With low taxes, extremely simple processes for setting up a company, and a welcoming approach to overseas investors that bring good ideas to the table, Hong Kong is a dream location for many entrepreneurs.
If you have what it takes to rise above the competition, this small nation could put your SME on the global business map.
Does Hong Kong welcome overseas businesses?
Hong Kong is hugely welcoming of overseas business, which is a simultaneous blessing and curse for an entrepreneur with a mind to open an SME.
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While the authorities will be more than happy to listen to your idea for a new venture, you need to know that countless other aspiring business magnates have the same intention of building their brand in Hong Kong.
The number of rival companies could run into the tens of thousands, so you’ll need to ensure that your proposition offers something unique to the powers-that-be and aspiring employees if you wish to attract the cream of Hong Kong’s talent crop.
What industries are most popular in Hong Kong?
There are four major industries in Hong Kong, all of which offer a wide array of lucrative trading opportunities.
- Business advisory and professional services
- Financial services
- Trading and logistics
- Tourism
Other industries in Hong Kong are also on the rise, notably sports, legal services, new media, and entertainment. The quartet mentioned above remain the backbone of the national economy, though.
Is it easy to set up a business in Hong Kong?
One of the most significant selling points of setting up a business in Hong Kong is how simple the authorities make it. You get yourself up and running, all you need to do is:
How to set up a business in Hong Kong
- Choose a company name
And check with the Hong Kong Companies Registry to ensure it has not been taken. If not, register this business name
- Secure a local trading address in Hong Kong
Or employ a local agency to provide this service for you
- Decide on your company structure
Most new ventures operate as a limited liability company
- Return to the Hong Kong Companies Registry and complete the following three forms:
• Incorporation form
• Company’s Articles of Association
• Notice to Business Registration Office (aka an IRBR1 form)
That’s it. Once you have completed these steps, you can open a business bank account and start trading. Your business could be live in a matter of days.
Can I run a business in Hong Kong while living overseas?
Yes, you will be more than welcome to run a Hong Kong business from the UK or anywhere else in the world. You’ll just need to employ a local agency that will act as a registered address and company secretary in your stead. This can be arranged for as little as HK$500 per year.
Cultural considerations when running a business in Hong Kong
If you want to trade with Hong Kong natives, you’ll need to understand some of the cultural nuances associated with this nation. Things to bear in mind include the following:
- Learn at least some Mandarin and Cantonese language, especially if you plan to operate in the financial sector in Hong Kong. Most business associates will speak English, but the same may not apply to bank tellers and other people you interact with.
- Tardiness is a huge no-no in Hong Kong. It’s better to be an hour early than a minute late if you are meeting associates.
- Dress to impress – invest in a designer suit or equivalent, and ensure you have a suitably impressive watch. This will be noticed.
- Be mindful of what colours you wear. Black is usually fine, and red is considered a lucky colour, but check if the country observes any festivals before attending a meeting. For example, wearing black during the Zhongyuan Festival is considered bad luck. Avoid white clothing where possible, as this is a colour of mourning in Hong Kong.
- Gift giving is not essential, but an associate may offer you a token. If so, initially refuse and wait for your partner to insist. Open the gift in front of them and ensure you demonstrate gratitude. This should not be difficult, as gifts in Hong Kong tend to be high in value. If you wish to present a gift, ensure it is wrapped beautifully in any colour other than blue and avoid anything with a clock face, as these are associated with death.
What business structures are supported in Hong Kong?
Here are the most common business structures for a subsidiary company in Hong Kong.
| Type of Hong Kong business entity | What is it? |
|---|---|
| Sole proprietorship | You’ll be welcome to operate as a sole trader in Hong Kong, but you will pay personal income tax, which is likely to be higher than business tax, and potential partners do not hold this business model in high regard. |
| Limited liability company (LLC) | The most popular business structure in Hong Kong, an LLC can be set up in days and offers complete separation of your personal and business finances and legal affairs. |
| Limited partnership (LP) | This structure involves at least one general partner and at least one limited partner. A general partner holds liability over business debts and legal issues; a limited partner does not. |
| Branch office | You will be welcome to register a branch of your overseas business with the Hong Kong Companies Registry, but most people prefer to open a subsidiary company. If you open a branch in Hong Kong, you’ll need at least one resident director. |
Taxation in Hong Kong
If you want to do business in Hong Kong, you must understand the taxation rules and regulations that will impact your bottom line.
What is the corporate tax rate in Hong Kong?
Hong Kong, quite rightly, enjoys a reputation as a business tax haven. Company income tax rates in Hong Kong break down as follows.
| Profit | Corporation tax rate | Unincorporated business tax rate |
|---|---|---|
| First HK$2,000,000 of profit | 8.25% | 7.5% |
| Profits over HK$2,000,000 | 16.5% | 15% |
This means that if you form an LLC in Hong Kong, you’ll be charged a maximum of 15% on your gross annual profit – and the first HK$2,000,000 you earn is charged at half this rate.
What are the employee income tax brackets in Hong Kong?
All employees in Hong Kong need to pay income tax – though, like business taxes, these are pretty low compared to many nations. These tax contributions break down as follows.
| Annual salary (HK$) | Income tax rate |
|---|---|
| 49,999 or lower | 2% |
| 50,000 – 99,999 | Flat fee of HK$1,000 and 6% tax on all income above HK$50,000 |
| 100,000 – 149,999 | Flat fee of HK$4,000 and 10% tax on all income above HK$100,000 |
| 150,000 – 199,999 | Flat fee of HK$9,000 and 14% tax on all income above HK$150,000 |
| 200,000 or higher | Flat fee of HK$16,000 and 17% tax on all income above HK$200,000 |
Unlike most nations, employers are not responsible for withholding income tax from a salary at the point of payroll in Hong Kong. Employees are paid a gross salary and submit their own tax returns at the end of the financial year. At this point, employees must pay income tax and contributions to the Mandatory Provident Fund, which totals 5% of each month’s salary.
How are taxes paid in Hong Kong?
The financial year in Hong Kong mirrors that of the UK, beginning on April 1st and concluding on March 31st. Filings and payments are due to the Inland Revenue Department by July 2nd.
So, the 2022 tax year began on 01/04/22 (in Hong Kong, this will be styled as 2022 April 1st) and ends on 31/03/23. Corporate and personal tax returns must be submitted, and any payments must be made, before midnight on 02/07/23.
Payroll and hiring Employees in Hong Kong
Hiring the right talent can make or break a company. Ensure your Hong Kong business interests are staffed by the best possible talent.
Does Hong Kong welcome overseas talent?
Hong Kong is always on the lookout for overseas talent, especially in the aftermath of the Covid-19 pandemic, which saw many business leaders leave the country.
There is a substantial caveat here, though – Hong Kong is only interested in highly skilled migrants who will significantly contribute to the national economy. The right to enter Hong Kong is based on a points system under the Quality Migrant Admission Scheme (QMAS), so investigate this and ensure that your business model fits this niche.
Who needs a visa or work permit to work in Hong Kong?
Anybody that does not hold a passport issued by the Hong Kong Special Administrative Region (HKSAR) will need a visa and/or work permit to work in the territory. These will typically be provided under the General Employment Policy (GEP) to any employee that meets the high standards required to enter Hong Kong.
What employee benefits are compulsory in Hong Kong?
Hong Kong offers comparatively limited mandatory benefits. As an employer, you will legally require to provide the following:
- Minimum of 7 days of annual leave, with a maximum allowance of 14 days accrued after 9 years of service.
- Up to 120 days of sick pay, accrued monthly based on length of service.
- 5% contribution of an employee’s salary to the Mandatory Provident Fund each month.
- 14 weeks of maternity leave on full pay.
- 5 – 14 days of paid paternity leave. 5 days is the legal minimum, 14 is considered generous.
Any additional benefits are optional – but do consider offering further perks to attract top talent to your company.
Employment law considerations in Hong Kong
While the Hong Kong Employment Ordinance theoretically lays down the law in terms of employee rights in Hong Kong, working conditions are quite flexible and often left to the business owner’s discretion.
Officially, the working week in Hong Kong is capped at 40 hours, but this is not strictly governed and virtually almost all workplaces will work at least 50 hour weeks. Although Hong Kong does not recognise “at will” termination, probation and notice periods are negotiable.
At present, the minimum wage in Hong Kong is HK$37.50 per hour, though it is expected to rise by mid-2024.
Cultural considerations when hiring employees in Hong Kong
If you wish to run a business in Hong Kong that relies upon the local labour force, ensure you understand some of the nuances you will encounter. These include:
- If you want to attract great talent in Hong Kong, you’ll need to pay for it. Salaries in the nation are higher than in most other Asian countries. Coupled with low taxes, this is part of the attraction of Hong Kong to top-tier employees.
- Your employees will work their fingers to the bone, possibly to the point of exhaustion and stress. Be mindful of this, as you may lose team members to sickness if they work too hard.
- Always remain calm in an office, no matter what external provocation you may face. Your employees are unlikely to aggravate you, but if they – or anybody else – raise your heckles, try not to let it show. Manners and serenity are vital in the Hong Kong workplace, and employees will not want to work in an aggressive environment.
- While all employees expect to have their voices heard and views respected, you will likely find that younger and more junior employees keep themselves to themselves and speak when spoken to. Seniority, in terms of chronological age and rank, takes precedence in Hong Kong.
FAQs about setting up a business in Hong Kong
Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in Hong Kong.
Hong Kong is a nation that prides itself on business-friendliness and efficiency, so your new venture should be up and running in a matter of days.
The humble Limited Liability Company is the most popular and commonplace business structure in Hong Kong. However, sole traders and partnerships also operate in the nation.
Sick leave is accumulated annually in Hong Kong. After one year of service, an employee is entitled to 24 days of sick leave on full pay. After this, the employee accrues 4 more days of sick leave for every month of service, capped at 120 consecutive days.
Yes, there is no requirement to have a local resident serving as director of an LLC in Hong Kong. You will need a local representative if you open a branch of an overseas company, though.
As a reaction to the Covid-19 pandemic that saw several international businesses leave Hong Kong, the nation has simplified the process of starting a business even further. Investors are also welcome to open a business in Hong Kong without living in the territory, but entrepreneurs and employees that qualify for talent attraction schemes can also enjoy financial incentives to purchase property in Hong Kong and become permanent residents.
The only mandatory social security payment in Hong Kong is contributions to the Mandatory Provident Fund (MPF) scheme. Employers and employees each contribute 5% of a monthly salary to the MPF.
Most employees in Hong Kong will expect a probationary period between one and three months – possibly up to six months for senior positions.
As social security contributions in Hong Kong are so minimal, you will barely need to pay more than an employee’s salary – unless you offer a generous selection of supplementary benefits, which may be necessary to attract top talent.
A business entity can be set up in Hong Kong with a capital of just HK$1. However, many banks in the country will request that you deposit at least HK$1,000 (A little over £100) to open an account.
Yes, you will need a business bank account in Hong Kong to trade in the country, though employee payroll does not need to originate in Hong Kong.
The Hong Kong Employment Ordinance places comparatively few legal restrictions on working hours in Hong Kong. While a 40-hour week is standard, it’s far from unheard of for employees in Hong Kong to work up to 60 hours in a single week.
As Hong Kong boasts so many great employers and so much exemplary talent, a benefits package could make all the difference when attracting new hires. Consider offering a private pension (or superior payments to the Mandatory Provident Fund) and a housing allowance to help ex-pats settle in Hong Kong.
No, Hong Kong does not recognise termination at will. You will be a compelling reason, such as gross misconduct or a serious breach of contract, to escape providing notice of termination or an appropriate severance package.
Employees in Hong Kong are entitled to a minimum of 7 days of personal leave per year. This allowance rises annually until it is capped at 14 days following 9 years of service.
Yes, you will be welcome to open a Hong Kong branch of a British business. However, opening a subsidiary company in Hong Kong is so easy that a branch should only be considered if your company enjoys significant international brand recognition.
You can run payroll from your office in Hong Kong, pay your employees from overseas if you have opened a branch, or team up with a third-party payroll agency to manage this process for you. As employees in Hong Kong are responsible for their own tax returns, it’s comparatively simple to keep your payroll in-house.
Entrepreneurs looking to start a business in Hong Kong should look to enter the country under the auspices of the Quality Migrant Admission Scheme (QMAS) or Capital Investment Entrant Scheme (CIES). Employees moving to Hong Kong with a job offer can apply for a visa and work permit under General Employment Policy (GEP).