reason why many investors and corporations decide to move to Hong Kong is the preferential access to Mainland China.

Hong Kong and Mainland China have a Closer Economic Partnership Arrangement also known as CEPA. According to this agreement, both natural and legal persons in Hong Kong enjoy the following benefits:

• No Tariffs on Goods: Products made in Hong Kong can be sold in Mainland China without paying customs duties, making it cheaper and easier to do business there.
  
• Easier Access to Services Market: Hong Kong based service providers get special privileges in Mainland China, such as allowing them to fully own their companies, easing rules on investment amounts, and offering flexibility
  
• Better Investment Protection: Hong Kong businesses investing in Mainland China enjoy extra safety measures, like guarantees against unfair treatment and the freedom to send profits back to Hong Kong.

5. No Tariffs on Imports

When looking at Hong Kong’s business environment, you might have come across terms such as free port, free trade, and so on. What it essentially means is that authorities in Hong Kong do not charge customs tariffs on any imports.

Considering Hong Kong’s location and the free port status, it offers a lot of value for businesses, especially trading companies.

However, there are four specific items on which the government does impose excise duties: hard alcohol (like distilled spirits), tobacco, hydrocarbon oil, and methyl alcohol. If you plan to deal with any of these, you will have to pay tariffs on that.

6. Double Taxation Avoidance Agreements (DTAs) with Over 40 Countries

Hong Kong has an extensive network of DTAs with over 40 countries. These agreements cover a range of categories to ensure that businesses operating internationally are not subject to double taxation on the same income.

Here are the categories of tax treaties covered by Hong Kong’s current DTAs, along with the corresponding countries:

Categories	Countries
Comprehensive DTAs	Belgium, Mainland China, Luxembourg, Vietnam and Thailand
Airline and Shipping Income DTAs	Sri Lanka and Singapore
Airline Income Only DTAs	Bangladesh, Belgium, Canada, Croatia, Denmark, Estonia, Ethiopia, Fiji, Finland, Germany, Iceland, Israel, Jordan, Kenya, Korea, Kuwait, Laos, Macau SAR, Mainland of China, Maldives, Mauritius, Mexico, Netherlands, New Zealand, Norway, Russian Federation, Seychelles, Sweden, Switzerland and the United Kingdom.
Shipping Income Only DTAs	Denmark, Faroes, Greenland, Iceland, Norway, Sweden, and the USA.
Tax Information Exchange DTAs	Bangladesh, Belgium, Canada, Croatia, Denmark, Estonia, Ethiopia, Fiji, Finland, Germany, Iceland, Israel, Jordan, Kenya, Korea, Kuwait, Laos, Macau SAR, Mainland of China, Maldives, Mauritius, Mexico, Netherlands, New Zealand, Norway, Russian Federation, Seychelles, Sweden, Switzerland, and the United Kingdom.

Emerhub works closely with entrepreneurs and investors to help them effectively tap into Hong Kong’s potential. We provide valuable resources and guidance to assist in navigating the business landscape to set up a company in Hong Kong.

7. Stable International Financial Center 

For foreign business owners looking to benefit from a secure and well-regulated financial environment, Hong Kong is among the most suitable options. According to the 33rd edition of the Global Financial Centers Index (GFCI) Report published in March 2023, Hong Kong maintained its fourth place globally among the leading financial centers. 

Adding to this stability, the Hong Kong Dollar is pegged to the US Dollar at approximately 7.80 HKD to 1 USD. This ensures a consistent exchange rate for international companies and helps maintain economic stability.

Furthermore, Hong Kong boasts an advanced financial market infrastructure, including efficient clearing and settlement systems. The Hong Kong Exchanges and Clearing Limited (HKEX) is known as one of the world’s leading stock exchanges. It serves as a reliable platform for foreign business owners to facilitate their financial transactions.

Challenges of Setting Up Business Operations in Hong Kong

1. A Vast Majority Speaks Cantonese in Hong Kong

Despite all the benefits offered by Hong Kong for foreign businesses, there are also several challenges that are worth considering before setting up shop. One of the first among them is the language barrier.

English is the second official language in Hong Kong and almost half the population claims to posses varying levels of proficiency English. However, there is still almost half the population that predominantly relies on Cantonese for communication.

As a foreign entrepreneur who does not speak the language, this can pose difficulties in terms of negotiation, communication, and integration into the local business culture.

2. High Labor Costs

Compared to neighboring countries such as China, Vietnam, and Thailand, Hong Kong has significantly higher labor costs. The minimum wage rate in Hong Kong is currently set at HKD 40. 

The high cost of living and competitive wages increase operational expenses for businesses, particularly for those that rely on a large workforce. Due to that reason, many labor-intensive companies that are established in Hong Kong have set up their factories in China.

3. Almost 75% of the Companies are Struggling with Talent Shortage

According to the South China Morning Post, 3 in every 4 companies in Hong Kong are struggling with a shortage of specialized talent.  For your business, this could mean potentially higher salaries to attract suitable talent and a longer time to fill the required positions. As a result, that can impact your overall operational efficiency.

To resolve this situation, companies either hire foreign employees using EOR services or rely on independent contractors if the work is temporary. 

Set up a company in Hong Kong with Emerhub

If you are thinking about setting up a company in Hong Kong, partnering with Emerhub makes this process easier. Our business formation experts in Hong Kong will provide you with guidance and handle everything from registration to compliance. 

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