5 Things You Must Know Before Starting a Business in Hong Kong
8 minute read
Hong Kong is known as a dynamic and attractive business hub. With a strong economy and diversity, it attracts a huge number of business trailblazers every year. These individuals come with innovative business ideas, their main goal being to set up a company in Hong Kong and start growing.
There is no surprise that some of the most promising startups can be found in Hong Kong. The workforce is more than skilled, the taxes are low, and the government is willing to help businesses when the help is needed.
If you too would like to start a business in Hong Kong, keep reading and see what exactly you need to know before you set sails for Hong Kong.
Having a business plan is extremely important if you plan to set up a business in Hong Kong.
An individual cannot acquire a visa without a well-prepared business plan. A two-year business plan needs to be your priority, since it will also be submitted as part of your entrepreneur visa application.
In order to get approved, your plan must be stellar. The goal is to convince the authorities that you have something beneficial to offer. That is why you need to lay down all the important details and information.
The plan should show how your business benefits the economy of Hong Kong. Bear in mind that the plan will be strictly evaluated and every detail shall be scrutinized.
A good business plan needs to include the following details:
- Business goals – primary and secondary
- Business type
- Marketing plans
- Budget plans
- Strong reasons supporting the thesis that your business will make it in Hong Kong
- Details regarding your team of employees
Finally, a business plan should not be a lengthy description of your business. Instead, it should be a basic outline that helps authorities determine how you are going to start a business. Of course, the plan can be modified later depending on the growth progress of the company.
There are a number of available funding options in Hong Kong. Thanks to the fact that the region is so advanced when it comes to business, there are more than enough companies that offer funding schemes.
On top of that, the government of Hong Kong is often there to help starting businesses that show potential.
Good government funding schemes to look for include:
- Innovation and Technology Fund for Better Living. This fund subsidizes innovation and technology projects aimed at bringing more comfortable and safer living.
- CreateSmart Initiative (CSI). This initiative offers financial support to initiatives conducive to the promotion and development of the creative industries.
- Trade and Industry Department Funding Schemes. The schemes are designed to help small and medium enterprises (SMEs) in Hong Kong.
- Social Innovation and Entrepreneurship Development Fund. Finally, the SIE Fund supports innovative poverty-alleviating projects of different forms and in various stages.
However, if you wish to seek funding from non-government organizations, you should look for VC firms, angel investors, and similar entities:
- Horizons Ventures
- Click Ventures
- AngelVest Group
- FundForum Asia
Now that the business-related parts are almost covered, let’s go through work and residency permits needed to live and work in Hong Kong.
Hong Kong offers a special migration visa scheme. It is called Entry for Investment and it was designed for foreign entrepreneurs that want to relocate to HK to operate their new businesses.
This entrepreneur visa scheme, in its essence, is a work permit that is issued to the owner of a business as an employee of their Hong Kong company.
Why Visa Is Important
Visa is of high importance and absolutely necessary if you wish to hire workers. To employ staff (especially overseas individuals), you need to demonstrate that a prospective employee has skills and knowledge not readily available in Hong Kong.
This is the employment visa and it also requires the employer to sponsor the proposed employee and lead them through the process of obtaining a visa.
When it comes to business owners, they apply for an entrepreneur visa. The applicant has to be in a position to make a substantial contribution to the economy of the HKSAR, with consideration factors or startup businesses.
Their startup business may have better chances if it is supported by a government-backed program that has a rigorous vetting and selection process.
Documents To Prepare
Applicants are required to submit the following documents:
- Application form (completed)
- Copy of the personal details of the passport
- Applicant’s Hong Kong identity card (a copy)
- Proof of relevant work experience and academic qualifications (a copy)
- Copy of the company’s Employment Contract or Appointment Letter (with details regarding the salary, benefits, etc.)
- Thorough two-year business plan
- Copy of the Business Registration Certificate obtained from the IRD
- Copy of proof of the overseas residing place
Thanks to its low personal and corporate tax rates, Hong Kong has a highly attractive tax regime. The corporate tax rate in Hong Kong stands at 16.5% on all assessable profits made by a company on a yearly basis. However, there are different tiers and classifications of tax rates that owners should know about.
Companies in Hong Kong have to pay a tax known as the profit tax at a rate of 16.5% of the assessable profits. This is a considerably lower rate when compared to Japan or South Korea (31% and 22%).
Additionally, companies do not have to pay capital gains tax, value-added taxes or sales taxes. Also, there is no withholding tax on dividends and interest and no collection of social security benefits.
The dividends from local companies chargeable to tax are exempt from these. Still, it should be noted that dividends from overseas companies are generally offshore and not subject to tax in Hong Kong.
According to the Inland Revenue Ordinance, an entity liable to pay the profits tax has to meet the conditions below:
- It carries on a trade, profession, or business in Hong Kong.
- The company’s trade, profession, or business derives profits.
- The profits arise in or are derived from Hong Kong.
Finally, bear in mind that taxation in Hong Kong is based on the territorial source principle. This means that companies registered in Hong Kong only pay taxes on profits that come from within Hong Kong.
Annual Filing Requirements
It is recommended to have basic knowledge about annual filing requirements for Hong Kong companies:
- Both local and foreign businesses in Hong Kong have to meet annual filing requirements with the Inland Revenue Department (IRD) and Companies Registry.
- Additionally, according to the Hong Kong Companies Ordinance, companies incorporated in Hong Kong have to maintain proper books of accounts and they also have to follow statutory audit requirements on an annual basis.
- The institution responsible for regulating the accountancy profession in Hong Kong is the Hong Kong Institute of Certified Public Accountants (HKICPA).
If you want to comply with the Hong Kong law, meeting annual filing requirements and keeping an eye on the accounting standards (HKAS) should be prioritized.
Without a doubt, Hong Kong is one of the best business hubs in all of Asia, if not the best. Thanks to its diversity, taxes, modern legal systems, and geographical location, Hong Kong is widely recognized as a successful enterprise center.
If these benefits sound attractive, why wait any longer? Don’t waste a fantastic business idea. It is time to incorporate a company in Hong Kong.