Entering the Hong Kong Market

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Entering the Hong Kong Market

Foreign companies who wish to expand into Hong Kong will be met with world-renowned financial sectors, a highly educated and multicultural workforce, competitive tax incentives, and exceptional ease of business in company registration.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

The alternative solution to overcoming these issues involves working with a Professional Employer Organization (PEO) such as Bradford Jacobs, using our Employer of Record (EOR) in-country experts to handle every aspect of compliance.

Here we have set out some straightforward summaries of what you need to make the transition into Hong Kong’s market.

Starting a Business in Hong Kong

Hong Kong’s geographical position benefits from international access to diverse marketplaces in Asia. With a robust infrastructure, and reputable telecommunications systems, this creates an attractive environment for any business owner who seeks to expand their business.

To start a business in Hong Kong you must go through a company registration procedure, which is straightforward and designed to be executed easily. These steps can be done online or in person. The necessary steps to start a business in Hong Kong include:

  • Decide on the company type that suits the nature of your business, your business goals and matches your own capabilities to meet establishment requirements. Common company types include:
    - The Private Limited Company
    - The Public Limited Company
    - The Company Limited by Guarantee
    - a branch office
    - a representative office
  • Choose a company name – can be in English (must end in Limited), traditional Chinese, or an English and Chinese name (but the combination of English and Chinese characters is prohibited).
  • Appoint a company secretary.
  • Obtain a business address in Hong Kong.
  • Prepare the appropriate registration documents and have them translated to Chinese or English.
  • Notarize and legalize the registration documents at a notary’s office.
  • Confirm your company name and register your company at the Company Registry.
  • Receive a Certificate of Incorporation.
  • Register with the Inland Revenue Department and obtain a Business Registration Certificate, which includes the company’s Tax Identification Number.
  • Open a corporate bank account.
  • Apply for any additional permits or licenses (if required), within a month of incorporation.

Expanding Business into the Hong Kong

Foreign companies wishing to expand into Hong Kong will be swept into a formidable economy with a multinational and multilingual talent pool, and attractive administrative and labor costs – which is provided to all companies that enter their market.

The country’s position offers access to trade in the East, as well as a formidable infrastructure and a cultural mix of eastern and western-oriented business environments.

Hong Kong boasts a strong and well-regulated financial sector, as well as robust tourism, production, logistics, cultural, and creative industries. Hong Kong is a business hub of Asia, with the continent’s key markets less than four hours’ away. This ease of access and proximity to these major markets make Hong Kong an ideal place to set up a company’s base.

These industries are abundant for international expansion, but they can also be expanded locally into Mainland China.

Business strategy in China places significance on regional advantages, so it is important to be aware of every region’s benefit, and how they can be most beneficial for your business. A city’s economic classification, as well as access to infrastructure, are also important to take note of when considering business expansion in China.

Popular business locations and tourist destinations include Shanghai, Qingdao, Shenzhen, Guangzhou, Tianjin.

Hong Kong Business Facts

  • Capital City – City of Victoria
  • Population – 7.5 million
  • Cities – Kowloon, Tsuen Wan New Town, Tuen Mun New Town, Tai Po New Town, Aberdeen Harbor, Peng Chau, Kwun Tong, Lei Yue Mun, Sok Kwu Wan
  • Official language(s) – English, Chinese
  • Economy/GDP (2020) – $341 billion (45th)
  • World Ranking (Ease of Doing Business) – 3rd (2020)
  • Leading sectors – textiles, clothing, tourism, banking, shipping, electronics, plastics, toys, watches, clocks
  • Main exports – electrical machinery and appliances, textiles, apparel, watches, clocks, toys, jewelry, goldsmiths’ and silversmiths’ wares, other precious and semi-precious materials.
  • Main imports – raw materials, semi-manufacturers, consumer goods, capital goods, foodstuffs, fuel (mostly re-exported)
  • Main trading partners – China, United States, Japan, the United Kingdom, and Taiwan.
  • Government – Devolved executive-led system within a socialist republic
  • Currency – Hong Kong Dollar (HKD/HK$)

Advantages and Challenges of the Hong Kong Market

The Hong Kong market has a variety of significant advantages:

  • Competitive tax system: Hong Kong benefits from business-friendly low-tax regimes, as well as one of the most competitive rates in Asia. Companies in Hong Kong may also benefit from tax exemptions from gains received from outside the country.

  • Free economy and trade: In 2019, the Heritage Foundation recognized Hong Kong as the freest economy in the world, due to its trade and monetary freedoms combined with its government’s integrity and transparency.

  • High-quality education: Hong Kong is home to 22 award-winning higher education institutions and has various admission schemes in place to attract world-wide talent and diversify the economy.

  • Language: English is the favored language for doing business in Hong Kong, and most local are multilingual, with knowledge of Cantonese or Mandarin.

  • Ease of Business: Hong Kong is currently ranked 3rd in the word for Ease of Business by the World Bank Report.

  • Logistics: With high-quality infrastructure by air, sea and land, Hong Kong has access to trade in Asia, only taking 5 to 8 hours to get to any country in the area.

  • Telecommunications: Hong Kong also has one of the fastest hotspots and broadband speeds worldwide.

Challenges:

The biggest challenge facing the Hong Kong market currently is the effects of COVID-19, like many other nations in Asia and around the world. Other challenges also include inequality, poverty levels, and unemployment levels due to COVID-19. But these challenges are being tackled by the government with necessary reforms.

The 100 per cent solution is to consider the alternative to setting up a subsidiary by working with Bradford Jacobs. Our Professional Employer Organization (PEO) international recruitment specialists will find the perfect fit for the roles you need to fill. Then our Employer of Record (EOR) in-country consultants will handle all the complexities of Hong Kong’s employment laws, tax regulations and payroll, ensuring your Hong Kong expansion plans progress smoothly and effortlessly.

Limited Company/Subsidiary or Branch in Hong Kong

A subsidiary established in Hong Kong is considered a legal separate entity from the parent company, with independent administration and management, providing freedom explore the local market and create international credibility.

A branch, however, does not have any independence from the parent company, but it is taxed and reported similarly to resident entities, and is limited in its commercial activities.

The main characteristics of a subsidiary:

  • The parent company is not liable for any debts and obligations of the subsidiary.
  • A subsidiary must be registered with the Companies Registry.
  • A subsidiary can be wholly owned by foreign investors.
  • To incorporate a subsidiary, you will need: a local registered address, an approved company name, a director, a shareholder, and share capital with no minimum requirement.
  • Liability for investors is only limited to the impact of their investments.
  • Management and accounting of the subsidiary is separate from the parent company – it requires a board of directors, an annual shareholders’ meeting, as well as an official annual audit.
  • Subsidiaries benefit from double tax treaties.

Main characteristics of a branch:

  • A branch is an extension of a parent company – it is not a separate legal entity, and the parent company is responsible for all liabilities of the branch.
  • A branch must also be registered with the Companies Register in Hong Kong.
  • A branch can engage in activities of the parent company but is limited in local activities to those performed by the parent company.
  • A branch can benefit from tax advantages – it is only taxed on profits made from Hong Kong income, due to Hong Kong’s territorial tax regime.
  • Branches, like subsidiaries, also benefit from double tax treaties.

Assessing the comparative advantages and disadvantages between a subsidiary and a branch and choosing the right option for your expansion is best done with expert guidance.

A sensible approach to have your business up-and-running in the shortest time possible is to use a Professional Employer Organization (PEO) such as Bradford Jacobs to source your staff. Before your staff even set foot in your office, our Employer of Record (EOR) specialists will have dealt with all the complexities of compliance with the relevant authorities. Your company can have a presence in Hong Kong within days rather than months.

Legal Structures for Hong Kong Market Entry

Depending on the company structure you choose to set up, establishing a subsidiary or branch entails meeting certain legal requirements.

A subsidiary is fully incorporated under Hong Kong law, whereas a branch only operates under certain local laws (taxation, social security etc.), but its incorporation is under the foreign parent company, which is liable for the branch’s management and debts.

The legal requirements of private & public limited liability companies:

  • Both company types require at least 1 director and 1 shareholder for incorporation (can be local or foreign).
  • Minimum share capital is HKD 1, but the maximum is unlimited.
  • Both company types require the appointment of a company secretary or representative, who must be a local individual or corporation residing in Hong Kong.
  • All companies are subject to annual tax returns, but the percentage depends on the amount of profit income gained during the tax year.
  • Subsidiary companies are also subject to an annual audit, which must be completed by an appointed auditor who is a member of the Hong Kong Society of Accountants and has a practicing certificate.
  • Both subsidiary types are subject to an annual shareholders’ meeting, as well as quarterly board of directors’ meetings.
  • The law also requires these subsidiary entities to keep a Significant Controllers Register, which contains up-to-date information on all beneficial owners of the subsidiaries.

The legal requirements for a branch:

  • The name of a branch in Hong Kong must be identical to the foreign parent company, and business activities are limited to that of the parent company.
  • Only one authorized representative (who is a Hong Kong resident) is required for the branch set-up, as well as one director.
  • A branch is also taxed in the same way as a subsidiary company.
  • Branches have to file annual reports, and if requested, an annual audit of the parent company’s accounts.

Open a Business Bank Account in Hong Kong

To do any business in Hong Kong, whether it is through subsidiary establishment or branch office, or relocating employees to test out the market, a local company bank account is required. Before applying for an entity’s business permits after incorporation, a bank account is required.

To register for a business bank account, it is crucial for foreign investors to acquire the necessary paperwork. The specific criteria for a non-resident can vary according to the bank. However, it is generally regarded as much easier to apply for a bank account in Hong Kong than it is in Europe or America.

The procedure takes up to two weeks. Most banks will accept notarized and translated copies of the required documents in English or Chinese.

Generally, the documents you will need to open a business account in Hong Kong (besides the required application form) are as follows:

  • Documents Concerning Individuals - passport or Hong Kong ID Card, proof of address, bank statements of the last 6 months, bank reference letter dated in the last 3 months, the individual’s CV, any additional documents requested by the bank
  • Company Registration Documents - Passports of all directors/beneficial owners/shareholders, proof of residency of all members, bank statements of the last 6 months, bank reference letter dated in the last 3 months, company documents, detailed business plan, proof of business (for companies already active for over 6 months).

The registration process includes:

  1. Filling out the application form and submitting it with the appropriate documents (which can be done online or in-person).
  2. Having a meeting with the bank officer (for corporate bank accounts, all directors, beneficial owners, and shareholders with 10% or more of the company shares are required to attend this meeting).
  3. Opening/activating the bank account.

Opening a bank account for a corporation will be a bit more difficult than opening one for an individual. Each bank may also set out additional requirements for non-residents who wish to open a bank account.

Fees for the application also apply but vary according to the bank. Applications for bank accounts require a deposit which ranges from HKD 10,000 to 50,0000, a minimum balance ranging from HKD 50,000 to 500,000, a processing fee of up to HKD 10,000, as well as an appointment fee which ranges from HKD 1,200 to 1,350.

When opening a bank account in Hong Kong, it is best to enquire on what you need with the chosen bank, as well as with legal representatives who understand the local laws to ensure compliance.

Company Formation Hong Kong

There are 5 major company forms in Hong Kong, which vary according to parent company liability, and economic activities:

  • The Private Limited Company
  • The Public Limited Company
  • The Company Limited by Guarantee
  • Branch Office
  • Representative Office

The company formation process varies according to the company type, but the standard registration procedure is as follows:

  • Obtain a local business address and prepare the documents for registration.
  • Prepare the registration documents (Articles of Association, a Notice to the Business Registration Office, Incorporation Form etc.) and have them translated to Chinese or English.
  • Notarize and legalize the founding documents at a registered notary’s office.
  • Register the company at the Company Registry and receive an incorporation certificate.
  • Register with the Inland Revenue Department and receive a Business Registration Certificate (and accompanying Tax Identifier Number).
  • Opening a bank account in Hong Kong.
  • Register for permits or business licenses with the appropriate authorities.

Find an office in Hong Kong

Hong Kong is currently investing in the growth of its business developments, due to a rising interest in the commercial real estate market, with hopes to reinvigorate country’s commercial districts.

Prices vary according to requirements but are mostly affordable, and the area offers a variety of commercial types to choose from, depending on your needs – commercial rent and sales, industrial spaces and an increase in co-working spaces and virtual offices.

Acquiring an office in Hong Kong requires the engagement of a local real estate office – but finding the right agency and agent may take time and involves certain barriers, such as business customs and lack of face-to-face contact if you are looking for a place remotely.

This is where Bradford Jacobs can step in and act as an office broker for companies wishing to expand into Hong Kong. With our experience in international expansion, we can find the right space for you in no time and prevent the stresses and complications that can accompany a property search.

Finding a Hong Kong Manufacturer

Manufacturing has been overshadowed by the services industries in recent years, but still plays an important role in the gross domestic product of Hong Kong. Textile and clothing production leads in manufacturing activity, contributing about one-third of the value of domestic exports. Hong Kong also manufactures electronics, shipbuilding, the production of machine parts and plastics, and cement.

Sub-contracting in Hong Kong is a common practice, especially for construction, production of electronic components and clothing. Many production activities do not take place in Hong Kong, but the majority of these products are sold globally through Hong Kong. Most enterprises in Hong Kong retain the operation of enterprise services, marketing, sales, with control centers based in Hong Kong to oversee the production activities in other locations.

Since there are a number of manufacturing choices across China to choose from, it is best to ask local associates about their experiences, as well as start a search on potential manufacturers, keeping in mind their location and production costs. As a business owner, it is important to ask potential manufacturers about their capabilities, target dates and delivery times.

The economic value generated by these activities have great value, and the government is also providing support for these manufacturers with financing, technology and product development, training, clean production, and upgrading. Recently, the government has started to push for more inland manufacturing possibilities to bolster the territory’s economy, so this may also be something to consider as a business owner if you would like to keep your production inland.

Working with the right manufacturer will have a significant effect on the success of your expansion into the Hong Kong market, and beyond. It is a long-term commitment and relationship, which must be treated with significance and care. Ask your local business associates or contacts about which companies to consider – they can help point you in the right direction.

Finding a Hong Kong Distributor

Successful integration into the Hong Kong market is not complete without a local distributor. The distributor you choose will have a great impact on your business and its objectives.

There are a variety of options for product distribution. With world-class infrastructure such as an express rail link, world leading air and sea cargo hubs, and the longest bridge-tunnel sea crossing in the world, Hong Kong’s infrastructure not only brings easy connections to the rest of Asia, but also to the rest of the world.

Hong Kong enjoys a mix of traditional street markets for daily needs, and modern retail outlets. Convenience stores are very popular, as well as supermarkets, shopping malls, and brick-and-mortar retailers.

It is best to start with seeing what options are out there for your product’s distribution and using websites such as Global Trade are a great place to start. You can also use word-of-mouth from local business contacts.

To find the right distributor, you must work with the local business customs and understand the local culture. Business culture in Hong Kong values trust, respect, and close relationships with their business associates – an understanding of Cantonese can also go a long way. Treat distribution partnerships as long-term relationships.

Enter New Markets with Bradford Jacobs

Bradford Jacobs opens the door for companies like yours seeking to explore a variety of new markets in Hong Kong and Asia. Part of this exploration includes recruiting staff to assist with your expansion plans. Our Professional Employer Organization (PEO) specialist teams have in-depth global knowledge of how to expand into and recruit in new territories. 

Our Employer of Record (EOR) services will guarantee your company complies with local registration and recruitment law, taxation, and payroll. This is essential for Hong Kong, where employment regulations depend on a mix of labor legislation, and collective arrangements with trade unions and work councils.

We also provide ongoing consultation on human resources based on our understanding of individual cultures and customs of every country being targeted for global expansion. Work with Bradford Jacobs to expand your company and ensure the best people are on your team.