Why Should You Have a Company in Hong Kong for Your Mainland Operations
8 minute read
Hong Kong is undoubtedly one of the most attractive business hubs in the world today. This is partly due to the fact that it had been the wealthiest region of China for a long time and it is also considered a tax haven.
Hong Kong, indeed, has a simple and favorable tax system and that is why many foreign entrepreneurs flock there to start a business. Additionally, its multicultural environment and a great standard of living only add to the overall good image of the region.
But what if you wanted to start a business in Hong Kong and operate in Mainland China too? After all, Hong Kong is a part of China, so it would make sense that your company in Hong Kong is considered as a Chinese company?
Well, that is not exactly the case. The relationship between the region of Hong Kong and the rest of the country can still be described as ‘one country – two systems.’ Does that mean you should or shouldn’t set up a company in Hong Kong if you also have the Mainland China market in mind? If you want to find the answer to the question above, take a look below.
What is exactly ‘one country, two systems’?
The ‘one country, two systems’ principle is a constitutional principle of the People’s Republic of China. It describes the governance of Hong Kong and Macau since 1997 and 1999, which are the respective years when they became Special Administrative Regions (SARs) of China.
This system was proposed by Mr Deng Xiaoping during negotiations with the United Kingdom over Hong Kong. He suggested that there would be only one China, but that the regions of Macau and Hong Kong would retain their own administrative and economic systems. The rest of the country would go on to use the standard Chinese communist system.
This principle stipulates that each of the two regions could continue to have their own systems independent of the Mainland China in terms of:
- the government
- legal, economic, and financial affairs
- trade relations with foreign countries
China agreed to accept various conditions during the negotiations. One condition was the drafting and adoption of Hong Kong’s Basic Law before its return.
This law ensures that the region shall retain its capitalist economic system and own currency, the legal system, legislative system, and same human rights and freedoms as a SAR for 50 years.
Differences between Hong Kong and China
Both the region of Hong Kong and Mainland China share the same Chinese president as their supreme leader. However, each has its own head of government:
- The prime minister is the head of Mainland China.
- The chief executive governs the Hong Kong Special Administrative Region.
The chief executive reports to the Central People’s Government. The term of the chief executive lasts for five years and any person can serve for a maximum of two consecutive terms.
Hong Kong also has its own legal and judicial systems, district organizations, and public servants, broadly based on the British common law model.
When it comes to money and taxes, Hong Kong has the freedom to continue with its free-enterprise system. It has independent finances and China does not interfere in its tax laws or levy any taxes on it.
The region also has its own policies related to money, finance, trade, customs, and foreign exchange. In addition, Hong Kong has its own currency – the Hong Kong dollar – as opposed to the Chinese Yuan used in Mainland China.
Finally, the Hong Kong Stock Exchange has been the preferred destination choice for the vast majority of Chinese companies looking to raise capital. The reason for this is that the Mainland Chinese stock markets are more restrictive and have higher financial requirements. Consequently, Hong Kong’s stock market also brings in more overseas investors.
Is Hong Kong good for business?
Many entrepreneurs choose to set up Hong Kong companies and this trend is not showing any signs of weakening. Hong Kong really is one of the most popular jurisdictions for investors and this is mainly due to its efficient tax system.
However, one can also easily enter an international market from the region and enjoy a super-talented local workforce at an affordable price. The region’s location, its political environment, economy, and business-friendly approach – all of this and more make Hong Kong great for business.
Below is a list of the benefits of opening a company in Hong Kong.
Easier business operations
It is not very difficult to set up a business in Hong Kong. Actually, you can do so in about two week’s time. The region is known for its excellent infrastructure facilities and business premises that are easily available.
Additionally, intellectual property protection is taken seriously with strict regulations in place. There are certain dispute resolution channels that businesses can avail of.
Furthermore, the simple and business-friendly tax system draws a lot of foreign money to the city. A work visa is also an option if you want to relocate and set up your business in the region.
Hong Kong has one of the most successful economies in the world thanks to one thing – openness. To be precise, its dynamic economy is driven by the principles of free enterprise, free trade, and free markets. This economy has contributed to the GDP growth at an average annual rate of 5% in real terms over the past 20 years. There are practically no restrictions on inward and outward investments, no foreign exchange controls, and no foreign ownership restrictions.
Additionally, there is almost no public debt, plus the banking and legal systems are great. On top of that, the region boasts a strict anti-corruption regimen to strengthen Hong Kong’s position as a business-friendly place.
Moreover, businesses that are set up in Hong Kong can now benefit by gaining preferential access to the Mainland China market from the Closer Economic Partnership Arrangement (CEPA). This is a free trade agreement between the Central People’s Government and the Government of the Hong Kong SAR.
All goods qualified as Hong Kong origin can be exported to the Mainland tariff-free.
Attractive tax regime
Taxes should be among your main concerns as an entrepreneur who aims at setting up a business in Hong Kong. Fortunately, Hong Kong takes pride in its status of being the lowest tax jurisdiction in the world.
Personal income tax starts at only 2% and goes up to 17% for income above HKD 200,000. Furthermore, corporate tax is set at 16.5% of assessable profits for corporations and 15% for unincorporated businesses.
There is no capital gains tax and no withholding tax on dividends and interest or collection of social security benefits. Finally, there is no sales tax or VAT in Hong Kong.
Hong Kong still holds a high degree of autonomy in all matters except for foreign and defense affairs. The region has a semi-democratic system with separate political, economic, and judicial systems.
Hong Kong is believed to be politically stable with pro-business governance and free-market principles. The region is also one of the most corruption-free economies in the world. And, the government even has an anti-corruption body called the Independent Commission Against Corruption (ICAC).
ICAC combats both public and private sector corruption.
Strong legal system
In Hong Kong, every entity is equal before the face of the law. The region’s legal system is different from Mainland China’s system. To this day, the English common law prevails.
In 1985, the International Arbitration Center was established and Hong Kong has become a key destination for arbitration in Asia. This kind of arbitration is now a popular method of dispute resolution in Hong Kong.
The law is committed to the protection of Intellectual Property Rights (IPR) and enforces strict rules for patents, copyrights, trademarks, and registered designs.
The specially established Intellectual Property Department monitors the IP regime in Hong Kong and is known for its extensive experience in handling IP issues.
When it comes to trade and commerce, employment, taxation, and other business-related areas, there are distinct rules and regulations that every single person has to follow.
As you can see, there are numerous reasons why it would be wise to set up your next business in the region of Hong Kong. The system in the region was designed to help every aspiring entrepreneur succeed and become a prominent name in the world of business.
If you need any help with Hong Kong company incorporation or any other issue related to doing business from Hong Kong, feel free to reach out to Sleek. The entire setup process is incredibly easy when you are working with service providers who are familiar with the business environment of the region and have a proven record of success.
Good luck and enjoy your Hong Kong business endeavor!