Doing Business in Hong Kong


HONG KONG WELL PLACED

Hong Kong has long been rated as one of the World’s freest economies. There are very few restrictions to trade with no quotas or tariffs, no foreign exchange controls and no limitations on either inward or outward investment. It is also ideally located for doing business in Asia, being central to all the major markets in the region, but more importantly it lies on the doorstep of the mainland.

For many foreign enterprises looking to do business with China, Hong Kong is a good compromise. It is not on the mainland per se but it is within easy flying distance to all the major Chinese cities and provides a developed business infrastructure and legal framework that foreign enterprises on the mainland sorely miss. It is also much easier to set up a company in Hong Kong with the process taking days rather than weeks and the Closer Economic Partnership Arrangement (CEPA) which took effect at the beginning of 2004 also provides enterprises with greater access to China’s markets by giving these enterprises lower entry tariffs and quotas on a range of goods and services exported to China from Hong Kong.

On the flipside, enterprises serving China markets from Hong Kong may not instil the utmost confidence in their products and services. Customers will prefer to have their suppliers nearby and they will of course also want to be assured that the enterprise can provide all the support and back up services that the product or service may require. For many companies though setting up in Hong Kong or the mainland will not be a mutually exclusive decision, it not being uncommon to see companies setting up a presence in both, with the offices set up in Hong Kong usually providing support services (such as HR) to their China branches. This can be summarized as the following:



Unrivaled Content

Hong Kong is extremely well placed at the geographical and economic center of Asia. Business executives can access all the major markets in the region with ease. All first and second tier Chinese cities are also within striking distance; Beijing is just over three hours away by plane, Shanghai two and a half hours, and the Pearl River Delta is just across the border, an hour’s drive away.



Gateway to China

For more than a hundred and fifty years, Hong Kong has served as an entry point to China. Following China’s accession to the World Trade Organisation the prospects for the country’s economic expansion are even greater. The Closer Economic Partnership Arrangement (CEPA), which came into effect at the beginning of 2004, provides Hong Kong with additional and exclusive market access benefits. As a result thousands of international companies doing business with China have chosen to establish in Hong Kong as their point of entry.



Rule of law

Hong Kong’s legal system is separate from the Mainland's and is based on the British common law system with an impartial judiciary that is independent from the legislative and executive branches. On the handing back of Hong Kong to China in 1997 the Basic Law came into effect to serve as the region's constitutional framework. This ensured that there would be no major changes to Hong Kong’s legal system for the next 50 years and that the region would be governed under the mentality of “One Country, Two systems”. Hong Kong’s strict adherence to the rule of law has been one of the key factors for its success, the Basic Law served to preserve this state of affairs.



Arbitration

Hong Kong established its International Arbitration Centre in 1985 and has since developed into one of the world’s major arbitration centers. It has a breadth and depth of expertise that would be hard matched anywhere in the world, covering areas such as commerce, finance, shipping and construction particularly well.



Anti-corruption culture

A strong rule of law culture and a free market mentality have made Hong Kong one of the most corruption-free economies in the world. The Independent Commission Against Corruption (ICAC) was established in 1974 and has since promoted a strong anti-corruption culture in Hong Kong. Transparent government practices allow businesses here to pursue their business interests on a level playing field.



World-class infrastructure

Logistics, utilities and telecommunications infrastructures are all world-class in Hong Kong. Container ships docking in Hong Kong are turned around on average in ten hours or less and the trail blazing Hong Kong International Airport is just a twenty-five minute train ride away on the high-speed rail link. ‘State-of-the-art’ can be used to describe many of Hong Kong’s facilities. There is the utmost confidence in Hong Kong’s electricity and water supply and mobile and internet telecommunications systems are among the most advanced in the world.



Low taxes

Hong Kong is well known for its low tax rates, which have been a contributing factor to the entrepreneurial and commerical buzz that is apparent in the region. Profit tax rate is 16.5% and is the same for both foreign and local companies. There is also no capital gains tax, withholding tax on dividends and no sales tax or VAT. Income tax is set at a maximum rate of 15% and is demanded on a yearly basis but can be paid in two instalments. Exposure to tax in Hong Kong is one of the lowest amongst developed countries.

Relatively low income tax rates

Normal rate (for the year of assessment 2008/09 onwards)

 

 

 

Corporations:

16.5%

 

 

Unincorporated Businesses:

15%

 

Two-tiered rates (for the year of assessment 2018/19 onwards)

   

Corporations:

8.25% on assessable profits up to HKD 2,000,000; and 16.5% on any part of assessable profits over HKD 2,000,000

   

Unincorporated Businesses:

7.5% on assessable profits up to HKD 2,000,000; and 15% on any part of assessable profits over HKD 2,000,000

 

In certain circumstances, a concessionary tax rate (50% of the normal profits tax rate) will be applied.

Per 2019-20 Budget, 75% of the 2018-19 profits tax is waived subject to a ceiling of HKD 20,000 per case. (Legislative amendments are required for implementing the proposed measures.)

 



Free flow of information

Hong Kong enjoys constitutionally guaranteed freedom of speech and freedom of the press. More than 40 newspapers and 700 periodicals are published in Chinese and English in a city that is home to about 130 media organizations. There is no government censorship and both local and overseas publications circulate without hindrance.

 

HONG KONG’S INFLUENCE ON ‘THE BELT AND ROAD INIATIVE’

With a strong desire to promote economic co-operation amongst neighbouring countries, the Chinese government have introduced a significant development strategy called the “Belt and Road Initiative”.  Essentially, the initiative refers to an upgrading and amalgamation of the existing Silk Road Economic Belt and the 21st Century Maritime Silk Road.  The current initiative has been designed to enhance the orderly free-flow of economic factors and the efficient allocation of resources with the sole purpose of creating market integration under a regional economic co-operation framework that benefits all.

The National Development and Reform Commission (NDRC) issued its Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road on 28 March 2015. This outlined the framework, key areas of co-operation and co-operation mechanisms with regard to the Belt and Road Initiative.

Essentially, the initiative offers companies both locally and internationally to tap and get a foot-hold into new and undeveloped markets along the Belt and Road specifically in Mainland China, ASEAN countries; the Middle East and Central and Eastern Europe.

The Initiative has a far outreach that extends from the Chinese Mainland to Europe and includes, more than 60% of the world’s population living in 60 plus countries from Asia. Europe and Africa. Moreover, this outreach will cover 30% of the world’s GDP and 35% of world trade.

  • Hong Kong is the perfect gateway to assess feasibility, potential and risk of Belt and Road projects.
  • Hong Kong has a unique combination of advantages to partner with investors, intermediaries and project owners worldwide to take advantage of Belt and Road opportunities.
  • Global offshore renminbi trade settlement, financing and asset management service centre connecting regions along the Belt and Road
  • According to Index of Economic Freedom, Heritage Foundation, February 2018, Hong Kong is ranked the world's freest economy.
  • The fifth-easiest place in the world to do business according to The World Bank's Doing Business 2018 report.
  • From the 2015 International Arbitration Survey, School of International Arbitration, Queen Mary University of London, the Hong Kong International Arbitration Centre was rated the most preferred seat of arbitration outside Europe
  • Ranked among the top performers globally in "international experience" and availability of a skilled global workforce according to IMD World Talent Report, IMD World Competitiveness Centre, November 2017
  • In Asia, Hong Kong is one of the largest capital markets with diverse financing channels including equity listing, syndicated loans, private equity funds and renminbi-denominated bonds.

 

GUANGDONG-HONG KONG-MACAO GREATER BAY

The Framework Agreement on Deepening Guangdong-Hong Kong-Macao Co-operation in the Development of the Bay Area by representatives of the NDRC, Guangdong, Hong Kong and Macao was signed in the presence of Xi Jinping on 1 July 2017. The major points include:

  • The Greater Bay Area cluster of cities extends from Hong Kong, Macao and the Nine Pearl River Delta (PRD) to consist of Dongguan, Foshan, Guangzhou, Hong Kong, Huizhou, Jiangmen, Macao, Shenzhen, Zhaoqing, Zhongshan, Zhuhai.
  • The Area covers 56,000 Sqkm with a combined population of about 70 million people towards the end of 2017.
  • The Outline Development Plan covers through 2022 in the immediate term and extends to 2035 in the long term.
  • Hong Kong is well placed strategically to take advantage of this endeavour through its strengths in finance, shipping, trade-links and other professional services.

 

 

Have a question?  Please get in touch with Stone Compass Associates for a consultation at info@stone-compass.com