Hong Kong is well-known as a leading financial center worldwide, and an attractive region for entrepreneurs and corporations intending to start or expand their businesses. Under the doctrine of “One Country, Two System”, Hong Kong, despite being an inalienable part of The People’s Republic of China (now referred to as the PRC) retains its own capitalist economic and political systems, while the rest of the PRC uses the socialist system. Hong Kong’s political system, legal, economic, and financial affairs, including external relations with foreign countries, are maintained, allowing the Region to continue developing its dynamic business environment while accessing the PRC market.
This guide offers an overview for individuals interested in starting a business in Hong Kong, including:
- Why should you start your business in Hong Kong?
- Choices of business entities in Hong Kong
- Starting a business in Hong Kong
- Comply with the regulations
Why should you start your business in Hong Kong?
A business-friendly environment
Hong Kong’s success is frequently credited to the government’s relatively minimal involvement in the economy. Business in Hong Kong is market-driven, perfectly in line with the territory’s free-market philosophy. The government has provided a low tax rate, an efficient infrastructure and allowed trade and industry to flourish with a minimum of intervention. The government sees its role as building a business-friendly environment and providing an essential support framework to enable the private sector to prosper.
Additionally, the Government has taken great strides in supporting businesses. In the recent Policy Address: Boosting the economy, supporting business (info.gov.hk) Press Release, multiple initiatives have been presented to strengthen Hong Kongs financial status. They include, among others, reducing stamp duty on stock transfer; reviewing stock trading spread; reducing market data fees; strengthening the offshore Renminbi business; deepening financial co-operation in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA); establishing a new platform to expand fund distribution; and promoting the development of green and sustainable finance in Hong Kong. The Government has also been prioritizing attracting businesses to Hong Kong; nurturing talents, both domestic and global; growing emerging strategic businesses; and enhancing the trade and economic co-operation with other countries and regions, especially with the mainland.
A dynamic economy
Well-known as being at the forefront of Asian and global economic development, Hong Kong’s leading status is evidenced by:
- Gross Domestic Product: The Hong Kong economy experienced growth in early 2024, driven by service and goods exports, private consumption, and investment expenditures. The economy, and GPD specifically, are expected to continue growing, supported by inbound tourism, recovery of handling capacity, and government policy support.
- Bond Market: Hong Kong has been one of the most active markets for Asian international bond arrangements. The size of Hong Kong’s bond market has been increasing, with debt securities in Hong Kong Dollar and other currencies growing solidly over the past years.
- Stock Market: By the end of April 2024, Hong Kong’s Hang Seng Index, one of the top-performing global indices, had grown by 7% compared to the previous year, with expectations of a robust recovery approaching 20%. This marked a solid rally from years of flops, attributable to policy support from Beijing, cheaper valuations, and an influx of investments from the Mainland into Hong Kong.
Competitive tax regime
Hong Kong’s reputation as an international financial hub has long been attributed to its competitive and straightforward tax regime. In its consistent attempt to foster the financial services sector, the Government has pledged to maintain a competitive tax regime. Hence, Hong Kong has been one of the most tax-friendly systems in the world. There are only three direct taxes in Hong Kong, subject to generous deductions and subsidies: profits, salaries, and property taxes.
Choices of business entities in Hong Kong
Sole proprietorship
This is the simplest business organization, where a single owner is held entirely accountable for the business finance.
The primary characteristic of this business structure is its direct association with the sole proprietor. As a result, any profit generated by the business is treated as personal income for the sole proprietor. This is both the main strength and weakness of sole proprietorship. Therefore, this type of business organization may be suitable for low-risk ventures that do not require limited liability and where the sole proprietor has adequate capital. It is often used for small businesses.
Partnership
In contrast to a sole proprietorship, a partnership involves ownership by two or more individuals. Under the Partnership Ordinance (Cap 38), Section 3(1): “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”.
There are two types of Partnership recognized in Hong Kong, namely Limited Partnership and General Partnership. A limited partnership consists of at least one general partner (“GP”) and one limited partner (“LP”). GPs are liable for all debts and obligations of the firm while LPs are liable for the debts and obligations to the extent of their capital contribution. On the other hand, in a general partnership the liability of debts and obligations is unlimited upon all partners.
One benefit of partnership is the greater access to capital. Other partners’ contributions, such as complementary resources, skills, or knowledge, may be what a sole proprietor needs to launch his business.
However, most legal transactions of the partnership require all partners to participate. This can be a burden if disputes arise. Furthermore, according to section 35 of the Partnership Ordinance and section 5(3) of the Limited Partnerships Ordinance, the partnership may be dissolved when a general partner dies or goes bankrupt.
Company
A company is a separate legal entity from the people who own the company’s shares (i.e. the members or shareholders) or its managers (i.e. the directors). Most of the companies in Hong Kong are formed by the registration procedure set out in the Companies Ordinance (Cap 622). Two main advantages of incorporating a company are (i) greater ease in attracting investors; and (ii) having corporate personality. Nevertheless, the running of a company requires compliance with the Companies Ordinance which can increase costs. It is possible to form several types of companies under the Companies Ordinance, created based on the two following distinctions:
Limited company and unlimited company
The most common form, used primarily for general commercial purposes, is the company limited by shares. Shareholders of the company may lose the value of their shares if the company undergoes liquidation and is unable to settle all its debts. They will not be personally responsible for the company’s liabilities.
Alternatively, there is the possibility of creating a company limited by guarantee, mainly used for charities or professional associations. The company’s purpose is not to trade or conduct business but to advance professional goals or promote charitable causes. If the company fails, its members make a written promise (the guarantee) to contribute a small amount to the assets of the company – usually HK$10 or HK$100. These members have no further liability for the company’s debts.
In contrast, an unlimited company places no limit on the liability of its members.
Private company and public company
A private company is designed for use by a small group of individuals seeking the benefits of incorporation.
Under Section 11(1) of the Company Ordinance, a private company restricts under its articles of association (1) the transfer of shares; (2) limits the number of members to no more than 50 people; and (3) prohibits any invitation to the public to subscribe for shares in the company. Besides, a private company cannot be incorporated as a company limited by guarantee.
A public company is neither a private company nor a company limited by guarantee. Indeed: (1) it can have more than 50 members, (2) has no restriction on the transfer of its shares and (3) may invite the public to buy shares.
From the two distinctions, 5 types of companies can be established in Hong Kong. They are:
- Private companies limited by shares;
- Public companies limited by shares;
- Companies limited by guarantee;
- Private unlimited companies; and
- Public unlimited companies
Branch, representative, or subsidiary office
Branch office
A branch office is an extension of its foreign parent company to conduct commercial activities in Hong Kong, but it is not a separate legal entity: its debts and obligations are the liability of the parent company.
Representative office
A representative office, like its branch counterpart, is an extension of its overseas parent company and not an independent legal entity. The main difference is that it is restricted from engaging in profit-making activities.
Subsidiary office
In the opposite situation of the two above-described offices, the subsidiary office operates as an independent legal entity and that allows it to comply with local practices and regulations more easily.
Starting a business in Hong Kong
Step 1: Choose a business type and name
- From the above list of Business Entities, one can identify the appropriate types of business to suit their unique business strategies and goals.
- The company name selected is required to be distinct from others’ names in Hong Kong. A free company name search can be conducted on Companies Registry – Welcome to our e-Services. For more specific requirements, please refer to the Guideline on Registration of Company Names for Hong Kong Companies.
Step 2: Incorporate the business
- Applying for Business Incorporation can be done EITHER online via the e-Services Portal of the Companies Registry (CR), OR by submitting the documents directly to the CR.
- Required documents, as listed by InvestHK – Government Department of Foreign Direct Investment, include:
• Incorporation Form (Form NNC1 for company limited by shares) or Form NNC1G (for company not limited by shares)
• A copy of the company’s Articles of Association
• A Notice to Business Registration Office (IRBR1)
Fee: Please update the latest incorporation fees here
Step 3: Register the business
- Cap. 310 Business Registration Ordinance requires any business operated in Hong Kong, regardless of the business types, to be registered at the Inland Revenue Department within 30 days of starting the business. Once the registration has completed, a valid Business Registration Certificate must be displayed at the place of business.
- Applicants should simultaneously apply for business registration and business incorporation. Hence, when submitting the incorporation documents, you must also deliver the following to the Company Registry (CR) for registration:
• A Notice to Business Registration Office (IRBR1)
• Business registration fee: Please refer to the business registration fee and levy table
• Levy to the Protection of Wages on Insolvency Fund: HK$150 for a one-year certificate; HK$450 for a three-year certificate
Step 4: Obtain specific licenses
- Apart from obtaining the business registration certificate, certain businesses are required to hold additional specific licenses for authorized activities in fields such as: banking, insurance, trust company, telecommunications, money service operation, funds operation.
- The goods & services business license is the most common license in Hong Kong and it is classified into three business groups: (1) Food; (2) Non-food Goods; and (3) Services.
- For details, please refer to Support and Consultation Centre for SMEs to obtain the specific requirements for licenses and permits.
Step 5: Open a bank account
Once the business has been registered, funding can be injected with a local Hong Kong bank account. Opening a corporate bank account can be more onerous and complicated than opening an account for an individual. Typically, Hong Kong banks require submitting detailed documents regarding the business, directors, and shareholders. In-person appointments and interviews will be scheduled, even if the online application option might be available on their websites. Please refer to your intended bank website and contact us for more detailed guidelines.
Comply with the regulations
Employment law
The employer-employee relationship is not only considered in economic terms but also as a relationship of mutual dependency. Both the employers and the employees have moral as well as legal obligations arising from this relationship.
A contract of employment is an agreement on the terms and conditions of employment made between an employer and an employee. The agreement can be made orally or in writing and includes both express and implied terms. The Labour Department encourages employers and employees to set out terms and conditions in written employment contracts. An employment contract must be made in accordance with the common law and relevant statutory requirements.
As stipulated by the Employment Ordinance (Cap 57) (“EO”), an employer must clearly inform each employee about the terms and conditions of their employment, including:
- Wages (including rate of wages, overtime rate and any allowance);
- Wage period;
- Length of notice required to terminate the contract;
- The end of year payment or proportion and the payment period (if any).
If there is a breach of material terms by the employer, the employee may resign and claim constructive dismissal. If the breach of a material term is on the side of the employee, the employer is also able to dismiss an employee fairly.
All employees are covered by the EO, regardless of the number of hours they work each week and are entitled to basic protection under the EO including wage protection, statutory holidays and protection against anti-union discrimination. Employees employed under continuous contracts are entitled to further benefits including rest days, paid annual leave, sickness allowance, long service payment, severance payment, etc.
Mandatory provident fund (MPF)
Hong Kong’s Mandatory Provident Fund (“MPF”) system was designed to form the second pillar – a mandatory, privately managed, and fully funded contribution scheme -for retirement protection. Employers are obliged to follow the duties of the MPF Schemes as set out in Cap. 485 Mandatory Provident Fund Schemes Ordinance, and Cap. 485A Mandatory Provident Fund Schemes (General) Regulation, altogether referred to as MPFSO. Compliance is required from the early stages of company establishment, through the commencement and duration of employment, and until the employment contract’s termination. The 60-day employment rule is one of the important factors used to evaluate coverage under the MPF scheme. Any full-time or part-time employee aged 18 to 64 who has been employed for 60 days or more under an employment contract must be covered under the MPF scheme. The 60-day employment rule does not apply to a causal employee in the construction and catering industries. Please refer to MPF Coverage – MPFA or the list of exempt persons.
After the company has been set up, employers need to select an MPF trustee and join its MPF scheme. Three types of MPF schemes are available for employers.
- Master Trust Schemes: Master Trust Schemes are the most common type of MPF schemes in Hong Kong. They are open for employers from any industry. By pooling together contributions from various employers and their relevant employees and those from self-employed persons, Master Trust Schemes have a high degree of efficiency in terms of scheme administration because of economies of scale.
- Industry Schemes: Industry Schemes refer to pension schemes which have been specially established for employees in the catering and construction industries, particularly casual employees (i.e. workers employed on a day-to-day basis or for a fixed period of less than 60 days). Casual employees do not need to change schemes when they change jobs within these two industries, providing their previous and new employers have registered with the same Industry Scheme.
- Employer-Sponsored Schemes: Employer-Sponsored Schemes are schemes limited to the employees of a single employer and its associated companies. Because of restrictions to membership, it is only cost-effective to run an Employer-Sponsored scheme with a large number of employees.
To ensure that employees’ interests are adequately and properly protected, Mandatory Provident Fund Schemes Authority (“MPFA”) has a comprehensive approval and monitoring system. There are Stringent Approval and Registration Criteria; On-going Monitoring; Professional Indemnity Insurance; and Compensation Fund. Additionally, employers and employees should pay attention to the recent developments concerning MPF application, such as the Employee Choice Arrangement (2012), MPF Intermediaries’ Regulations (2012), Tax Deductible Voluntary Contributions (2019), Automatic Exchange of Financial Account Information (2020), and Annual Registration Fee (ARF).
Equal opportunities for employees
Currently, the Equal Opportunities Commission administers 4 anti-discrimination ordinances, namely:
- the Sex Discrimination Ordinance;
- the Disability Discrimination Ordinance;
- the Family Status Discrimination Ordinance; and
- the Race Discrimination Ordinance.
Intellectual property
The Government of the Hong Kong SAR is committed to guaranteeing that Hong Kong people and overseas investors in the Hong Kong SAR can be safeguarded with superior intellectual property protection. Articles 139 and 140 of The Basic Law provide that the Hong Kong SAR shall, on its own, formulate policies on science and technology and protect by law achievements in scientific and technological research, patents, discoveries and inventions; and on culture and protect by law the achievements and the lawful rights and interests of authors in their literary and artistic creation. The Region has developed a relatively intricate IP protection system for Trade Marks, Patents, Designs, Copyright, Trade Secrets (Undisclosed Commercial Information), Layout-Design (Topography) of Integrated Circuits, Plant Varieties, and IP Disputes.
Taxation
Every Hong Kong company is subject to profits tax. The rates are calculated on a two-tiered profit regime, in which the tax rate for the first HKD 2 million of assessable profits is 8.25%, and a rate of 16.5% will be applied for profits exceeding that initial sum. This mechanism is subject to an exception, however. A company will not be eligible for the two-tiered regime tax if it is enjoying a concessionary tax rate; or if it is a part of a company group with one group entity already been nominated to enjoy the two-tiered tax regime. Other types of taxes to consider include salaries tax and property tax.
