Top 10 challenges of doing business in Hong Kong
Article

Top 10 challenges of doing business in Hong Kong

25 March 2018

Hong Kong is an established business hub strategically centred in the heart of Asia, but navigating the complex tax, legal and regulatory hurdles can be difficult without local help on board.

Disclaimer: This article was accurate at the time of publishing. To obtain the most up-to-date information, please get in touch with our local experts.

Spread over less than 1,500 sq km, Hong Kong has established itself as a business centre for organisations looking to expand across its borders. Within close proximity of key Asian cities and home to an international airport boasting over 180 direct connections worldwide, the city state is a gateway to mainland China and a magnet for global business.

Capitalising on connectivity, Hong Kong has laid out the welcome mat for investors by offering a low and simple tax regime along with an international, transparent and efficient regulatory environment. Profit tax is capped at 16.5%, salaries tax at 15% and there is no sales tax or VAT, nor withholding tax, capital gains tax or levies on dividends to worry about. Coupled with a free trade port, these incentives make Hong Kong a logical choice for companies looking to grow in Asia.

But despite the obvious appeal of Hong Kong as an investment destination, there are several legal and accounting burdens that can stifle international start-ups. Having local help in the region is therefore crucial in order to streamline processes.

Starting a Business

Establishing a corporate entity in Hong Kong is a process completed in two procedures. The business must first choose a name and obtain a certificate of incorporation and business registration certificate before it can sign up for Employee Compensation Insurance and Mandatory Provident Fund (MPF) Schemes with a private company or a bank and make a corporate seal.

Opening a Bank Account

Setting up a local bank account can be a hassle to many new companies as many banks in Hong Kong have been introducing new, tighter requirements for opening new accounts in recent years. Despite submitting all the requested documents by the banks and attending a bank account opening appointment, there is still no guarantee you can get an account opened.

Significant Controllers Register

Under the Companies (Amendment) Ordinance 2018 (Cap 622), effective from 1 March 2018, all Hong Kong incorporated companies are required to identify their significant controllers within the company and maintain up-to-date beneficial ownership information by keeping a significant controllers register (SCR). The SCR is not open to the public but must be accessible to law enforcement officers upon demand.

Work Permits

Foreign employees must have a proper visa to work in Hong Kong. To qualify for a work visa, a person must possess skills, knowledge or experience relevant to the job that is unavailable locally. The application normally takes six to eight weeks to process with a nominal fee.

Paying Taxes

There are only three types of tax in Hong Kong: property tax, salaries tax and profits tax. Tax compliance in Hong Kong is relatively easy to handle compared with the rest of the world. On average, it takes no more than 72 business hours to prepare a tax return.

Resolving Insolvency

It takes an average of 10 months to resolve insolvency, although there is a high recovery rate and low cost of carrying out the procedure. Companies can expect 87.2 cents on the dollar when undertaking insolvency cases, compared to a regional average of only 35.4 cents.

Trading Across Borders

Trading across borders is an extremely cheap endeavour in Hong Kong and it takes less than a day to complete both importing and exporting. There are four and five documents to prepare for both movements respectively.

Competition Laws

Effective in December 2015, the Competition Ordinance contains three typical prohibitions that can be found in competition laws around the world: anti-competitive agreements (the First Conduct Rule), abuse of substantial market power (the Second Conduct Rule), and mergers and acquisition that substantially lessen competition (the Merger Rule). All businesses should make sure they never agree with their competitors to engage in potential anti-competitive practices such as price fixing and market sharing.

Data Protection Laws

Hong Kong was the first jurisdiction in East Asia to introduce legislation regulating the use of personal data for direct marketing and transfer of data. The Personal Data (Privacy) Ordinance (PDPO) sets out six main legal principles that a data user must comply with.

Registering Property

Property registration is a relatively drawn-out affair, taking an average of 27 days to complete. It is a common practice that a solicitor does a land search at the Land Registry, which also processes the Sales and Purchase agreement and completes the registration.

TMF Group

We have the local knowledge to help you navigate these minefields. Whether you want to set up in Hong Kong or just want to streamline your Hong Kong operations, talk to us.


    Learn more about TMF Group in Hong Kong    

Insights and updates delivered to your inbox.

Sign up to receive a weekly round up of posts that matter most to you. 

Sign up now