The Why and How to set up a Company in Hong Kong
This is a guest blog post by Neat HK – see details at the bottom.
Ever thought of Hong Kong as a destination for your business? Choosing where to set up your company is the first step of many decisions you will have to make once you decide to take the plunge and finally start your own business. Today’s interconnected world gives you the freedom to choose where to do this, whether this be in the home country you are based in or somewhere else that offers advantages and makes more sense for your business to grow.
Why Hong Kong?
Hong Kong is consistently ranked as one of the best countries to start a business in. Hong Kong placed as the 5th best country for doing business and as the top 3rd country for ease of starting a business, according to the World Bank’s Doing Business rankings. Factors considered for how easy it is to start a business include procedures, time, cost and minimum capital to open a new business.
Hong Kong is well known as a global financial and trading hub. It is also considered as a tax haven as it has some of the lowest taxes in the world. For example, there are no sales tax nor capital gains tax here. In addition, companies only pay taxes (8.25-16%) on profits gained in Hong Kong, definitely a major factor to consider when choosing where to set up your company.
Location, Location, Location
Yes, this great city enjoys an amazing location. Being just a few hours away from major cities in China and other countries in Asia provides businesses, especially e-commerce companies, with a major advantage. You’ll be closer to your suppliers and have access to major emerging markets in Asia. Moreover, Hong Kong is a global transport hub and worldwide shipping from Hong Kong is relatively inexpensive and fast. Even if you do not plan to be physically located in Hong Kong, there are many companies that offer warehousing and drop-shipping services at competitive rates.
Bustling Startup Community
Another reason to set up shop here is the growth of the startup ecosystem. This is palpable from the number of events and activities targeted for aspiring entrepreneurs and startups happening every week. Or the number of co-working spaces opening up around the city. And if you’re still not convinced, take a look at the current statistics: Hong Kong is home to 500,000 startups and freelancers, and 330,00 small and medium-sized enterprises – World Bank.
Let’s Make it Official
Now that we’ve given you three top reasons why Hong Kong is a great place to start your business, let us go through the actual steps necessary to make your business official
1 – Choosing your company structure
- Limited Company: This is the most common type of company structure. It basically requires at least one shareholder, holding at least one share, and one director. These can either be individuals or incorporated companies, and don’t need to be residents nor incorporated in Hong Kong. You should definitely consider this option if your business involves working with China. This type of company structure can enjoy benefits like the Closer Economic Partnership Arrangement (CEPA), which is a free trade agreement with mainland China. Another main benefit is that it is easier to raise capital when the time comes. You can do this by bringing in new shareholders and/or getting bank loans.
- Sole proprietorship: As the name suggests, sole proprietorship are businesses that are owned by one person only. This sole owner will get all the profits from his business, but also assume all the responsibilities in case of debts and liabilities.Benefits to this type of structure is that it is easy to set up and when profits start rolling in they can be enjoyed by the single owner. However, this type of business is only recommended for smaller businesses with low risks. It might not necessarily be the right structure for entrepreneurs starting up because they are not considered as a separate legal entity and in case of debts or liabilities, all the owner’s personal assets will be at risk.
- Foreign Company: For foreign companies wanting to operate in Hong Kong, they can incorporate as a branch office, representative office or subsidiary company.
What you choose will of course depend on your business needs. Some major points to consider is that in case of liabilities, the parent company will be held responsible if you incorporate as a branch or representative office. A second main point to consider is that if you’d like to participate in profit-making activities, then you can only do so as a branch or subsidiary.
2 – Incorporation Requirements
After you’ve chosen your company structure, you will register and incorporate your company with the Hong Kong Companies Registry (CR). Company registration and incorporation is a simultaneous application.
What you’ll need:
- A copy of your shareholder’s and director’s identification
- Proof of address
- 1 licensed company secretary
- Completed NNCI and IRB1 forms
- Significant Controller Register
- Certificate of Incorporation Fee (HKD1,720) and Business Registration Fee (HKD2,250)
3 – Incorporation Process
Most entrepreneurs choose to work with an agency to complete their company incorporation. There are plenty of experienced and reliable agents that can help with the process and it is not necessary to visit Hong Kong.
Ok, now you’ve incorporated your company and need to get things going. There are probably a million variables and factors you’ll want to look into and consider. Among them, you’ll want to open a corporate bank account and find out about visa and pension/insurance requirements for your employees.
Opening a Bank Account
Opening a bank account in Hong Kong has become harder these days for people who are not physically based here. For most traditional banks, it is necessary for directors and shareholders with 10% or more shares of the company, to have a face-to-face meeting with the bank.
Another factor that makes it difficult for startups and SMEs to open corporate bank accounts is that since you’ll be starting out, it is less probable that you’ll have immediate profits to show and therefore, will not appear as a very attractive customer for traditional banks. Onboarding a new client and going through a due diligence process is expensive for a traditional bank, and they’ll be less likely to go through this process if they are unsure of whether you will be a profitable client for them.
Also, keep in mind that sometimes, entrepreneurs will incorporate their companies here in Hong Kong, only to later realize that banks won’t approve of their corporate bank account application. Or that it may take a very long time to go through their approval process – not exactly what you want when you were planning on having everything set up and start paying your suppliers and employees.
Neat Business, offers a faster, friendlier and completely digital alternative to this. Businesses can apply online for a current account with Neat in a matter of minutes, get corporate Mastercards for their team, and manage all expenses online, from around the world.
Neat Business also supports major e-commerce platforms like Stripe, Paypal and Amazon making it even easier to seamlessly receive and deploy funds.
What about visas?
Hong Kong offers different visa schemes depending on your background, skills and needs:
- Employment Visa: This type of visa must be applied for by the employer and should prove that the prospective employee has valuable skills, knowledge and experience that cannot be found in Hong Kong.
- Investment Visa: For an investment visa, you need to be a shareholder of a company registered in Hong Kong.
To increase your chances of getting approved, it is important to show that your enterprise or business will significantly contribute to Hong Kong’s economy by creating local jobs, introducing new technology and skills or injecting capital and investment. Your business plan and financial projections should all demonstrate the soundness of the business and the benefits it’ll provide for Hong Kong’s economy.
Entrepreneur visas are also given out to the owners or partners of startup companies. These visas are viewed more favorably if the start-up business is supported by a government-backed programme such as the StartmeupHK Venture Programme, the Incu-App, Incu-Bio and Incu-Tech programmes and the Cyberport Incubation among others. Find out more details here.
A big benefit is that this visa also allows you to bring your spouse and dependent children (under the age of 18).
Read on for more details on the General Employment Policy by the Hong Kong Immigration Department. Navigating the visa process can be confusing and overwhelming in any country. Fortunately, there are many local companies that can help you navigate the visa process here in Hong Kong.
Pension/Insurance Requirement for your employees
When hiring new employees to your growing team, make sure that you are aware of the labor regulations in Hong Kong. For example, you will need to enroll all of your employees under the Mandatory Provident Fund Scheme (MPF).
And last, but for sure not least, as your business expands you will probably be looking for new sources of funding. There are many ways you can go about this and what type of funding you look for will depend on your financial needs, your business and ultimately you. If you are interested in finding out more, check out this blog post where we’ve outlined some of the sources available in Hong Kong to inject more capital to your SME or startup.
Some Final Words
Starting a new business is a great adventure that can feel exciting and overwhelming at the same time. If there are two main takeaways we’d like you to remember from this article is that incorporating in Hong Kong offers many benefits and that the actual process is fairly straightforward.
This article is a guest blog post provided by Neat, a HK-based Fintech company that provides an alternative to a traditional bank account for individuals, startups and SMEs. The first of its kind in Asia, Neat makes bank branches redundant and offers a radically modern customer experience. With Neat, everything can be done online, whenever and wherever works for you.