Hong Kong has been the freest economy on the planet for 25 years according to the Heritage Foundation, falling only second to Singapore in 2020. Despite this relatively minor fall in rank, Hong Kong remains a guiding light for how to conduct free and open business — not just in Southeast Asia, but around the world. We take a look at 9 factors that contribute to Hong Kong consistently being the first choice for forward thinking businesses looking towards international expansion.
1. A Global Leader in Free Trade
You don’t become the freest economy in the world for 25 years by a fluke. On the other hand, to say that Hong Kong is as free as it is due to laissez-faire policies would also be an unfair assessment.
Since the 1970’s Hong Kong has actively worked to encourage both the economy and people of Hong Kong to flourish, through low taxation, and healthy income through government land leases.
Additionally, Hong Kong has ensured there are no legal restrictions on foreign ownership, inward and outward investments, or foreign exchange controls when setting up business. Potent anti-corruption measures and a strong (English Common Law) legal system top things off for true business freedom.
2. Location, Location, Location
A cursory look at the world maps shows the ace up Hong Kong’s sleeve, and that’s it’s close geographic proximity to China, the second largest economy in the world, and the world’s production line. Hong Kong’s location is perhaps the best bridge for the world between East and West, both culturally and economically.
Culturally, it provides a familiar backdrop for Western investors thanks to its British history, and economically it has close ties with both China and other ASEAN members. Hong Kong is truly an international region, and this factor alone largely contributes to its reputation for ease of business and investment.
3. Less Red Tape
As mentioned above, Hong Kong has proactively worked on creating an environment where it is simple and transparent to set up business. Part of this is due to the simple and fair implementation of the aforementioned English Common Law, but mostly due to very low barriers to entry.
Hong Kong removes as much bureaucracy from the company incorporation process as possible, which when compared to China, or even other Western countries, presents a very attractive option to those who wish to cut through red tape.
In fact, in best scenario cases, where all paperwork is in order, a business can be incorporated online in Hong Kong in less than an hour. Truly impressive when compared to any other region in the world.
4. Low Tax Rates, Simple Tax Rates
The theme of Hong Kong knowing how to woo new investment continues, by implementing one of the lowest and straightforward tax systems in the developed world. Personal tax rates start at just 2%, and the corporate tax rate maxes out at 16.5%.
There are also several other generous policies that have consistently encouraged foreign investment over the decades:
- No withholding tax on interest and dividends
- No capital gains tax
- No VAT/GST on goods and services
- Social security benefits are strong despite low tax rates
5. Permissive Immigration Policies
Hong Kong understands the need for entrepreneurs and business professionals to be able to travel freely in and out of a major economic hub. Currently Hong Kong offers visa-free visits for nationals of about 170 countries and territories. These stays can be for periods of seven days all the way to 180 days.
There are also several schemes for the employment of foreign professionals, and dependent visas are offered to those who take most forms of employment in Hong Kong.
6. English Common Law
The concept of English Common Law in Hong Kong is touched on in this article a few times, and for good reason. Since it’s British colonisation in the 19th century, Hong Kong has used English Common Law as its basis of legislation right through to today, despite it now being a Special Administrative Region of China.
This is particularly relevant to Western investment, as there is no doubt as to what local ‘legal customs’ might arise compared to other Western economies.
Laws are simple, robust, transparent, and above all, in the English language. All of which provides a very smooth transition for a company from anywhere in the world into the Hong Kong legal and business environment.
7. Security of Intellectual Property
Mainland China may have it’s well documented issues with protection of intellectual property (IP), however Hong Kong has developed strict and modern regulations for all facets of IP, from designs, to patents to copyright.
Hong Kong understands well it’s responsibility to protect IP for foreign investors, so it has its own dedicated Intellectual Property Department to ensure all relevant IP interests are secured and trustworthy. Hong Kong may well be a Special Administrative Region of China, but their adherence to Western economic ideals remains strong.
8. Simple and Insulated Business Structures
Generally opening a foreign business in Hong Kong will take the form of a limited company. This will keep your personal interests safe from lawsuits in both Hong Kong and Mainland China. You also get the same tax benefits as local entrepreneurs, as well as a free trade agreement with Mainland China.
If your company is already registered in another market, you can open a branch office in Hong Kong. There are limitations here, as it is not independent from the parent company, which is why most businesses choose to solely operate out of Hong Kong.
There is also the option for a representative office, but this is quite restrictive, in that you can’t sell goods or services in Hong Kong. This is the best option if you want to open a non-sales branch, such as a marketing department for the region.
9. Competitive Labour Force
Finally, Hong Kong is widely considered to have one of the most skilled and hard working labour forces in the region. Local employees generally have English as their first professional language, but can also speak Manadrin and Cantonese for ease of business with Mainland China.
Add to that the strong existing pool of expat entrepreneurs in Hong Kong, and you have a strong culture of innovation to nourish any business or investment.
Conclusion — What’s Next for Setting up a Business in Hong Kong?
While each and every business will have it’s own specific requirements for setting up overseas, Hong Kong consistently achieves high investment due to excelling across the board for setting you up for success.
Additionally, the process for incorporating a business in Hong Kong is generally quite straightforward. However, with all things when staking an entire enterprise on one large shift, there are nuances to navigate.
If you would like some advice on how to incorporate your business in Hong Kong, HKCR has an expert team of qualified accountants, bankers and insurance brokers who can help navigate your successful entry into Hong Kong.
If you have any questions about how your business can be a success in Hong Kong, please do contact us — it’s both our job and pleasure to assist.
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