Hong Kong set to stage a significant rebound

It is a time of renewed optimism in Hong Kong after all remaining Covid travel restrictions were lifted of at the start of the year. The city is now forging a new path – orchestrating an economic recovery, attracting new talent and investment, and rebuilding international connectivity – to re-establish itself as Asia’s most compelling and competitive city.

The Hong Kong economy is set to stage a significant rebound this year. The IMF has forecast Hong Kong to expand by 3.9% in 2023, while Hong Kong’s own Financial Secretary Paul Chan predicts growth of between 3.5% and 5.5% as the city further opens up and China’s economic outlook improves.

February’s Budget statement, the first since the resumption of quarantine-free travel with the Chinese Mainland and worldwide, was all about capitalising on Hong Kong’s position as Asia’s primary financial hub and leading offshore Renminbi (RMB) hub to attract investment and develop core industries.

To expand market opportunities and attract foreign companies, the government plans to introduce a facilitation mechanism aimed at encouraging companies with a focus on the Asia-Pacific region to re-domicile in Hong Kong, and a new ‘patent box’ tax incentive to encourage more enterprises to conduct research and development (R&D) in Hong Kong.

To further strengthen Hong Kong’s status as Asia’s asset and wealth management hub, the government is in the process of introducing a profits tax exemption for qualifying transactions of family-owned investment holding vehicles managed by single family offices in Hong Kong and is to review existing tax concessions applicable to funds and carried interest. Hong Kong also wants to establish itself as a leading fund formation jurisdiction with the Limited Partnership (LPF) Ordinance that was introduced on 31 August 2020. Under this regime, more private equity and venture capital funds can be established as a limited partnership fund.

Strategically located at the centre of Asia – all the region’s key markets are within a four-hour flight and half of the world’s population is within a five-hour flight – it is easy to see why over 8,000 businesses and companies have made Hong Kong their home. Many have placed their strategic functions, including sales, operations, research and development (R&D), distribution, regional headquarters and corporate treasury centres in the city.

“The Hong Kong government endorses policies that are market driven with minimal government interference,” said Charné Van Biljon, Associate Director at Sovereign Trust (Hong Kong). “Foreign investment is welcomed and there is no policy to protect the local industry against foreign competitors. The Hong Kong business community is also highly receptive to foreign investment.

“English is the language of business in Hong Kong and immigration policies are designed to attract professionals, talented individuals and investors to ensure the city’s continued competitiveness and enrich the quality of Hong Kong’s workforce.”

Meanwhile Hong Kong’s proximity to China remains a huge draw for investors. As a Special Administrative Region (SAR) of China, Hong Kong enjoys a highly active and cooperative business relationship with the mainland.

It is both the country’s leading conduit for foreign investment and its primary offshore capital-raising centre. In terms of capital market activity, Hong Kong is still far ahead of Singapore, with stock market turnover and market capitalisation more than seven times larger than its rival.

There are numerous business opportunities given Hong Kong’s expertise in finance and marketing, sophisticated infrastructure, and access to mainland China’s manufacturing base. Mainland China is Hong Kong’s largest trading partner, while Hong Kong is also a key component of China’s Greater Bay Area (GBA) project, an ambitious plan aimed at integrating the two SARs – Hong Kong and Macao – with the nine cities across the Pearl River Delta to ease the flow of goods, people and capital within the region.

The GBA is now the largest urban area in the world with a combined population of 72 million people and a current total GDP of about USD1.65 trillion – equivalent to the world’s 11th-largest economy – and provides a potential market 10 times the size of Hong Kong.

Within the GBA, Hong Kong functions as the region’s services and trade hub. Hong Kong’s main areas of focus are Fintech, biomedicine, AI and robotics, ‘smart city’ and Internet of Things’ (IoT) technology, electronics and clean energy – all of which enjoy strong government support through Hong Kong’s Innovation & Technology Fund.

The Closer Economic Partnership Arrangement (CEPA) further offers Hong Kong’s products and firms preferential access to the China market from which overseas companies can also benefit.

For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA if they satisfy eligibility criteria of a ‘Hong Kong Service Supplier’ or by partnering with or acquiring a CEPA-qualified company.

There are five compelling reasons that make Hong Kong the top location for setting up a business to do business in Asia.

  1. Swift business set-up with 100% foreign ownership

    Opening a company is relatively quick and easy, company registration costs are low, and the overall environment encourages businesses to thrive. There are no restrictions on inbound or outbound investment and there are no nationality restrictions on company ownership. Foreigners can invest in almost any business and own up to 100% of the equity.

    A company can be incorporated at the Companies Registry (Hong Kong) with any amount of share capital. There is no statutory requirement for a minimum amount of paid-up capital. Furthermore, there is no requirement for a local resident director and a corporate director can also be appointed in addition to the individual director. In terms of shareholders, a private limited company can have a minimum of one and a maximum of 50 shareholders (100% foreign ownership is allowable) and nominee shareholders can be appointed. Directors and shareholders meetings can be held anywhere in the world.

    Private limited companies can be registered in one to two working days and can then take advantage of all the tax benefits and concessions available to any fully incorporated business in Hong Kong, including the CEPA.

  2. Low, simple and highly competitive tax system

    Businesses and individuals in Hong Kong enjoy one of the most tax-friendly systems in the world. Under the two-tiered profits tax regime, corporations pay only 8.25% on the first HKD2 million of assessable profits, rising to 16.5% for profits above that amount. For unincorporated businesses (partnerships and sole proprietorships), the tax rates are 7.5% and 15% respectively.

    All profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from trade, profession or business are taxable in Hong Kong. There is therefore no distinction made between residents and non-residents. A resident of Hong Kong can therefore receive profits from abroad without incurring tax in Hong Kong even if they are remitted to Hong Kong.

    Individual tax rates are also low. The salaries tax has a standard rate of 15% and property tax is 15%. There is no sales tax or VAT, no withholding tax on dividends and interest, no capital gains tax, no tax on dividends and no inheritance tax.

  3. Robust legal system based on English common law

    Hong Kong is the only common law jurisdiction within China and has built well-established commercial case law that is highly regarded by the international business community and foreign investors. The common law system is maintained under Article 8 of the Basic Law and the Law Reform Commission aims to maintain a reputation for excellence in law reform, both internationally and in Hong Kong.

    According to the World Economic Forum’s 2019 judicial independence rankings, which is a ranking of courts that are not subject to improper influence from the other branches of government or from private or partisan interests, Hong Kong ranks first in Asia and eighth overall globally, for judicial independence.

    In respect of arbitration-related matters, Hong Kong’s arbitration ordinance is based on the United Nations Commission on International Trade Law Model Law which reflects international best practice. Hong Kong also has a unique advantage for arbitrations involving interests in mainland China as the only other jurisdiction where the mainland courts can grant interim measures in aid of a foreign arbitration if administered by an institution.

  4. Competitive international financial platform

    With its strengths in banking, capital markets and asset management, Hong Kong provides an all-encompassing and high-quality financial platform for investors, financiers, asset managers, funds and financial institutions from all over the world. Hong Kong is also a preferred location for corporate treasury centres.

    The quality of Hong Kong’s banking system enables it to play a key role in the region and offer a wide variety of products and services. Hong Kong is Asia’s largest banking hub for Chinese and international banks with 200 authorised banking institutions, including the world’s largest, and 70 of the world’s top 100. In light of recent technological advancements, a number of initiatives have been launched to move Hong Kong into a new era of Smart Banking.

    It is common for corporates to use corporate treasury centres (CTCs) to simplify and centralise their treasury activities. Being an international financial centre with a full range of services available, Hong Kong is an ideal hub for corporate treasury activities. To encourage more corporates setting up their CTCs in Hong Kong, the government has also introduced tax incentives.

  5. Innovation and technology enjoy strong government support

    The development of innovation and technology (I&T) has been a top priority for the Hong Kong government, which has committed HK$100 billion to introduce various I&T policy initiatives with focuses on developing four areas of strength: artificial intelligence and robotics, biotechnology, financial technologies and smart city.

    In recent years, the government has significantly stepped-up support for scientific research and I&T sectors by developing infrastructure, promoting research & development, nurturing talent, promoting re-industrialisation and enhancing financial support to enterprises.

    The funding landscape for start-ups in Hong Kong is maturing, with a total of USD720 million invested in Hong Kong-based start-ups by October 2019. The new listing regime of the Hong Kong Stock Exchange has allowed technology companies with weighted voting rights, pre-revenue and pre-profit biotechnology companies to raise funds in Hong Kong. This has led to a number of high-profile public listings of innovative firms in the Hong Kong Stock Exchange.

    In addition, the government has also set up a co-investment fund with a pilot group of venture capitalist firms named Innovation and Technology Venture Fund (ITVF) to stimulate private investment in local start-ups.

“Hong Kong has a superb infrastructure, which meets its population’s needs and contributes to the efficiency and growth of the economy. Hong Kong has an advanced land, sea and air transport and communications system,” said Charné.

“It also has business friendly immigration policies. It offers visa-free entry for visitors from over 170 countries and territories who can stay for between seven to 180 days, as well as dedicated visa schemes for entry for investment as entrepreneurs and for employment in R&D roles.

“Short-term visitors can make the most of Hong Kong’s light-touch visa policies and are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit. Foreign nationals working in Hong Kong for longer periods of time require a visa before they can live or work in Hong Kong, but there are plenty of options including the Entrepreneur Visa, the Technology Talent Admission Scheme (TechTAS) and the Employment Visa”

Sovereign is a leading worldwide corporate services provider with over two decades of experience in the Hong Kong market. Sovereign Trust (Hong Kong) can assist with your Hong Kong company formation. We will select the most effective and efficient legal entity to suit your requirements and will then form and register the new company with the Companies Registry (Hong Kong) in line with local laws and regulations.

A company will be required to maintain a minimum presence in its place of incorporation – a registered office and a resident company secretary and/or a resident agent. We generally provide these services for all our clients and describe them as ‘domiciliary services’

Sovereign Trust (Hong Kong) also provides the necessary expertise in administering and managing companies, including company secretarial services, company law, board procedures, director responsibilities and shareholder relations, and financial and corporate compliance requirements. This will enable the company’s owners to focus on their primary business.

Contact Alan Fong
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