How to Open a Trading Company in Hong Kong

Trading companies exist in most major cities in the world and are considered to be extremely profitable ventures.

A trading company is a company involved in the business of purchasing, distributing, and selling goods and services on an international scale.

These goods and services are myriad and are meant to meet various needs including those of consumers, businesses, and even governments.

If you’re looking to open and operate a trading company in Hong Kong, this article will provide all the information you will need to do so successfully.

What are the benefits of opening a trading company in Hong Kong?

In January 2021, Hong Kong recorded a total trade value of US$388.0 billion and US$413.2 billion for exported and imported goods respectively.

These outstanding values lend credence to Hong Kong’s ranking as one of the world’s top 50 traders in merchandise goods and commercial services by the World Trade Organisation.

This impressive trade volume and global ranking is a clear pointer to the relevance of Hong Kong in the international trade scene and the profitability of opening and operating a trading company in Hong Kong.

Here are some other benefits you stand to enjoy if you set up your trading company in Hong Kong.

Strategic Location

If accessing and establishing trading relations in Asia is your goal, Hong Kong is your best because the majority of the total value of imported and exported goods and services in Hong Kong are from and to destinations in Asia respectively.

Hong Kong is situated in the heart of Asia and is in close proximity to most of the continent’s largest and robust economies.

Hong Kong also provides convenient access to the rest of the world with its ever-busy air and seaports.

Hence, setting up a trading company in Hong Kong will provide easy access to other countries. 

Tax Friendly System for Trading Companies

Hong Kong boasts one of the world’s most tax-friendly systems with only three direct taxes applicable to corporate bodies or businesses.

These taxes are profit tax, property tax, and salaries tax. 

These taxes are applied at fixed rates and with generous allowances and deductions available to further reduce your tax burden.

As such, a trading company opened in Hong Kong won’t have to deal with sales tax or VAT, withholding tax on dividends and interests, capital gains tax, or estate tax. 

Also, excise tax is applicable only to the import or export of certain products like liquors, tobacco, hydrocarbon oil, and methyl alcohol.

Free Trade Policy

Hong Kong’s economy is governed by a free trade policy. 

There is hardly any restriction on trading most goods and services.

Hong Kong trading companies are also not saddled with duties, tariffs, subsidies, or other barriers to trade.

Also, Hong Kong is a party to a number of multilateral, regional, plurilateral, and bilateral free trade agreements that help to ensure a secure and favorable trading environment. 

Mainland China, New Zealand, member states of the European Free Trade Association (EFTA), Australia, Chile, and the Association of Southeast Asian Nations (ASEAN) are a few of the entities with which Hong Kong has entered into free trade agreements.

To the above, Hong Kong also maintains a strong rule of law, has no foreign exchange control or restriction mechanism, and has some of the world’s best infrastructure.

With these many benefits, setting up a trading company in Hong Kong will easily become one of the best business decisions you ever made.

What type of trading companies can be opened in Hong Kong?

Once you’ve made the decision to open a trading company in Hong Kong, you need to also determine the type of trading company to set up. 

Although the choice of a trading company to set up is personal or based on your business interests, it is important that you’re aware of the major types of trading companies that can be opened in Hong Kong.

This way, you can opt for the one best suited for your business. 

 The trading companies that can be opened in Hong Kong are those involved in import trade, export trade, and entrepot. 

Import Trading Companies

An import trading company is solely involved in the purchase of goods and services from foreign suppliers or sources to meet domestic demands.

These domestic demands may exist due to the impossibility or impracticability of producing such goods and services locally.

They may also exist for the prestige, cachet, or other special quality which foreign-sourced goods and services possess.

There is also the common factor of pricing as a basis for domestic demand as certain goods or services are cheaper to import than produce locally.

Export Trading Companies

An export trading company is the direct opposite of an import trading company. An export trading company is involved in the sale of locally produced goods and services to foreign purchasers.

These locally produced goods or services will ideally be commodities that are easily and efficiently sourced and for which there is global demand.

Entrepot

An entrepot trading company combines the functions or businesses of both import and export trading companies.

An entrepot trading company imports goods or services from a foreign supplier or producer and subsequently exports the same goods and services to a different foreign entity.

In this trading arrangement, no additional value or processing is applied to the imported goods or services before export. 

Although entrepot trading is no longer popular or practiced in most international trading posts, it is still a popular form of international trade in Hong Kong.

Entrepot trading is useful in reducing transportation costs and also comes in handy when you’re trying to maximize specialized agents of distribution and processing.

You should note that the above types of trading companies aren’t watertight categories and a trading company can be involved in one or more of the above businesses.

Trading companies can also function as sales agents for domestic exporters, buying agents for importers, exclusive distributors, or some other type of intermediary in international trade.

How to open a trading company in Hong Kong

Once you’ve identified the most suitable type of trading company for your business, you may proceed to open one in Hong Kong.

Here are the key steps to opening a trading company in Hong Kong. 

Company Incorporation

The first step in opening your trading company is to incorporate the trading company.

Incorporation basically entails the registration of your company with the Hong Kong Companies Registry.

You can opt for the business structure that is suitable for your business and will ensure the best profit margins when registering your company.

For example, you can opt for a private or public company.

Thus, it is advisable to learn about the advantages and disadvantages of the different company types so that you can pick the best type for your business. 

Incorporating your trading company in Hong Kong is a straightforward process.

You should note that companies in Hong Kong can be wholly owned by foreigners and there exists little to no distinctions between locally owned and foreign-owned companies.

For more detailed information on the incorporation of companies in Hong Kong, please refer to our previous article on the topic here.

Obtaining relevant licenses and permits

Once your trading company has been incorporated in Hong Kong, you can proceed to obtain relevant licenses and permits to carry on business. 

There are certain non-tariff restrictions that exist with the import and export of certain goods and services.

These non-tariff restrictions mostly take the form of licensing requirements and are applied to protect public health and safety as well as internal security and environmental needs.

The goods and services whose trade requires licensing are determined by relevant laws.

As such, if your trading company will be involved in the trade of such specified commodities, these licenses must be obtained from the relevant government agency.

The licensing process is generally straightforward and easily accessible.

You can check here for our previous article detailing the licenses that trading companies may require.

Trading Company Clearance Procedures

By virtue of the Import and Export (Registration) Regulations, trading companies or other persons involved in the import and export of goods or services, with the exception of exempt goods and services, are required to file an Import/Export Declaration with the Commissioner of Customs and Excise.

This Declaration must be filed within 14 days of the goods or services being imported or exported. This declaration can be filed electronically.

Other administrative processes that may occur in the clearance process of imported or exported goods include a thorough inspection of related documents (such as manifests, bills of lading, invoices or packing lists, etc), physical examination of cargo, and more.  

Financing

As stated earlier, Hong Kong boasts of some of the world’s best infrastructure for the conduct of business.

One such infrastructure is its banking system which ensures you have unrestricted access to the financing and financial instruments necessary to run your trading company’s business.

Some easily accessible financing options and financial instruments that can be obtained in Hong Kong include Letters of Credit, overdrafts, revolving loans, term loans, import/export loans, export credit insurance, etc.

Conclusion

Opening a trading company in Hong Kong might seem a challenging task but it is certainly doable.

All you need do is follow the steps and procedures described above and you will be sending out or receiving your first shipment in no time.

Opening a company in Hong Kong means starting with incorporating the services of a Company Secretary.

Trading companies from all corners of the globe choose Air Corporate for their incorporation needs in Hong Kong.

Incorporate with Air Corporate today and get some free business kit items to help get your business off the ground faster.