Moving your business to another country is a big decision that requires careful planning and consideration. Hong Kong, as it stands, is one of the most popular destinations for businesses to move to as a way to enter the Asian market due to its strategic location, various tax benefits, skilled workforce, and well-established policies.
In this article, we will discuss the pros and cons of moving your business to Hong Kong, so you can evaluate whether this move is right for your business.
Benefits of Moving Business to Hong Kong
#1: Easy Access to China
Regarding a strategic location with China, Hong Kong is often the first that comes to mind because it is right next to China. Its proximity to China enables businesses in Hong Kong to expand to the Greater China market. This is because The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is a free trade agreement made between Mainland of China and Hong Kong.
There are four key areas where businesses in Hong Kong can benefit from CEPA, and they are:
Trade in goods - There are zero tariffs on imported goods of Hong Kong origin to Mainland China from 1 January 2006.
Investment - The Agreement between Mainland China and Hong Kong was implemented on 1 January 2018. This agreement allows Hong Kong investors to receive preferential treatment for investment admission, provided they meet the specific requirements. It's aimed at promoting and protecting investments for investors.
Economic and Technical Cooperations - This agreement was signed on 28 June 2017 to enhance the economic and technical cooperation activities between Mainland China and Hong Kong. There are 22 areas in total where they support development and cooperation.
Based on these agreements, Mainland China is one of Hong Kong's largest trading partners. This relationship, combined with Hong Kong's economic status and skilled workforce, it starts to make sense why Hong Kong is one of the best business destinations.
💡Tip: Learn how to set up a company in Hong Kong.
#2: Lower Tax Rates
Hong Kong has one of the lowest tax rates and is one of the most business-friendly tax systems. Hong Kong has a single-tier tax rate system of 16.5% based on assessable profits for companies. On top of this, there is no capital gains tax, withholding tax on dividends, or VAT.
Lastly, another benefit of Hong Kong is its access to capital funding. It has a well-developed venture capital and private equity environment that allows startups and entrepreneurs to secure investments to start their business or take it to the next level.
#3: Laissez Faire Economy
A laissez-faire economic system is described as free-market capitalism. It is an economic idea that focuses on limited government intervention. Many economists, such as Milton Friedman, explained that Hong Kong is one of the prime examples of a laissez-faire economy.
There are many benefits to a laissez-faire economic system, such as:
- Market efficiency and resource allocation: A laissez-faire system allows markets to operate freely. This means that the supply and demand of a product will determine its prices.
- Economic freedom and individual liberty: Laissez-faire economics promotes economic freedom, allowing individuals and businesses to pursue their interests, make choices, and engage in voluntary transactions without government interference.
- Entrepreneurial opportunities and innovation: A laissez-faire system encourages entrepreneurship by minimizing barriers to entry and fostering a competitive environment, which stimulates innovation, creativity, and the development of new businesses and industries.
- Competitive business environment: With limited government intervention, Hong Kong has developed a highly competitive business environment where companies compete based on quality, efficiency, and innovation, leading to improved products, services, and overall market performance.
- Strong property rights protection: Hong Kong's legal system ensures strong protection of property rights, providing individuals and businesses with the confidence that their assets and investments are secure, which promotes economic activity and long-term investment.
- Low levels of corruption: A laissez-faire system can help reduce opportunities for corruption by limiting government intervention and discretion in economic activities, promoting transparency and accountability.
While Hong Kong is a free market, some exceptions exist for a few dutiable commodity products, including tobacco, motor vehicles, methyl alcohol, liquors, and hydrocarbon oil. It is important to consider all these factors before moving your business to Hong Kong.
#4: Skilled Workforce
According to a consensus in Hong Kong, approximately 96% of its population can speak Cantonese, and 51.9% can speak English. This means that over half the population is bilingual, which gives Hongkongers an advantage when conducting business internationally.
If you intend on doing business with China, the additional advantage of your employees speaking Mandarin/Cantonese is a must.
Furthermore, the education system in Hong Kong is stronger than most other Asian countries, recently ranking second in the global school rankings, with Singapore ranking first. On the other hand, Hong Kong is also losing 94,000 workers in 2022 alone, which means Hongkongers are also actively seeking opportunities abroad. However, this can be offset by the number of qualified workforce coming to Hong Kong.
#5: Liberal Immigration Policy
In terms of immigration policies, compared to other countries, Hong Kong is considered friendly. Nationals from 164 countries can enter Hong Kong for up to 180 days without a visa, depending on your requirements and eligibility.
If you’re visiting Hong Kong temporarily, you can sign contracts or conduct business negotiations if you have an entry permit or visitor visa.
If you’re a business owner or are going to set up a new office in Hong Kong and want to move your employees to Hong Kong, the work visa provisions make it easy for you to do it. If you’re thinking about hiring staff here, dependent visas might be something that you’ll be interested in.
Essentially, the holder undertakes any legal employment in Hong Kong. Here are a few visas you can get:
- Employment Visa - If you’re considering hiring a foreign employee in Hong Kong, this is the most common type of visa you’ll need/assign for them or relocate them here.
- Quality Migrant Admission Scheme Visa - This program is designed for people who wish to conduct business or create employment opportunities in Hong Kong. However, this is an entrant scheme with limited quotas.
- Investment Visa - This might be for you if you’re a business owner. This is for foreign professionals who wish to build a business here or if you want to move to Hong Kong.
- Permanent Resident Visa - To get a permanent resident visa, you must have lived in Hong Kong lawfully for at least seven years to attain the visa.
Now that we have discussed most of the advantages let us discuss some disadvantages of moving your business to Hong Kong.
Disadvantages of Moving Business to Hong Kong
#1: Opening a Bank Account
Although Hong Kong is friendly regarding legally setting up your business, opening a bank account is not as easy as you might expect. This is especially true if you’re opening a bank account with a traditional bank.
It is time-consuming with lots of paperwork to apply for an account, and there is no guarantee that you will be approved to open one with a traditional bank. In most cases, they will require all the directors from your company to be present physically to get the application moving.
Below are some examples of the documents that you may need:
- Substantial initial deposit.
- Resolution by the Board of Directors.
- A corporate chart.
- Certificate of incorporation.
- Proper traditional business plan and more.
Many business owners and startups in Hong Kong are turning toward virtual banks because they offer more flexibility and faster processing of your application.
#2: High Operating Costs
Hong Kong is the second most expensive city, less expensive than New York.
Especially for businesses, the rent for office spaces in Hong Kong will be more expensive than in other cities, as will the labor cost. Therefore, if you plan to move to or expand your business operations to Hong Kong, you must be prepared to pay higher than if you were operating a business in Thailand, Taiwan, Vietnam, or even Singapore.
#3: Challenges Faced By SMEs
Local SMEs face a major challenge with their cash flow, particularly when receiving customer payments. Singapore has the longest waiting period of 41 days, but Hong Kong is not far behind at 34 days.
This delay in receiving payments can greatly impact a company's ability to manage its capital flow efficiently. Despite being one of the freest economies, limited government support is available for businesses. Only 16% of respondents found government policies beneficial for running their businesses, and SMEs in Hong Kong continue to struggle with finding funding.
#4: Language & Cultural Barriers
While we listed the workforce as an advantage earlier, stating that 51.9% of Hongkongers can speak English, we cannot exclude the 48.1% of the population who cannot speak English. Furthermore, not many entrepreneurs moving there can speak Cantonese either.
This could create challenges when handling business deals or cultural integration with local Hongkongers.
#5: Workforce Shortages
While the workforce in Hong Kong is generally skilled and educated, certain industries will face shortages of specialized talents. For example, a recent Hong Kong General Chamber of Commerce poll found that 3 in 4 companies in Hong Kong are struggling with talent shortages.
You may need to compete with other companies to attract the right talent and work hard to keep them.
While Hong Kong is a great city to move your business to or start a new business in, it is not without its challenges. Therefore what matters the most is how you navigate those challenges. At Statrys, we aim to be your partner of choice for company incorporation and payments solutions. This means helping entrepreneurs and businesses by providing efficient, easy-to-use payment solutions to help you navigate those challenges.
Is Hong Kong good for business?
Can a foreigner start a business in Hong Kong?
Is there VAT tax in Hong Kong?