As with every country in the world, there are various benefits and challenges of doing business in Hong Kong. If you’re a new business owner planning to register your company in the region, here’s why the benefits greatly outweigh the challenges of doing business in Hong Kong.
Every business owner understands that the jurisdiction they choose to handle their business activities will have the most effect on the success and effectiveness of their operations.
Whether you’re looking to expand your operations or start a new business, Hong Kong is one of the top locations that you’ll consider. Hong Kong is often considered one of the best places to run a business. This jurisdiction is renowned as an open economy and a global financial centre.
It’s also ranked as one of the best economies for business because of its friendly policies. The country offers easy market access, free trade, and increased access to labour. It’s an ideal hub for small and medium-sized businesses.
Before you own a business in this region, you need to identify the benefits and challenges of doing business in Hong Kong. Doing this lets you know how to set up your operations and what to expect. This piece will reveal the merits and challenges of doing business in Hong Kong.
6 Biggest Benefits Of Doing Business in Hong Kong
Wondering why you should consider starting a business in Hong Kong? Well, there are many reasons why and the benefits outweigh the challenges of doing business in Hong Kong. These reasons range from the economic condition to low taxes and a diverse workforce.
Now, let’s take a look at the major attractive points of the region as a business hub that outweigh the challenges of doing business in Hong Kong.
1. Low Operational Cost
Despite some of the challenges of doing business in Hong Kong, one of the most obvious benefits of running a business in Hong Kong is the low cost of operation. Companies in this region spend considerably less than their counterparts.
Taxation will also not eat into your income as much because they offer considerably lesser tax rates. The company income tax rate in Hong Kong is 8.25% for companies with profits up to HK$2 million, and 16.5% for companies that have profits more than HK$2 million.
Also, there are more favourable laws for starting a company in this jurisdiction compared to anywhere else. If you’re looking for a flexible place to start your business, you’d enjoy some freedom in Hong Kong.
2. Large And Growing Economy
Another benefit that greatly outweighs some challenges of doing business in Hong Kong is the fact that Hong Kong is one of the largest economies in the People’s Republic of China.
This region is enormous, and many resources treat it as an autonomous state. As of 2020, the gross domestic product of Hong Kong is $346 billion. For the past 10 years, the economy in this region has grown at a steady rate of 2-6% per year.
Hong Kong’s economy has also received recognition from the International Institute for Management Development in Switzerland as Asia’s second most competitive economy. These statistics show plenty of room for growth in the Chinese city.
The Hong Kong economy also offers the freedom to do different types of business, with free markets and trade policies for your easy operations.
3. Well-Trained And Diverse Workforce
Companies in Hong Kong are also renowned to have a large workforce that’s well-trained. This is another benefit that greatly outweighs the challenges of doing business in Hong Kong. The nature of Hong Kong’s workforce is due to the free education that’s offered to citizens.
Everyone is also expected to attend classes till junior secondary school. The domestic university system in the region is strong, and only a few students seek this tier of education abroad. Technical education is offered at the Hong Kong Institute of Vocational Education.
There’s plenty of skill in the labour force because more than 75% of the population has gotten advanced education.
Another unique trait of Hong Kong’s workforce is that they are multilingual. Yes, many of the citizens can speak at least 2 or 3 languages. Most of its citizens can speak Cantonese – the native language of south-eastern China – and Mandarin (the most common language in China).
However, you’ll also come across a good number of English speakers in the business sector.
4. Vast Trade Access
You’ll enjoy unique trade access with other jurisdictions if you run a Hong Kong-based business. A Closer Economic Partnership Agreement (CEPA) establishes a strong trade agreement between Hong Kong’s autonomous government and the Chinese government.
This agreement offers numerous benefits. Businesses can send goods from Hong Kong to China duty-free. Also, business owners in Hong Kong receive preferential treatment when providing services to the mainland.
Another important Hong Kong trade agreement is with the Association of Southeast Asian Nations (ASEAN).
This agreement, signed in 2017, focused on different aspects of trade, including trading goods and services, investments, dispute settlements and economic cooperation.
The trade agreement with ASEAN allows Hong Kong business owners to benefit from Cambodia, Laos, Brunei, Indonesia, Malaysia, Singapore, Vietnam, Philippines, and Myanmar.
Hong Kong is also improving and evolving. As a result, it’s a constant trade attraction. This region has automated several business processes and has made it easier to conduct international business.
There are several effective means of transportation to move around this region too. Furthermore, the Hong Kong port is one of the busiest worldwide. This is another benefit that greatly outweighs the challenges of doing business in Hong Kong.
5. Suitable Business Location
Hong Kong is located on the Southern Coast of China, giving it access to other Asian markets.
Because of Hong Kong’s location, business owners can easily travel to any other major Chinese city quickly, which is another benefit that greatly outweighs the challenges of doing business in Hong Kong.
For instance, you can travel to and from Beijing by high-speed train. You can also reach markets in nearby countries, such as India, Singapore, Japan and Thailand.
Companies operating out of Hong Kong will also be able to take advantage of trade agreements with other countries. This will open up a potential for more connections, and a chance to make more revenue. Investors from other regions also visit Hong Kong’s domestic markets.
While these markets are relatively small, they thrive in tourism, financial, medicine, creative and education industries.
6. Advanced Institutional Infrastructure
Hong Kong is renowned for its strong economy, but it also has well-developed financial institutions. As a result, different companies can bank with local institutions without fear. Hong Kong also has relatively large foreign exchange reserves.
Therefore, businesses enjoy stable exchange rates and trust the economy, and this is a major benefit that greatly outweighs the challenges of doing business in Hong Kong.
What’s more? Hong Kong has a sound and effective legal system. Therefore, your company can operate without fears of crime and corruption. The judiciary system will treat you fairly as long as you stay on the right side of the law.
The medical institutions in Hong Kong are also reliable. Healthcare is affordable and the country has some of the best medical practitioners worldwide.
3 Biggest Challenges of Doing Business in Hong Kong
The previous section has revealed that Hong Kong is a great place to do business, with several reasons to back it up. It may seem like the best idea for start-up owners, but operating your business in this jurisdiction has its own challenges.
Here are some challenges of doing business in Hong Kong you may face:
1. Lack Of Familiarity With Local Regulations
One of the challenges of doing business in Hong Kong is also the biggest bane to the worldwide expansion of many brands is the presence of different laws and regulations from one jurisdiction to another.
Before you start in Hong Kong, you’d need to dedicate some time to learning about the laws relating to company incorporation. This may include laws about hiring and paying staff and your firm’s daily operations.
Depending on where the business owner is coming from, some of these laws may be harder to follow than others. Failure to adhere to some of these laws may lead to penalties and sanctions.
A good way to ensure you stay on the right side of the law when operating out of Hong Kong is by hiring a legal adviser. An experienced adviser is familiar with all the essential information you need.
2. Difficulty In Opening A Bank Account
Before you begin operations in Hong Kong, your company will need to open a bank account. This is another one of the challenges of doing business in Hong Kong as while it may be easy to set up a business in this region, getting a bank account is a completely different ball game.
The process is complicated and has even gotten stiffer over the past few years. There have been more international efforts to reduce terrorism financing and money laundering. So, Hong Kong banks have introduced stringent rules for new and existing customers.
Also, many Hong Kong banks charge high fees for opening an international bank account. Start-ups and medium-sized companies are usually unable to deal with these fees. The amount of paperwork required is also burdensome.
While different banks may request for different documents, the most popular ones include:
- Means of identification, e.g. travel documents, identity cards
- Certificate of Incumbency
- Certificate of Good Standing
- Certificate of Incorporation
- Proof of registration
- Partnership Agreement of Deed
- Purpose of the account and its intended use
- Details of the Company’s Control Structure and Ownership
- Details of business nature and method of operation
- Details about Foreign Account Tax Compliance Act (FATCA) and The Automatic
- Exchange of Financial Account Information
3. New Tax Laws
Finally, one of the biggest challenges of doing business in Hong Kong may be the fact that the region is renowned to have favorable tax rates, but some of the laws related to taxation are quite complex.
For instance, all companies are expected to file audited financial statements to the Inland Revenue Department, while paying corporate and payroll taxes.
New businesses should take tax regulations in this region seriously. Failure to adhere to these laws would be treated seriously and may result in hefty penalties. It’s essential that your in-house staff are capable of handling these new tax requirements.
However, you can hire experts to help you out, and keep you on the right side of the law.
How To Open A Hong Kong Business
Now, you’ve learned all the benefits and challenges of doing business in Hong Kong. The next thing to do is learn how to start a business in the region. We’ll outline the process of starting a business in a few simple steps;
- Choose your company name: Choosing a company name is the first step to incorporating your firm in the region. It’s essential that whatever name you choose is a good representation of the type of service you wish to offer.
- Register the company: You’ll need to file an application with the Companies Registry to ensure your business is recognized by law
- Open a bank account
- Register your business address: This address will serve as where you will receive your correspondence from the government.
How We Can Help You With Hong Kong Company Incorporation
Now that you have a better understanding of the benefits and challenges of doing business in Hong Kong, you know that there are several indications that setting up a business in Hong Kong is a good decision. There’s little or nothing to worry about starting operations in the region.
However, it can be a little complex for someone who isn’t familiar with the jurisdiction to handle their company incorporation. That’s where SJH Global comes in. We’re a top-rated business consultancy firm.
We have worked with several companies to set up their operations in Hong Kong, and we can confidently help you too. Our experts are familiar with everything it takes to start and run a business successfully overcome the challenges of doing business in Hong Kong.
You’ll have our full knowledge at your disposal. We’re equipped to also help you with several business processes relating to accounting, tax, and secretarial services.
Challenges Of Doing Business In Hong Kong – Frequently Asked Questions
Yes, Hong Kong has been touted as one of the best places for business owners to start their new entity. But this region is suitable for different types of businesses too.
Some of the business opportunities available are; application development, web design and development, travel agency, catering services, bookkeeping and tax preparation, product sourcing agent, cleaning services, etc.
You’re free to choose any of these business opportunities to create wealth. However, ensure you have a good grasp of whatever business opportunity you choose and you will be able to overcome all the challenges of doing business in Hong Kong.
For some time, Hong Kong has held the top position as one of the best places for new business owners or expanding brands to set up their operations. As a result, many entities have migrated to the region, especially from the US.
Till date, Hong Kong is still one of the best places to do your business. As mentioned in the article, the benefits greatly outweigh the challenges of doing business in Hong Kong.
Hong Kong is a jurisdiction that allows foreign businesses to operate and expand their operation. Foreigners can own 100% of the business while staying solely in control of business affairs.
As long as you’re familiar with the law, company incorporation will be a relatively straightforward process. This region will also open up foreign brands to other parts of China and Asian countries.
As long as you are aware of the regulations for foreigners starting a company in the region, you will be able to overcome the challenges of doing business in Hong Kong.