In today’s global economy, companies of all types and structures are expanding their operations in foreign markets. Establishing operations in foreign markets can offer several advantages, which include market growth and diversification, greater opportunities, and access to a diverse talent pool and consumer base.
Hong Kong is one such economy that has attracted several global businesses to expand their operations. In recent years, Hong Kong has been one of Asia’s premier gateway for businesses worldwide, with certain noteworthy rankings for being
- 7th globally for FDI outflows and,
- 4th leading global financial center, as per the Global Financial Centre Index (32nd edition, Sep 2022)
If you are looking to expand your business here, we have you covered. This article will include all the factors you must consider when doing business in Hong Kong.
Why is Hong Kong an Upcoming Hub for New Businesses?
There are several advantages of doing business in Hong Kong, which has made the economy a business-friendly destination. The advantages include:
Strategic business location
One of the major advantages of doing business in Hong Kong is easy access to the Greater China market. With a few trade agreements, business travelers can easily access Beijing and several other key cities to conduct meetings and trade.
Hong Kong offers access to lucrative markets in India, Japan, Thailand, and Singapore. With many Asian neighbors, the Hong Kong economy boasts thriving industries, including tourism, financial services, medicine, tourism, and education.
Due to a strategic business location, the advantages of doing business in Hong Kong include:
- The economy’s sound infrastructure system
- A workforce with expertise in technology
- An economy with a financial edge
Strong financial institutions
Another advantage of doing business in Hong Kong is its strong and stable banking system. With a great security system, businesses globally can rely on local banks for their funds and business transactions.
The economy is also known for its strong international exchange reserves, which are essential for its stable exchange rates and timely payments of international debts. Such factors contribute to Hong Kong’s business-friendly environment.
Hong Kong is additionally known for its sound and transparent legal system. This has contributed to macroeconomic measures helping businesses operate efficiently and carry out their businesses without much hassle.
Affordable and safe healthcare and medical assistance have been an added advantage of doing business in Hong Kong.
Unique trade agreements
With the Chinese government introducing the CEPA, known as a Closer Economic Partnership Agreement in 2004, several businesses in Hong Kong have been able to reap the benefits of tapping into the Chinese market.
Several businesses have increased their consumer base through this regulation and swiftly expanded their operations. It is not without a reason why businesses, especially startups, have a strategic advantage of expanding their business to Hong Kong with China as the biggest trading partner.
Additionally, Hong Kong has free trade agreements, signed in September 2017 with the Association of Southeast Asian Nations (ASEAN). These trade and investment agreements cover all trade aspects, including trade in goods and services, dispute settlements, and economic cooperation. The 10 countries that form ASEAN include:
- The Philippines
The unique trade agreements mentioned above have ensured that all domestic and foreign businesses find ease in doing business in Hong Kong.
Low cost of business operations
A relatively lower cost of business operations in Hong Kong has attracted companies to set up their entities at costs lower than in other economies.
Another exciting factor for choosing Hong Kong for your business is the country’s exceptionally low tax rates Corporate taxes in Hong Kong, in comparison to the USA, are much lower. Hong Kong’s corporate taxes are 8.25% up to HK$ 2 million and 16.5% for profits above HK$ 2 million, while it’s progressive up to 28% in the USA.
The World Bank has ranked Hong Kong as the third-best country in the ease of doing business. Hong Kong has relatively economical and straightforward regulations for establishing a business adding on to the list of an advantages of doing business in Hong Kong.
One of the biggest advantages of doing business in Hong Kong is its highly skilled, trained, and educated workforce.
This is because the economy strives to offer education free of cost for all its citizens and keep attendance mandatory for all children up to junior secondary school. Although many local students also seek higher education abroad, the economy is known for its strong university system.
The workforce is also known to speak several languages, including Cantonese (the native language of Hong Kong and China) and Mandarin (a language spoken in Mainland China). English is a language commonly used by several people to conduct business and trade.
Due to such workforce characteristics, several companies benefit from setting up a business in Hong Kong.
What are the Challenges of Expanding to Hong Kong?
With several benefits come certain disadvantages of doing business in Hong Kong, which include:
New tax laws
Although Hong Kong is a business-friendly economy, it takes some time for new businesses to know all the corporate laws. Understanding new laws and complying with them can be complex until you hire a local team.
All businesses in Hong Kong must submit the annual audited statements to the revenue department and pay the corporate and payroll taxes promptly. This requires a team of professionals to help you comply with all relevant laws.
Minor missteps can attract serious financial penalties. You can avoid the repercussions by partnering with local experts, who can guide you with nuances of tax laws and help you stay compliant in the long run.
High Labor costs/Cost of living
When setting up a business in Hong Kong, one of the most important factors is hiring new local staff. The labor expenses in Hong Kong can be costly due to the higher cost of living. According to a report by Economist’s Intelligence Unit, the cost of living in Hong Kong is the highest after Zurich (Switzerland) and Paris (France).
Therefore, paying your local employees must match their cost of living. A fun fact is that the median monthly salary for your workforce in Hong Kong is about US$ 2,376 per month.
Labor costs can be one of the disadvantages of doing business in Hong Kong when hiring local employees.
Unfamiliar regulations for businesses
One of the major disadvantages of doing business in Hong Kong is complying with all the labor laws and other applicable business regulations.
When scaling your business in Hong Kong, you must understand all rules and regulations about hiring and paying your local employees. You must also understand all the regulations around running and establishing your entity in Hong Kong.
Other rules that businesses comply with include the company registration process, which can get challenging.
Challenging procedures to open a bank account
When setting up an entity in Hong Kong, you must have a local bank account for regular monetary transactions. However, scaling your operations can be complex when opening a new bank account for your business.
Due to recent international efforts to combat money laundering, banks and financial institutions in Hong Kong have implemented stringent processes for their existing and new customers.
Many traditional banks have lengthy processes and charge relatively higher fees to open international accounts and facilitate global banking benefits. Meeting the paperwork requirements can be tough without proper expertise.
The current banking regulations require all directors, shareholders, and signatories on the corporate bank account to travel personally to Hong Kong for interviews.
Such stringent processes can be a disadvantage to doing business in Hong Kong and can be time-consuming if you do not have the right expertise.
Let Multiplier handle your International Payroll and Taxes
Scaling your business operations in a new country such as Hong Kong can be relatively complex if you do not have the right expertise. This can be true when handling a contingent workforce.
Working with a global EOR such as Multiplier can help minimize the challenges of international growth and to ensure compliance with local regulations.
Our Hong Kong professionals team helps unlock your full potential by building highly skilled global teams. We help you get there by offering the best employee benefits, managing payroll, generating employment contracts, offering insurance for your local employees, and much more.
Learn more about how we can help you scale your business by talking to our experts!