Check out the 8 pros and cons of setting up a company in Hong Kong to help you make an informed choice.
Benefits of Setting Up a Company In Hong Kong
Here's why it is good to do business in Hong Kong:
| Pros | Cons |
|---|---|
| Free Economy and Free Trade | No restrictions on investments or foreign ownership, free currency convertibility, low tariffs, strong banking system, and strict anti-corruption policies. |
| Strict Financial Regulations | Financial firms face complex licensing, ongoing audits, and high compliance costs, limiting capital-raising opportunities. |
| Ease of Access to the Chinese Market | CEPA agreement allows tariff-free exports to China; businesses can set up WFOEs or JVs for market entry. |
| High Cost of Living | Expensive housing (HKD 15,000+ per month), costly office rentals, and high salaries required to attract talent. |
| Independent Legal System | Common law-based legal framework, efficient contract enforcement, strong arbitration support, and agreements with Mainland China for court judgment enforcement. |
| Complicated Bank Account Setup | Lengthy, expensive, and uncertain process requiring in-person director visits and extensive paperwork; alternative virtual accounts are faster but may have limitations. |
| Government Support for Business Growth | Programs like the Trade Development Council and Productivity Council assist businesses in expansion and efficiency. |
| Cost-efficient Business Operation | Quick and affordable company registration, low and simple tax system, no VAT, capital gains, or withholding tax. |
1. Free Economy and Free Trade
Hong Kong is a top business hub with a free-market economy, no restrictions on investments or foreign ownership, and no foreign exchange controls. Trade is simple, with minimal tariffs and efficient import/export procedures. The city boasts a strong banking system, low public debt, a reliable legal framework, and a strict anti-corruption stance.
Its financial sector is well-regulated, technologically advanced, and a growing fintech hub. While the World Bank no longer ranks economies under "Doing Business," its 2024 "Business Ready" report placed Hong Kong among the top 10 globally for business entry, trade, and utilities.
2. Ease of Access to the Chinese Market
Incorporating in Hong Kong is ideal for expanding into the Chinese market. Strategically located at Asia’s trade hub, it offers easy access to major business centers and global shipping via Victoria Harbour.
The Closer Economic Partnership Arrangement (CEPA) allows Hong Kong-based companies to export to China with zero tariffs on locally made goods. Businesses can set up a Wholly Foreign Owned Enterprise (WFOE) or a joint venture (JV) for market entry. Service providers meeting CEPA criteria also receive preferential treatment in China.
3. Independent Legal System
Hong Kong's competitive economy is backed by a common law-based legal system ensuring efficient contract enforcement with minimal upfront fees. It supports arbitration and mediation, with courts rarely refusing to enforce arbitral awards, whether local or international.
As a Special Administrative Region, Hong Kong has unique mutual arrangements with Mainland China to recognize and enforce court judgments and arbitral awards. A 2020 agreement allows parallel enforcement in China if enforcement in Hong Kong fails.
4. Hong Kong Government Support for Business Improvement and Growth
The Hong Kong government offers various programs to support businesses. The Hong Kong Trade Development Council helps companies expand into China and Asia, while the Productivity Council advises on efficiency and cost reduction.
SMEs can access funding information through the Support and Consultation Centre. A strict anti-corruption regime, led by the Independent Commission Against Corruption, reinforces Hong Kong’s reputation as a business-friendly hub.
5. Cost-efficient Business Operation
Entrepreneurs choose Hong Kong for its fast, cost-effective company registration, with no minimum share capital. Incorporation takes about a week, and a Private Limited Company (PLC) structure is streamlined for up to 50 shareholders.
Hong Kong offers tax advantages, including a two-tier profits tax system: 8.25% on the first HKD 2 million in profits (7.5% for unincorporated businesses) and 16.5% thereafter (15% for unincorporated). Corporate tax rates in Southeast Asia range from 17-30%, with Vietnam at 20% and Singapore at 17%.
Hong Kong also has a progressive salary tax system with allowances, no property tax on owner-occupied homes, and no withholding, capital gains, VAT, GST, or export taxes.
Challenges of Doing Business In Hong Kong
Here is a closer look at some of the challenges of doing business in Hong Kong:
1. Strict Financial Regulations
While Hong Kong offers business-friendly policies, financial firms face stricter regulations. Depending on their activities, they must obtain licenses from the Hong Kong Monetary Authority or the Securities and Futures Commission.
Compliance involves ongoing audits, high operational costs, and frequent regulatory updates. These strict rules can limit capital-raising opportunities and slow growth in a competitive market. While they ensure financial stability and investor protection, they add complexity and costs that financial companies must carefully manage.
2. High Cost of Living
Hong Kong is one of the world's most expensive cities, with housing rentals starting at HKD 15,000 per month. Office space is costly, with Central reaching HKD 2,025 per sq. ft. per year and East Hong Kong at HKD 852.
High living costs mean businesses must offer competitive salaries to attract talent while managing rising operational expenses. Even leisure is pricey, with drinks costing at least HKD 80. Employers must factor in these costs to remain competitive in the market.
3. Complicated Bank Account Setup Process
Opening a bank account in Hong Kong can be challenging, costly, and time-consuming, with no guarantee of approval. Traditional banks require all directors to be physically present and demand extensive paperwork, including certified documents, a business plan, and audited financials.
A company secretary is often needed before applying, and banks may require a significant initial deposit. Even then, applications can be rejected without explanation. For a faster alternative, virtual business accounts can be set up in under three days with minimal hassle.
Wrapping Up
There is no denying that there are several benefits to setting up a business in Hong Kong. However, there are also significant challenges involved that cannot be ignored.
You should weigh the pros and cons to decide whether doing business in Hong Kong is the right choice for your company.
Need help in figuring out if Hong Kong is the ideal location to move your business? Register with Air Corporate today, and we'll help you figure out exactly what you need to start your business.
FAQs
Yes, there are various types of businesses to register in Hong Kong, and you are free to choose one as per your requirements.
The manner of incorporation varies depending on the type of entity you choose.
Yes, provided the Hong Kong company obtains a work visa for such employees.
Hong Kong laws do not require foreign investors to have a local shareholder or director. However, you need to appoint a local company secretary to manage incorporation and ongoing statutory compliances.
