Despite concerns that the Hong Kong Special Administrative Region (SAR) has stagnated since the pandemic, the Chinese territory remains one of the best locations in Asia to host a centralized base of operations for foreign companies looking to take part in the market shares of East Asia and SouthEast Asia.
In this article, we’ll outline the pros and cons of starting your business in Hong Kong and why you should consider establishing a foothold here.
Pros
1. Hong Kong is located right between East and South-east Asia
Located at the crossroads between East Asia and South-east Asia, you can fly to most major cities in these regions from Hong Kong in under 6 hours at reasonable cost. This gives you face-to-face access to markets in Japan, Korea, Indonesia, China, Thailand, and Singapore, etc.
Getting through Hong Kong immigration is also a very straightforward process with visa-free entry for 170 countries of varying periods of between 7 and 180 days.
Famously known as the gateway between east and west, Hong Kong’s official languages are Cantonese, Mandarin, and English. Combined with a relatively western lifestyle, just about anyone who can read and converse in English can navigate and live in Hong Kong without having to learn the Chinese languages. This has also earned Hong Kong a reputation among western regions of being the beginner’s entry to Asia, where one can slowly immerse themselves without being overwhelmed by culture shock.
2. Its pro-business tax environment
Known as a tax haven, Hong Kong’s low tax environment is very enticing to investors looking to put their money in Asia.
Corporate profits taxes in Hong Kong are calculated on a two-tiered rate at:
- 8.25% for assessable profits of under 2 million HKD, and
- 16.5% for profits over 2 million HKD
Salaries taxes range from 2 to 17% of assessable incomes, and;
Property taxes are set at 15% of the net assessable value of the property. On top of which, since October 23, 2023, the tax for non-Hong Kong Permanent Residents purchasing a second property has been lowered to 7.5%.
There are no import taxes on all but a few categories like tobacco, liquor, oil, and methyl alcohol.
Businesses in Hong Kong that earn profits from work done outside the territory may not be taxed on those profits if a successful offshore claim is made, this includes:
- Any contracts of purchase signed and sales made where traveling outside Hong Kong is necessary
- Any part of the profits that relates to the manufacturing of goods outside of Hong Kong
- Services performed outside of Hong Kong (but belonging to a business in Hong Kong)
However, the IRD will consider each scenario and rule on the legitimacy of the offshore claim based on where all of the activities that generated the profits took place.
3. World-class infrastructure
Getting people and things in, out, and around Hong Kong is a relatively easy task, with its numerous logistics companies catering to all sizes and budgets, staffed by the highly capable attitudes of the Hong Kong people.
Hong Kong airport, which ranks 11th best in the world as of 2024, retains much of its high efficiency as well as its interconnectedness to the rest of Hong Kong. For example, going from the airport to the Central business district takes just 22 minutes via the Airport Express subway line, and getting to other parts of Hong Kong is also quite simple with their numerous bus express lines.
Broadband internet is available to over 98% of households in the territory, with healthy competition among several providers ensuring that prices are reasonable and very affordable.
Startups looking to try their hand in Hong Kong can approach one of its many science and technology parks for office space and financial support, particularly in the fields of biotechnology and AI.
4. An independent legal system
Hong Kong’s independent legal system, which is based on common law principles familiar to visitors from western countries, alongside its strong anti-corruption system, is what makes it a very stable legal environment to establish a business in. Despite the territory technically belonging to China, the legal system operates completely independently from the Chinese system. This means that Hong Kong laws broken in Hong Kong will only be dealt with within Hong Kong’s jurisdiction.
Contracts are enforced and IPs are also monitored stringently by the government, resulting in an open, transparent business environment.
5. Ease of registering and setting up a Hong Kong company
Incorporating a business in Hong Kong is a straightforward business that usually takes less than 10 business days to complete and receive your documents. With no restrictions on residency, or the citizenship of the directors and shareholders, just about anyone can set up a Hong Kong company, which you can also complete online.
Cons
1. High residential costs
It’s no secret that renting and purchasing residential units in Hong Kong is the most expensive in the world, surpassed only by New York as of 2023. Because of its low taxes, the government relies heavily on expensive land sales to fill its coffers, which gets passed on to developers, which trickles down to the property owners themselves. Coupled with the proliferation of house flippers, apartments of ever shrinking sizes continue to be expensive to buy.
Yet despite the residential situation, most other costs of living are manageable and is how most Hong Kong residents balance out their expenses.
2. Small local market (for certain industries)
While Hong Kong is a great place to act as a base of operations for the Asia Pacific region, certain industries, particularly B2B, may find Hong Kong to be too small of a market to scale up. Hong Kong’s small land footprint means that consumers have less space to store their things, and tend to spend more on perishables such as food and drink, or highly compact items like watches, jewelry and bags. Hong Kong residents are also notably spending more time and money on their northern neighbor of Shenzhen, where their money can be stretched much farther and with much greater returns of value.
3. Difficulty opening bank accounts for foreign-owned Hong Kong businesses
While incorporating a business in Hong Kong is an easy procedure, opening a business bank account is a much more tedious and involved affair. Banks in Hong Kong follow a very strict KYC (Know-Your-Customer) procedure of due diligence, meaning that other than having to prepare certified true copies of your business registration and personal documents, as well as a check for the minimum initial deposit and application fee. The good news is that the major banks in Hong Kong have begun offering virtual verification processes that allow foreign directors and shareholders to open a bank account remotely.
Summary
Despite its issues with opening bank accounts and notoriously high property costs, Hong Kong is still a solid location to take your first steps into conquering the Asian markets. With its world-class infrastructure, pro-business tax environment and strong legal protections for businesses, the Gateway to Asia remains true to its name. If you’ve got any other questions about starting a business in Hong Kong that we haven’t answered here, leave us a message and we’ll gladly clear up any confusion for you!
