Top 10 challenges of doing business in Hong Kong

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view of the harbour

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.

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 three procedures. The business must first choose a name and obtain a certificate of incorporation 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.

Dealing with Construction Permits
The World Bank and International Finance Corporation (IFC) rank Hong Kong in first place in the world for ease of dealing with construction permits. However, there are still several official departments that must be consulted through six different procedures.

Getting Electricity
CLP Power is responsible for electrical connection in Hong Kong, taking an average of 41 days to connect new businesses to the national grid. An application must first be sent to CLP Power before inspections can be carried out and works can be completed.

Registering Property
Property registration is a relatively drawn-out affair, taking well over a month to complete. A solicitor is required to do a land search at the Land Registry, which also processes the Sales and Purchase agreement and completes the registration.

Getting Credit and Protecting Investors
Despite there being no public registry coverage, getting credit in Hong Kong is a relatively straightforward ordeal. Investor protection can also be assured, with the city state scoring high on all World Bank and IFC indices.

Paying Taxes
There are only three tax payments a year to make in Hong Kong which should take no more than 78 business hours to file. Other than corporate income tax and property tax, employers are also required to pay mandatory provident fund (MPF) contributions.

Trading Across Borders
Trading across borders is an extremely cheap endeavour in Hong Kong and it takes under a week to complete both importing and exporting. There are four documents to prepare for both movements.

Enforcing Contracts
Enforcing contracts takes an average of 360 days to complete, with 27 procedures to navigate in total. Judicial requirements take the lion’s share of the time.

Resolving Insolvency
It takes just over a year to resolve insolvency, although there is a high recovery rate and low cost of carrying out the procedure. Companies can expect 81.2 cents on the dollar when undertaking insolvency cases, compared to a regional average of only 34.7 cents.

The major influence on the business (and social) environment is the fact that Hong Kong is overwhelmingly populated by Chinese, and customs should be adopted appropriately. Many Hong Kong Chinese who do business with foreigners will use a "western" name that is easier for them to remember and pronounce, and several other adjustments may be made to accommodate international business.

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