Situated directly to the south of mainland China, Hong Kong is a small autonomous territory well known for its status as both a former British colony and as a hub of global financial activity. The reason for this latter is pretty obvious:
Even the basic facts about Hong Kong business culture will show you that it’s an ideal place for many types of companies to trade. In this article, we’ll take a short look at some of those facts and what they might mean for you if you’re planning on starting doing business in the “Pearl of the Orient.”
1) Start with the basics
Though once a British colony, Hong Kong is now a Special Administrative Region of the Peoples Republic of China. The “one country, two systems” principle which the People’s Republic and Hong Kong follow makes the territory responsible for its own political, economic and legal systems.
In terms of Hong Kong’s business culture, this means there are some different principles which need to be followed if you’re doing business there rather than in China, although there are some overlaps. Plus there are some basics you should definitely be aware of. These include:
1. Financial statements need to be filed annually
2. The Hong Kong tax year begins on the 1st April and ends on the 31st March of the following year, a holdover from its time as a British colony
3. The currency of Hong Kong is the Hong Kong Dollar (HKD).
2) WTO and APEC membership and easy access to China
The World Trade Organisation (WTO) counts Hong Kong amongst its founding members and the territory is also a member of the Asia-Pacific Economic Cooperation forum (APEC).
Plus, the territory has huge freedoms when it comes to concluding trade agreements with other countries and international organisations. Its position as technically part of China – but in some respects not quite – also makes it the ideal launching platform for companies trying to break into the lucrative Chinese markets, and occasionally vice versa.
• There are very few tariffs or trade barriers to goods between China and Hong Kong
• There’s large-scale promotion of trade and investment
• Professional qualifications are mutually recognised
• Mainland China is open to Hong Kong service suppliers
• Obviously, they’re located in a convenient time zone for each other
• Hong Kong is a great location for offshore Reminibi business (RMB)
3) Ranked 5th in the World Bank’s 2016 “Doing Business” Report
The World Bank produces this list every year as an indication of countries which have regulations which “enhance business activity” and those which “constrain” it. It compares factors and laws from around 190 different economies and areas.
In 2016, Hong Kong entered in at number five. This is a clear indicator that it’s a great place to be doing business!
4) Hong Kong tax system summary: very good for business!
Hong Kong’s tax system is one of its main draws for international businesses. This is primarily because:
1. The Hong Kong tax rate is 15% for non-incorporated businesses (incorporated business profits tax is set at 16.5%)
2. Only business income from sources actually in Hong Kong are subject to profits tax
But there is also:
• No tax on dividends
• No tax on interest from bank deposits
• No capital gains tax
• No death tax
• Some specific tax exemptions possible for debt instruments and funds
• No rules on transfer pricing
• Only simple anti-avoidance measures required
5) Business registration
By law, every person or company which is the principal operator of a business must have a Business Registration Certificate to conduct business in “Asia’s World City”. You’ll need to speak to the Inland Revenue Department. They will require you to have the correct VISA or entry permit to do business in the territory. Temporary VISA holders are not allowed to be the principal operator.
It’s worth noting that the business name which is registered must be the same as your overseas business name, and the name of the local manager – who must be a local resident – needs to be submitted.
There are also some requirements for registering as a business in specific industries once you’ve obtained your initial certificate.
6) Types of companies in Hong Kong and being a shareholder
There are three main types of company which are classified under local law:
• Public companies
• Private limited companies with shares
• Private limited companies with guarantees
The number of shareholders of any business registered in Hong Kong is limited to fifty.
There are also, of course, partnership and sole trader type businesses.
7) You must register an office address, but opportunities abound!
Every company registered in the territory must have an office address physically within Hong Kong. But there is a handy lighter weight option for companies thinking of expanding into this area, namely having a representative office – sometimes called a liaison office.
Essentially, representative offices allow a company to introduce customers in Hong Kong to their services. But, critically, the offices are not allowed to generate any profit in and of themselves. Nor can they raise funds or set themselves up to have any legal obligations within Hong Kong, other than to contract with the landlord or utility companies servicing the office and its staff.
That said, as companies must be registered in Hong Kong to do business, and representative offices cannot many any profit, the operators can apply to the Inland Revenue Department to be made exempt from filing annual tax returns. Which isn’t bad! Especially considering the amount of extra trade that a liaison office in Hong Kong can bring to a company…
Bonus Tip: How to master Hong Kong business culture
As with most things in life, there’s a lot to be gained by doing something rather than reading about it. A small amount of immersion in Hong Kong’s vibrant business culture will soon see you start to grasp the basics.
Of course, one of the best pieces of advice when expanding your company abroad is to work with a local partner who has an intimate understanding of the cultural differences you need to work with. Otherwise, you can find yourself falling afoul of even the basics of doing business overseas.
Do you do business in Hong Kong? Have you got a basic tip which we’ve missed off of our list? Join in the discussion below and help other entrepreneurs succeed in Hong Kong!