Statrys Payment Platform Ecosystem

A Practical Guide to Doing Business in Hong Kong in 2020

Cecilia Paolini
Published: 24 Mar 2020

contents

    Your company is set up and you’re ready to run and grow your new business. Doing business in Hong Kong consists of two parts: tapping into opportunities and meeting business obligations.

    We’ve put this practical guide together with clear action points, so you know exactly what to do when starting your business in Hong Kong. We’ll go over the least pleasant aspects to the most fun aspects of doing business in Asia’s world city.

    1. Meeting your financial reporting obligations

    1.1. Bookkeeping & Accounting

    First, you have to keep business records for 7 years from the date of transactions.

    Why?

    Just in case the Hong Kong Inland Revenue Department (IRD) conducts a tax audit on your company.

    If you’re not able to show company records when requested, you can be fined up to HKD100,000.

    Don’t think you’re doing this to please the IRD only. Your business will also directly benefit from it:

    • File accurate profit tax returns
    • Have better control of your company for financial planning and decision making
    • Portray a professional image – showing clean accounts makes it easier to deal with your bank and investors
    • Detect losses and theft in your company more easily
    • Reduce the cost of compliance – no late filing penalty fee
    • Reduce the costs of an audit – if the necessary documents are readily available, you will not need to pay for the extra time spent by a Hong Kong professional accountant

    Don’t mistake record-keeping with record stockpiling.

    Keep a digital copy of the following company records and categorize them in an organized manner:

    • Financial statements/management accounts
    • Documentation necessary to verify the entries in the books of account, such as vouchers, bank statements, contracts, invoices, receipts, payroll, and other relevant papers
    • Record of the assets and liabilities of your business

    Of course, you can also keep the original paper copy but the ink may fade over the years and it takes lots of space in one of the world’s most expensive cities.

    ➡️ ACTION: Choose your online accounting software. There are plenty on the market: Xero, QuickBooks, Zoho, etc. but make sure you understand the key considerations beforehand.

    1.2. Annual financial audit

    All companies incorporated in Hong Kong are required to have an annual audit of their financial statements. This audit must be performed by a Hong Kong Certified Public Accountant.

    The auditor will not only review and certify your accounts but also create a tax computation form. You will then receive an audit report that needs to be signed by the directors of your company.

    This annual audit is a pre-requisite to your annual return filing with the Companies Registry and your annual tax return filing with the IRD.

     ACTION: Ask your company secretary if they can recommend audit firms.

    1.3. Annual filing requirements

    You’re almost done with the least pleasant aspect of running a company! Remember you have 3 types of filings and deadlines every year:

    1. Annual return (Form NAR1) must be filed with the Companies Registry within 42 days of your company’s incorporation anniversary date.
    2. Annual profits tax return (Form BIR51) must be filed with the IRD, together with audited accounts. The filing must be done within one month of the issue date of corporate profits tax returns, i.e. in May. For newly registered businesses, the IRD will issue the first profits tax return 18 months after the date of incorporation.
    3. Employer’s Return (BIR56A & IR56 Forms) must be filed with the IRD. As for the annual profits tax return, the IRD issues the Employer’s return on the first working day of April. The filing must be done within one month from the issue date of BIR56A.

    ➡️  ACTION: To be honest, your only action here is to reply to your company’s secretary emails. It is your company secretary’s role to file your annual return, and they’ll also file the profit tax return and employer’s return if you’ve hired them for your accounting matters.

    2. Hiring employees

    Before you start hiring, you must understand what your obligations as an employer are. The Hong Kong Employment Ordinance only sets out the minimum requirement for all types of employees (full time, part-time, and temporary), it’s up to you to make your compensation package more appealing…Hong Kong unemployment rate stagnates around 3% so the talent war is real!

    Be aware of the following common practices on the market:

    • Remuneration package expressed on a monthly basis
    • Maximum 40-50 hours of work/week, 5 days a week
    • 12 days of paid public holidays
    • 7 days of paid annual leave (the first year, one additional day ever subsequent year)
    • 24 days of annual sick leave (the first year, 48 days from the second year onwards)
    • 1 to 6-month probation period (usually 3 months)
    • 1-month termination notice period

    Unless you have a business that requires special clauses in an employment contract, you can find generic templates on the platform such as Zegal. If you’re already working with a law firm for your other legal documents, ask your lawyer for help.

    If you are hiring foreign employees, you will have to apply for a work visa with the Hong Kong Immigration Department.

    The application process is quite straightforward: both your employee and you will need to fill an application form that can be downloaded online, prepare the supporting documents (mainly a copy of your ID, academic qualifications and relevant work experience, employment contract, business registration certificate, proof of financial standing, the company background and business plans).

    And you’ll thank Hong Kong for this: it only takes 4 weeks to process a visa and the visa fee is only HKD230.

    2.1. Pensions

    You must contribute to the Mandatory Provident Fund (MPF), a retirement scheme, for all your employees.

    Your mandatory contribution as an employer varies with the monthly salary paid to your employee. Here’s a summary:

    Monthly relevant income Mandatory contributions
    Employer portion Employee portion
    Less than HKD7,100 Relevant income x 5% No contribution required
    HKD7,100 to HKD30,000 Relevant income x 5% Relevant income x 5%
    More than HKD30,000 HKD1,500 HKD1,500

    If you’re a caring employer, you can also make an additional voluntary contribution. The conditions of such contribution depend solely on your chosen MPF scheme.

    Bear in mind that you can claim tax deductions for all mandatory and voluntary MPF contributions (capped at 15% of your employees’ total compensation).

    ➡️ ACTIONSelect the MPF provider from this list and set your monthly mandatory and voluntary contribution. Your first-time contribution can be tricky as you’re not required to arrange MPF for employees who have not been employed for 60 days or more.

    Our take on this: set this up as soon as available, it’ll save you from a few headaches. But if you have time to spare, full details can be found on the MPF Schemes Authority.

    2.2. Payroll

    Stay away from the hassle of handling payslips, MPF, annual leave, time & attendance, claims and other operational HR matters, go for an online HR solution. It doesn’t cost big money and it saves you lots of time.

    The real value-added with this online HR software is the easy integration they have with online accounting software.

    ➡️ ACTION: If all you need is a simple payroll solution, HR easily has a free plan to help you with calculation and payslip. If you want the full package, it will cost you a minimum of HKD40 per employee per month. Check out GpayrollTalenoxSimplepay, amongst others.

    3. Finding your office space

    Next decision: co-working space or private office?

    3.1. Co-working space

    From experience, co-working spaces are great when you start a business but that doesn’t mean that they are cheap. You can negotiate a good deal if you intend to stay there for more than 6 months. The true value of co-working spaces is the flexibility that it offers, notably in terms of space and lease terms.

    Of course, there are other perks coming with moving to a co-working space. They inevitably vary from one space to another so pick the ones that suit your business best. You have plenty of options in Hong Kong: WeWorkThe HiveThe Executive CenterTheDeskBluePrintUCommune Or let CoWorker help you find the right co-working space for you!

    3.2. Private office

    Typically, once your team reaches a certain size, you’ll want to have your own private office. At this point, you’ll need to understand what the common practices are for Hong Kong private offices.

    ➡️ ACTION: Go the traditional way of contacting co-working spaces or real estate agents. Try your luck with Instant Offices, they were of great help to us when we looked for our space.

    4. Protecting your business

    4.1. Taking out business insurance

    In Hong Kong, the Employees’ Compensation Insurance is the only compulsory insurance you need to run a business. For small companies with less than 200 employees, your insurance coverage must be HK$100 million minimum.

    It’s usually better to get it through an insurance broker because they have more leverage and can get you a better deal. You will get a notice of insurance (sample) that you need to post in a place that is clearly visible to your employees. Make sure you sign, date and put the company chop on the notice before you put it up.

    It is not mandatory to take health insurance for your employees, but we highly recommend that you do so. It’ll show your employee that you care and it’s also good for your employer branding.

    Now don’t stop there, this is only the minimum requirement. There’s more you can do to protect your business, for example taking out a business insurance package. A bundle of insurance policies that will cover the basic needs (including the employees’ compensation insurance!) of your small business, such as business interruption, property damage, personal accident, money, neon sign, glass breakage, fidelity guarantee, public liability, etc.

    ➡️ ACTION: Simplify your life and contact an insurance broker specialised in serving SMEs, such as Cléma. You will save time and get better coverage for a fee that is reasonable.

    4.2. Registering your Intellectual Property (IP)

    If you’re not in a business that involves protecting your intellectual property, skip to the next section.

    For everyone else, if you need to register a logo, trademark, copyrights, design, patents, or trade secrets, you’ll have to apply at the Hong Kong Intellectual Property Department.

    This can be quite costly and you probably won’t be able to protect all your IP in one go. Get in touch with IP lawyers to elaborate an IP strategy for your business.

    5. Growing your business

    5.1. Taping into public resources and funds

    As a financial hub for many entrepreneurs, Hong Kong has put in place a number of schemes to help SMEs, notably:
    • The SME Funding Scheme by the Hong Kong Trade and Industry Department provides (i) financial assistance to SMEs participating in export promotion activities and (ii) loan guarantee to help SMEs secure loans.
    • The Innovation and Technology Fund by the Hong Kong Government has 4 funding programmes to help SMEs upgrade their technological level and introduce innovative ideas to their business.
    • SUCCESS – Support and Consultation for SMEs portal by the Hong Kong Government provide business information and consultation services free of charge.
    • The SME Support Centre by the Hong Kong Trade & Development Council (HKTDC) provides access to multiple electronic business databases and information on the Mainland China market. The HKTDC also organises business matching, seminars, conferences to help SMEs promote their products and services.
    • SME One by the Hong Kong Productivity Council provides information or referrals to SMEs on areas that facilitate their growth. They mainly offer support related to information technology, digital transformation, technical solutions, as well as financing through regular seminars and training workshops.

    For a more comprehensive list of Government Funding Schemes, check this link.

    5.2. Networking

    Hong Kong is a city that never sleeps, there are literally professional networking events, conferences or fairs happening every single day of the week (even on weekends if you’re a workaholic!). Those are organised by the Chambers of Commerce, business associations, private companies, co-working spaces, Meetup groups, interest groups, etc.

    A couple of useful links:

    5.3. Fundraising

    If you’re looking to pitch to a Venture Capital (VC) into investing in your business, do your homework and know what the do’s and don’ts are before you start the process.

    It will take several months to find the right investor, negotiate and close a venture capital round. So be patient and prepared, but most importantly take appropriate measures to make sure that your business runs as usual.

    Conclusion

    One more thing before you go. Have you already opened your bank account in Hong Kong? Have a look at this guide we’ve put together for you Or if you want to save time and money, open a business account with Statrys:

    • Application is 100% online – no need to visit a branch
    • 10 minutes of your time – skip your next coffee break, and you will have finished the application
    • Quick response – guaranteed to hear back from us within 48 hours after the request is submitted.
    • No account opening fee, no initial deposit, no minimum balance – our pricing plans are easy to understand and transparent. However, we may charge an account opening fee for certain companies raising compliance questions (doing business with a company registered in an exotic island has a cost!).
    • Phone, Wechat, WhatsApp, Live Chat – get in touch with a real person to answer your questions!

    Your Statrys business account will empower you to manage your banking affairs easily: 100% online experience, receive payments, make payments, innovative forex tools for SMEs…

    author
    Cecilia Paolini Statrys
    Cecilia Paolini

    Cecilia Paolini is the Head of Sales at Statrys. She’s been working and living in Hong Kong since 2009. With more than 13 years of experience in sales, Cecilia has gained an exquisite understanding of the business environment in Hong Kong.

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    Statrys Limited is licensed as a Money Service Operator (No. 19-02-02726) in Hong Kong. ‍ Statrys UK Limited is a Small Payment Institution (FRM: 911226) registered with the Financial Conduct Authority in the United Kingdom. Statrys UK Limited (FRM: 902805) is a registered agent of PayrNet Limited (FRM:900594), an Electronic Money Institution authorised by the Financial Conduct Authority in the United Kingdom under the Electronic Money Regulations 2011 for the issuing of electronic money. Trade financing services are offered by our partner, Velotrade Management Limited, regulated by the Securities and Futures Commission of Hong Kong (CE Ref #BJL007)