The Complete Guide to Starting a Business in Hong Kong

With its strategic location and robust economy, Hong Kong has become a hotspot for entrepreneurs and investors worldwide. Its business-friendly environment, simplified registration process, and attractive tax benefits make it an ideal destination for starting a business. This guide aims to provide an in-depth understanding of the various aspects of setting up a company in Hong Kong, from legal requirements to operational considerations.

Why Start a Business in Hong Kong?

Hong Kong’s central location in Asia offers unparalleled accessibility to different trade markets, particularly mainland China. Its dynamic economy has traditionally ranked top globally in economic freedom, fostering a business-friendly environment that attracts foreign investors. Government support, such as InvestHK and special loan funding, market funds, and incubator programs, further enhance the appeal of starting a business in this thriving region.

The Advantages of Starting a Business in Hong Kong

• Tax Benefits: With a corporate tax rate of only 16.5% and no VAT or dividend sales taxes, Hong Kong offers significant tax advantages, including a special tax rate of 8.25% on the first HKD 2 million of profits. 
• Ease of Setting Up: Hong Kong allows 100% foreign ownership, and the registration process can be completed within 48 hours. 
• Access to Markets: As a global leader in banking, Hong Kong offers multi-currency accounts and excellent banking facilities. Its proximity to mainland China and other Asian markets provides easy market access.

The Legal Requirements for Starting a Business in Hong Kong

Understanding the legal requirements is crucial for a smooth business setup. Hong Kong offers various legal structures, including:

• Limited Companies
• Branch Offices
• Subsidiary Companies
• Representative Offices
• Sole Proprietorships
• Partnerships

Compliance with local laws and regulations is mandatory but transparent, and the appointment of a local company secretary is required. Selecting a registered address and preparing incorporation documents are also part of the legal process. 

Choosing the Right Business Structure

Selecting the right business structure is vital for your company’s success. Limited Company is the most recommended option, offering limited liability and a separate legal entity. Sole Proprietorship and Partnership are other options, each with its characteristics and suitability based on the nature and size of the business. 

Registering Your Business with the Government

The registration process in Hong Kong is simplified and can be done online. It involves checking the availability of the company name, avoiding trademark issues, and submitting the necessary documents. In most cases, your business can be formed in a few business days. 

However, the advantages of engaging a licensed professional like InCorp, a certified Trust & Company Service Provider (TCSP), are significant. Many unlicensed foreign agencies offer registration services but fail to ensure full compliance. 

Many businesses have faced challenges when such providers disappear, neglecting essential annual compliance and filings. With InCorp, you’re guaranteed expert, licensed support, ensuring your business’s seamless and compliant establishment in Hong Kong.

Obtaining the Necessary Licences and Permits

Depending on the type of business, specific licenses and permits may be required. Generally, permits are unnecessary, with exceptions for particular businesses like restaurants or financial services where health, safety, or people’s savings are an issue. Understanding the application process and compliance guidelines is essential to avoid legal complications. 

The Financial Requirements for Starting a Business in Hong Kong

Raising Capital

In Hong Kong, there are no minimum registered capital requirements, allowing flexibility in capital allocation. With that being said, Hong Kong offers various funding options, including loan funding, market funds, and incubator programs, which we’ll cover in the Accessing Funding and Grants for Startups section. 

Managing Your Finances

Effective financial management goes beyond budgeting and forecasting. It involves regular financial reviews, cash flow management, and strategic financial planning. While Hong Kong has a famously transparent environment for financial management, hiring a professional accountant or financial advisor like InCorp can provide valuable insights and help you navigate the financial landscape. 

Financial Considerations

Understanding Hong Kong’s taxation system

Hong Kong’s taxation system is known for its simplicity and low rates. Here’s a summary of Hong Kong’s taxation system:

Types of Taxes

Hong Kong’s tax system includes two main types of taxes:

• Direct Tax: Imposed on income or profits.
• Indirect Taxes: Imposed on transactions, Customs Duty (only applies to tobacco and high-strength liquor).

Taxes Hong Kong DOES NOT Impose

Estate, Capital Gains, Withholding tax (except for Royalties & IP charges), Dividends, Excise duty/tariffs, Foreign exchange controls, GST, VAT, Sales, Profits Tax, Salaries Tax, and Property Tax.

Tax Rates

• Company: Up to HKD 2 million at 8.25%, above HKD 2 million at 16.5%.
• Unincorporated businesses: Up to HKD 2 million at 7.5%, above HKD 2 million at 15%.
• Salary Tax: Progressive from 2% to 17% or a standard rate of 15%.
• Property Tax: 15%.

Assessment Period

Runs from 1st April to 31st March of the following year.

Opening a Bank Account in Hong Kong 

Hong Kong’s reputation as a global business hub is bolstered by its open policies towards foreign investment. However, this openness is counterbalanced by stringent compliance measures, especially regarding financial transactions. One of the pivotal steps in establishing a business in Hong Kong is creating a corporate bank account. This process can be intricate due to governmental regulations and banks’ discerning criteria.

Key Requirements:

• Businesses must have genuine customers or suppliers.
• Partnerships with countries on the United Nations Sanctions List are restricted.

Traditional Hong Kong Bank

• Historically the most popular option, but has become more challenging due to tighter regulations.
• Proof of business activities in Asia is essential, typically demonstrated through six months of financial records.
• Personal visits to the bank are often required for Know Your Customer (KYC) procedures.
• Services include e-banking, credit cards with specific limits, and certain deposit requirements.

Hong Kong Fintech Companies

• An emerging option with fewer restrictions.
• Allows for quick account setup without the need to visit Hong Kong.
• Some limitations in services compared to traditional banks, such as the absence of loans and no physical cash as there are no physical branches.

Banks Outside Hong Kong

• It’s feasible to open a business account outside of Hong Kong, though it’s not the primary recommendation.

While entrepreneurs can navigate the banking process independently, consulting with a trusted Hong Kong incorporation service provider like InCorp is often beneficial. Their expertise can streamline the process, saving time and potential complications when setting up your new business in Hong Kong. 

Accessing Funding and Grants for Startups

Hong Kong offers various funding options, including loan funding, market funds, and incubator programs. Here’s a summary of what Hong Kong offers to empower your business to thrive:

1. Support for Business Downturn

• Objective: To support SMEs during economic downturns.
• Main Scheme: SME Special Loan Guarantee Scheme (SGS) to provide loan guarantees.
• Eligibility: Registered under the Business Registration Ordinance, operating in Hong Kong, and recognised as an SME.
• Additional Services: Business matching and access to market intelligence analysis.

2. Innovation and Technology Fund (ITF)

• Objective: To support technological innovation.
• Funding: HKD 18 billion dedicated since 2017.
• Grants under ITF Umbrella: Includes Innovation and Technology Support Programme (ITSP), Partnership Research Programme (PRP), Technology Voucher Programme (TVP), Enterprise Support Scheme (ESS), and more.
• Application: Multiple applications are allowed with no fees.

3. SME Export Marketing Fund (EMF)

• Objective: To support business expansion overseas.
• Funding: Up to 50% of total costs or HKD 50,000, with a total grant ceiling of HKD 200,000.
• Eligibility: Registered in Hong Kong, meeting the Government’s definition of an SME, and doing most of its business within Hong Kong.

4. Social Innovation and Entrepreneurship Development Fund (SIE Fund)

• Objective: To address social exclusion and poverty.
• Sub-Programmes: Includes Nurturing Social Minds, Impact Incubator, Good Seed, and more.
• Eligibility: Varies by programme, including Hong Kong citizens, companies, social enterprises, or NGOs.

5. Patent Application Grant

• Objective: To assist in the patent application for new inventions.
• Funding: Up to HKD 250,000 or 90% of the total cost.
• Eligibility: Incorporated Hong Kong company, permanent Hong Kong resident, or resident permitted to stay for more than 7 years, and never owned patents before.

The Operational Requirements for Starting a Business in Hong Kong

Hong Kong offers a unique blend of traditional Eastern values and a Western-style economy. Understanding the operational landscape is paramount for those looking to set up a business here. Thankfully, that’s where InCorp can lend its expert guidance.

Hiring Employees

One of the first hurdles entrepreneurs might face in Hong Kong is hiring the right personnel. While the region boasts a robust talent pool, diving into it requires a comprehensive understanding of local labour laws and customs.

Legal Regulations and Visas

Every employee, especially those from overseas, must have the right employment status. Hong Kong mandates specific visas and work permits for non-residents. While seemingly daunting, ensuring compliance with these regulations is crucial to avoid potential legal hiccups. We will cover working visas later in our Business Immigration and Work Permits section.

Cultural Considerations in Recruitment

Hong Kong’s multifaceted cultural backdrop means recruitment goes beyond CVs and interviews. The city values relationships and tradition, so it’s beneficial for employers to grasp local customs and expectations to foster a harmonious workplace environment.

Using an Employment Agency

When starting a business in Hong Kong and considering the use of an employment agency (EA) to recruit staff, it’s essential to be aware of the following key points:

• Licensing: Ensure the employment agency (EA) has a valid licence from the Commissioner for Labour. Check their status on the official website.
• Fees: EAs can only charge job seekers a commission capped at 10% of their first month’s wages. Overcharging can lead to hefty penalties.
• For Employers:
  • Research the EA’s reputation before engagement.
  • Agree on service details and get them in a signed agreement.
  • Familiarise yourself with the Labour Department’s Code of Practice for EAs.

If in doubt, consult a proven service provider like InCorp who can direct you to a reputable EA. 

Managing Your Inventory

If your business deals with tangible goods, Hong Kong’s bustling ports and trading hubs will be pivotal. Inventory management in such an active trade environment requires a blend of foresight and agility.

Understanding Hong Kong’s Import and Export Rules

Trading in Hong Kong isn’t just about buying and selling. It’s about understanding the local and international regulations that govern import and export. Familiarising yourself with duties, tariffs, and paperwork ensures a smooth flow of goods in and out of the region.

Tips for Efficient Inventory Management

Leveraging modern tools, software, and perhaps most importantly, local expertise can streamline inventory processes. It’s about keeping pace with demand without overextending resources.

Managing Your Operations

Hong Kong’s dynamic business environment necessitates a keen operational strategy. From ensuring proper registration to meeting regulatory standards, every detail matters.

Registration and Licensing

Every business in Hong Kong needs to be registered. Furthermore, certain licenses and permits may be necessary depending on the nature of the business. Overlooking these can lead to legal complications. 

Navigating Local Business Culture

Business is just as much about building relationships as it is about transactions. Hong Kong’s business culture prioritises trust, respect, and mutual understanding. Adapting to this can ensure smoother operations and foster long-term partnerships in the Hong Kong business community.

Choosing the Right Location in Hong Kong

Whether you’re considering a physical storefront, an office, or a virtual space, location can significantly impact your business. Hong Kong offers everything from bustling commercial districts to quieter suburban areas, each with unique benefits and challenges.

Benefits of Coworking Spaces

For startups and SMEs, coworking spaces can be a boon. They offer flexible, cost-effective solutions while providing a conducive environment for networking and collaboration.

Why Consider Virtual Offices?

A virtual office allows businesses to have a presence in Hong Kong without the overheads of a physical space. It provides flexibility, especially for businesses operating predominantly online or those entering the Hong Kong market. 

It should be noted that Hong Kong has traditionally had an “in-office” culture, so you will need to foster your own strong hybrid or remote work culture. 

Pros and Cons of Physical vs. Virtual

While physical offices offer tangibility and a clear presence, virtual offices provide flexibility and cost efficiency. The choice depends on the nature of your business, its goals, and its operational needs.

As you can see, some unique challenges to operating a business in Hong Kong exist. To navigate your operational demands efficiently, expertise and local insight through providers like InCorp Hong Kong is invaluable.

Marketing Your Business in Hong Kong

Hong Kong offers a distinct marketing landscape with its cosmopolitan audience and unique blend of Eastern and Western cultures. Understanding its unique characteristics and leveraging local expertise is crucial to market your business in this dynamic city effectively.

Understanding the local market and target audience

Hong Kong’s diverse population consists of locals, expatriates, and tourists. The city’s rich cultural heritage, combined with its global outlook, creates a multifaceted consumer base. It is essential to segment your target audience, understand their preferences, and tailor your marketing messages. 

For instance, while digital marketing might resonate with the younger, tech-savvy audience, traditional advertising methods like print media or outdoor advertising might be more effective for older demographics or tourists.

Developing a Marketing Strategy in Hong Kong

Leveraging Hong Kong’s Media Landscape

Hong Kong boasts a vibrant media landscape, with a mix of local, regional, and international media outlets. Businesses have many channels to promote their offerings, from leading newspapers like the South China Morning Post to popular radio stations and various digital platforms. Selecting the right media mix that aligns with your target audience and business goals is crucial.

Digital Marketing in a Connected City

Hong Kong has one of the highest internet penetration rates in the world, with over 90% of the population being connected to the internet. The city’s residents are highly active on social media platforms, making digital marketing a potent tool. Platforms like Facebook, Instagram, and WeChat are immensely popular, offering businesses targeted advertising options. Additionally, with the rise of e-commerce and online shopping, businesses should consider integrating online sales channels and digital payment solutions. 

Navigating Cultural Nuances

Hong Kong’s unique blend of cultures requires businesses to be sensitive to cultural nuances in their marketing campaigns. What works in Western countries might not necessarily resonate in Hong Kong and vice versa. It’s essential to strike a balance between global branding and local relevance. Collaborating with local marketing experts can help craft culturally sensitive and effective marketing messages.

Collaborating with Local Marketing and Advertising Experts

While InCorp Hong Kong doesn’t offer direct marketing services, our close relationships with the best marketing and advertising agencies in Hong Kong position us uniquely to guide businesses. We can connect you with local experts who understand the nuances of the Hong Kong market, ensuring that your marketing strategies are effective and culturally relevant. Leveraging local expertise can provide a competitive edge, ensuring your marketing campaigns resonate with the Hong Kong audience.

The Legal and Tax Requirements for Running a Business in Hong Kong

Ensuring compliance with Hong Kong’s legal and tax requirements is paramount for the smooth operation of your business. That said, Hong Kong’s transparent legal system and business-friendly tax regime are tailored to support local and international enterprises.

Complying With the Law 

Hong Kong’s legal system is based on the principles of English Common Law, ensuring a transparent and fair business environment. Every company in Hong Kong must adhere to the Companies Ordinance (CO) and ensure timely filing of statutory returns to the Companies Registrar. 

These returns encompass all company records, such as annual returns and any changes in the registered office address or particulars of the company directors and company secretary. Non-compliance can lead to prosecution and fines, with penalties reaching up to HKD 50,000 and a daily default fine of HKD 1,000 for continued offences.

Tax Filing and Reporting Obligations 

Beyond profits tax returns, companies in Hong Kong must ensure the timely filing of various statutory returns to the Companies Registry. This includes the submission of Form NAR1, which is required annually, and other forms like NR1, ND2A, and ND2B for changes in registered office addresses or particulars of company directors and secretaries. As per section 5(1) of the Companies Ordinance, dormant companies are exempted from filing an annual return.

Accounting and Bookkeeping Requirements 

Hong Kong adheres to internationally recognised accounting standards. Businesses must maintain proper books of accounts, which form the basis for their annual financial statements and tax filings. Furthermore, all businesses must have their accounts audited annually by a certified public accountant (CPA) like InCorp, who must be independent. Only firms registered with the Hong Kong Institute of Certified Public Accountants holding a valid practising certificate are authorised to conduct company audits in Hong Kong.

Compliance with Local Laws and Regulations

Certain industries in Hong Kong are subject to additional regulations. For instance, the Hong Kong Monetary Authority’s regulations might govern financial services companies. At the same time, the food and beverage sector would need to adhere to specific health and safety standards.

Business Immigration and Work Permits 

Hong Kong’s strategic location and robust economy make it a magnet for entrepreneurs, investors, and professionals worldwide. Ensuring you have the right visa and permits is crucial for a seamless business experience in this dynamic city.

Visa Options for Entrepreneurs and Investors

Hong Kong offers a range of visa options tailored to the needs of entrepreneurs and investors:

• Entrepreneur Visa: This is for professionals from overseas, Taiwan and Macau planning to establish or join a business in Hong Kong. The business should contribute significantly to the Hong Kong economy, and the applicant should have relevant qualifications or experience.
• Technology Talent Admission Scheme (TechTAS): A fast-track arrangement for non-local technology talent to engage in R&D work in Hong Kong.
• Quality Migrant Admission Scheme (QMAS): For highly skilled individuals without a job offer in Hong Kong. It assesses applicants based on age, qualifications, experience, and language proficiency.

For a more detailed understanding of visa options, please read our guide on Types of Work Visas in Hong Kong

Employment Requirements for Hiring Staff

When hiring staff, it’s essential to be aware of the various visa options available:

• Employment Visa: Under the General Employment Policy (GEP), professionals from overseas, Taiwan, and Macau can apply. The job offer should be relevant to the applicant’s qualifications or experience, and the remuneration package should be at par with the market rate.
• Admission Scheme for Mainland Talents and Professionals (ASMTP): For professionals from Mainland China. The job offer should be relevant to the applicant’s qualifications or experience.
• Immigration Arrangements for Non-Local Graduates (IANG): For graduates who have obtained an undergraduate or higher qualification in Hong Kong from a full-time locally accredited program.
• ASSG or Admission Scheme for the Second Generation of Chinese Hong Kong Permanent Residents: For the second generation of Chinese Hong Kong permanent residents from overseas.

Immigration Process

The immigration process in Hong Kong is transparent and efficient. However, ensuring that all documentation is accurate and submitted on time is crucial. The normal processing time for most visas is around four weeks, starting from the receipt of all required documents by the Immigration Department of Hong Kong. It’s also worth noting that successful applicants and their dependents can apply for Hong Kong permanent residency after seven years of continuous ordinary residence.

Intellectual Property (IP) Protection 

Hong Kong has worked hard to establish rigorous and contemporary regulations covering all aspects of IP. This includes but is not limited to, designs, patents, and copyrights.

Recognising the importance of safeguarding IP for foreign investors, Hong Kong has instituted its dedicated Intellectual Property Department. This ensures that all IP interests, whether local or international, are protected and reliable.

Though Hong Kong is a Special Administrative Region of China, its commitment to Western economic principles is unwavering. This steadfast adherence ensures businesses operating within its borders can confidently innovate, knowing their intellectual assets are well-protected.

Expanding Your Business in Hong Kong and Beyond

Hong Kong, often referred to as the “Gateway to Asia,” is strategically positioned as a springboard for businesses looking to tap into the vast markets of the Asia-Pacific region and beyond. Its unique blend of Eastern and Western influences, robust infrastructure, and business-friendly environment make it an ideal hub for regional and global expansion.

Exploring Regional and International Expansion Opportunities

Hong Kong’s prime location on the southern coast of China places it at the heart of the rapidly growing Greater Bay Area, encompassing major cities like Guangzhou, Shenzhen, and Macau. This region’s massive consumer base makes it a lucrative business market.

• Connectivity: Hong Kong’s world-class airport and seaport connect it to over 220 destinations worldwide, facilitating the movement of goods and services. Its status as a major transportation hub ensures efficient logistics and supply chain management for businesses looking to expand.
• Trade Agreements: Hong Kong has multiple Free Trade Agreements (FTAs) and Double Taxation Agreements (DTAs) with countries and regions worldwide. These agreements provide businesses preferential access to key markets, reducing tariffs and eliminating potential trade barriers.
• Cultural and Linguistic Advantage: The bilingual nature of Hong Kong, where both English and Cantonese are official languages, aids businesses in bridging the gap between Western and Eastern markets. The city’s multicultural workforce is adept at understanding and navigating the nuances of different markets, providing a competitive edge.
• Supportive Ecosystem: The Hong Kong government offers various initiatives and programs to support businesses’ expansion efforts. This includes trade fairs, networking events, and access to market research, all aimed at facilitating successful market entry and expansion.

By leveraging Hong Kong’s strategic advantages, businesses can effectively explore and capitalise on the myriad opportunities available in the Asia-Pacific region and beyond.

Conclusion: The Future of Business in Hong Kong

Hong Kong’s legacy as a global business hub is undeniable. Its strategic location, robust legal framework, and business-friendly environment have cemented its reputation as the “Gateway to Asia.” As we look to the future, the city’s commitment to fostering entrepreneurship and adaptability to global economic shifts ensures that it will remain an attractive destination for businesses of all sizes. 

Whether you’re a startup looking to make your mark or an established enterprise aiming to expand your global footprint, Hong Kong offers unparalleled opportunities.

At InCorp Hong Kong, we understand the on-the-ground intricacies of establishing and growing a business in Hong Kong. Our team of experts is dedicated to guiding you through every step we’ve mentioned in this guide, ensuring that your business journey in this dynamic city is seamless and successful.

Ready to unlock the potential of Hong Kong for your business? Contact InCorp Hong Kong today, and let us be your trusted partner in your next business venture.

About the Author

InCorp Content Team

InCorp's content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide aspiring business entrepreneurs to a higher level across the Asia-Pacific region.

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