A highly dynamic city that serves as a gateway to Mainland China and Asia, Hong Kong is the ideal place for business in Asia. Hong Kong’s business-friendly environment, low taxes, rule of law, free economy, modern infrastructure, I&T capabilities, and robust intellectual property protection will all help businesses and individuals in this most competitive and international city.
Why choose Hong Kong for your business?
The Hong Kong Special Administrative Region (HKSAR) was established on July 1, 1997, after Great Britain returned it to the People's Republic of China (PRC). The city is currently ruled by the Basic Law of the HKSAR – The constitution adopted by the National People's Congress of the PRC on April 4, 1990.
Under the Basic Law, Hong Kong is allowed to retain the social, economic and legal systems present at the time of the handover for a 50-year period under the principle of “One Country, Two Systems”. Additionally, the Basic Law designates a system of governance led by the Chief Executive, who is the head of the HKSAR, and the Executive Council, which assists the Chief Executive in policy-making issues.
Due to its previous status as a British colony, Hong Kong’s legal system is largely influenced by English common law. The constitutional framework for Hong Kong’s legal system is provided by the Basic Law approved by the National People’s Congress, which supplements the common law. The independent judiciary under the Basic Law ensures that Hong Kong remains within the common law system. The Court of Final Appeal is the highest court in HKSAR and is headed by the Chief Justice. Furthermore, reflecting its status as a Special Administrative Region, the HKSAR legal system is separated from the one governing the PRC under the principle of “One Country, Two Systems”.
Hong Kong’s economic system is defined as a free-market economy, characterized by minimum intervention from the government, low taxation, free port trade, and a highly internationalized and modernized financial market. It was ranked as the world’s freest economy for 25 years in a row until 2019.
The city’s service-oriented economy (with services accounting for more than 90 percent of its GDP) is especially strong in the financial services, international trade, and tourism sectors. Additionally, it has strong economic links to mainland China and other major economies in the Asia Pacific region.
The Hong Kong financial system is composed of four different financial regulators, each one governing different parts of the financial sector. These include the Securities and Futures Commission (SFC, an independent body set up to regulate the securities and futures markets), the Mandatory Provident Fund Schemes Authority (MPFA, a statutory body set up to assist Hong Kong’s workforce to accumulate savings for their retirement), the Insurance Authority (IA, a body set up to protect the interests of policyholders and promotes the general stability of the insurance industry) and the Hong Kong Monetary Authority (HKMA, the government’s agency responsible for maintaining monetary and banking stability).
Despite the HKMA’s role as the currency board and de facto central bank, it does not print currency notes itself. Instead, it grants Hong Kong dollar printing privileges to HSBC, Standard Chartered Bank, and the Bank of China.
Under the Linked Exchange Rates System (LERS), the Hong Kong dollar has been pegged to the US dollar since 1983, at a rate of HK$7.80 to US$1, which has helped maintain monetary stability. Through the exchange rate system, the HKMA authorizes note-issuing banks to issue new banknotes, as long as an equivalent amount of US dollars is deposited with the HKMA.
Hong Kong as a global financial services center
As one of the leading international financial centers, Hong Kong is a prime location for financial services and home to many financial institutions. Its financial markets operate under effective and transparent regulations that are in line with international standards.
Located at the heart of Asia, Hong Kong thrives on close financial integration with Mainland China, extensive networks with the rest of the world, sound legal system, low and simple tax regime, free flow of capital, and a large pool of financial talents.
Looking forward, with new opportunities arising from the Greater Bay Area Outline Development Plan (GBA Outline), the Belt and Road Initiative (BRI), fintech, infrastructure investments and financing, and green finance, Hong Kong’s status as a leading financial hub is expected be further strengthened.
Unique access channels to and from China
Hong Kong and Mainland China has made remarkable progress in opening new channels to enhance their financial connectivity. Cases in point are Qualified Foreign Institutional Investor (QFII), Renminbi Qualified Foreign Institutional Investor (RQFII), Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect, Mainland-Hong Kong Mutual Recognition of Funds arrangement, and the most recent two-way cross-boundary Wealth Management Connect in the GBA.
Largest offshore RMB center
Hong Kong is the largest and most important global offshore RMB business hub, offering a wide range of RMB financial services, including clearing and settlement, financing, asset management, risk management, etc.
The highly efficient and robust market infrastructure in Hong Kong, including the RMB Real Time Gross Settlement (RTGS) system, allows market participants from all over the world to handle RMB transactions with Mainland China and among offshore markets.
Hong Kong is Asia’s largest banking hub for Chinese and international banks. In light of the rapid technological advancements, a number of initiatives have been launched by the government to move Hong Kong into a new era of Smart Banking.
Hong Kong's highly liberal, liquid and deep securities market has attracted many international banks and securities houses to build their presence here, providing another critical channel for companies to raise funds in the form of equity and debt. Having Asia’s deepest international capital market, Hong Kong is among the world’s largest equity fundraising centers and the third largest bond centers in Asia ex-Japan.
Hong Kong is a major regional fund management center with a large concentration of international fund managers, advisory businesses and private banks. Specifically, Hong Kong is the largest international asset management hub in Asia. It is also the largest international private wealth management and hedge fund center in Asia, and the second largest private equity center after China in Asia.
Corporate Treasury Center (CTCs)
Being an international financial center with a full range of services available, Hong Kong has been 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.
Hong Kong is dedicated to build itself as a fintech hub in Asia. The HKMA set up the Fintech Facilitation Office (FFO) in 2016 to facilitate the healthy development of the fintech ecosystem in Hong Kong. In 2017, the HKMA launched seven Smart Banking Initiatives and in June 2020, it unveiled a strategy called “Fintech 2025” to drive fintech development in Hong Kong.
Infrastructure investments and financing
A growing number of companies have been looking into investments in infrastructure and related projects, which has been given further impetus by the BRI. This creates enormous opportunities in infrastructure financing. Hong Kong, being an international financial center and China’s global financial center, is uniquely positioned to facilitate the linkage between the significant funding needs of infrastructure projects especially in the emerging market economies and the vast pool of global capital that seeks to invest.
In 2016, the HKMA established the Infrastructure Financing Facilitation Office (IFFO) to facilitate investments and financing of sustainable infrastructure and green development by working with a cluster of key stakeholders, including multilateral development banks, financiers, investors, project owners, and professional service providers.
Having a deep, liquid bond market, Hong Kong is well positioned to grasp the opportunities brought about by green and sustainable finance. A number of initiatives have been launched to promote the development of the green bond market in Hong Kong, including the Government Green Bond Program and the Green and Sustainable Finance Grant Scheme.
Advantages of Hong Kong
Hong Kong is an ideal place to invest or to do businesses, which has a multitude of advantages:
Close proximity to markets in Asia, including mainland China
Hong Kong enjoys an ideal location in Asia that enables businesses to tap into the various opportunities in the Guangdong-Hong Kong-Macao GBA and throughout the rest of the region.
[video file="https://www.chrisdevonshire-ellis.com/wp-content/uploads/2021/07/China's%20Greater%20Bay%20Area_%20Exploring%20Key%20Sectors%20for%20Direct%20Investment%20and%20M&A.mp4" image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_1.jpg' title="China's Greater Bay Area: Exploring Key Sectors for Direct Investment and M&A"]
Hong Kong and the Mainland of China sighed the main text of the Mainland and Hong Kong Closer Economic Partnership Agreement (CPEA) in 2003, which allows Hong Kong products and services easier access to the vast mainland market. CPEA also allows Hong Kong products and services easier access to the vast mainland market. It goes beyond China’s WTO commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors. Overseas companies can also benefit from CEPA. For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin (ROO) requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA as long as they satisfy eligibility criteria of a “Hong Kong Service Supplier”. The Guangdong-Hong Kong-Macao Greater Bay Area (GBA) outline unveiled 2019 will also build stronger ties between Hong Kong and the mainland.
Low, simple and competitive tax regime
Businesses and individuals in Hong Kong enjoy one of the most tax-friendly systems in the world.
Hong Kong imposes only three kinds of direct taxes – profits tax (for incorporated body), salaries tax (for personal income), and property tax (for income sources from Hong Kong property). And there are generous allowances and deductions which can reduce your taxable amount.
Hong Kong does not have any turnover taxes (like value-added tax or sales tax), making it a favorable location for profit shifting and conducting re-invoicing. And different from many other jurisdictions, it adopts territorial basis of taxation – only incomes sources from Hong Kong are taxable.
An open, fair, and efficient business environment
Hong Kong was the world’s freest economy for 25 years in a row until 2019 and is one of the easiest places in the world to do business.
[tips title="Did You Know"]As one of the most Laissez-faire economies in the world, the government’s policy is strictly non-interventionist. The absence of exchange controls, corruption-free government, and free flow of information, capital, and talents has enabled Hong Kong to maintain a free and efficient business environment for business activities and commerce.[/tips]
Further, Hong Kong is well perceived as its status of “free port” and straightforward customs clearing. The city has no tariffs on imported goods, no import quotas, and applies excise duties to only four commodities – hard alcohol, tobacco, oil, and methyl alcohol.
Excellent legal and dispute resolution services under rule of law
Hong Kong is home to some 850 local solicitor firms and more than 70 global law firms. Legal advisors based in Hong Kong are familiar with the legal and regulatory landscape of different countries around the world. Benefiting from a sound and independent legal system, Hong Kong has long been a regional hub for dispute resolution, with the Hong Kong International Arbitration Centre rated the most preferred seat of arbitration outside Europe.
World-class infrastructure with sophisticated support services
Hong Kong provides some of the most advanced business infrastructure in the world. The city is easily accessible with one of the world’s most efficient and affordable public transport systems.
The multi-award-winning Hong Kong International Airport is the world’s busiest cargo gateway and one of the busiest passenger airports. The Guangzhou-Shenzhen-Hong Kong Express Rail Link runs from the terminus at Hong Kong West Kowloon Station to the Shenzhen boundary in 14 minutes and shortens travelling time to Guangzhou to 46 minutes. The 55km-long Hong Kong-Zhuhai-Macao Bridge is the longest sea-crossing bridge in the world. It connects Guangdong, Hong Kong and Macao and brings the Western Pearl River Delta region to within a three-hour drive of Hong Kong.
Highly skilled and multicultural talent pool
Hong Kong has a diverse talent pool, equipped with the skills and knowledge to drive business in Hong Kong and beyond. The city is home to 22 degree-awarding higher education institutions. Currently, four Hong Kong universities are featured in the Quacquarelli Symonds (QS) World University Rankings top 100 list. Many business professionals here are bilingual or trilingual, with most of them speaking English, Cantonese, and Mandarin.
Liberal Immigration policy
Hong Kong has all along adopted an open immigration policy. At present, nationals of about 170 countries and territories are allowed visa-free visits to Hong Kong for periods ranging from 7 to 180 days.
Ease of doing business
Hong Kong has risen to the 3rd place in the World Bank Group’s latest Ease of Doing Business Ranking 2020, a jump from last year’s 4th place, with ease of dealing with construction permits ranked 1st, paying taxes ranked 2nd, and ease of starting a business ranked 5th, which contains two steps and can be finished in 1.5 days.
Improving data privacy protection
Like other major economies, Hong Kong has been ramping up efforts on improving data privacy protection within the jurisdiction.
In Hong Kong, the Personal Data (Privacy) Ordinance, Cap 486 of the Laws of Hong Kong (PDPO) protects the privacy of individuals in relation to personal data, and was recently amended in 2021 to cope with new privacy challenges and address public concerns.
When the PDPO was drafted, reference was made to the relevant requirements under the 1980 OECD Privacy Guidelines and the European Union (EU) Directive 95/46/EC. It may be noted that the EU’s GDPR, in effect 2018, contains significant new regulatory provisions impacting data protection that are major changes to its 1995 Directive. However, these new requirements are not found under the PDPO.
Why foreign companies relocate to Hong Kong?
The People’s Republic of China regained sovereignty over Hong Kong from Britain in 1997, from which point Hong Kong has been a Special Administrative Region (SAR) of the country. However, the way in which the city is governed is still fundamentally different from the Chinese mainland – a fact that is reflected in its slogan of “One Country, Two Systems”. Hong Kong is largely autonomous from China, and foreign companies will quickly discover that the rules of doing business in the mainland simply do not apply in Hong Kong, and vice versa.
For this reason, Hong Kong has long held a reputation as a popular “gateway” to invest in China. Its geographical proximity to the mainland, double taxation agreement (DTA) network, modern banking system and transparent legal regime have made it an ideal location for foreign businesses to easily operate in. Despite the recent unrest and the COVID-19 epidemic, Hong Kong remains the biggest source of foreign direct investment (FDI) into China and a global financial hub. The latter will be further strengthened with the development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA).
Hong Kong’s international free trade and tax agreement
Hong Kong has been actively seeking to expand its Free Trade Agreement (FTA) network in order to secure favorable conditions for Hong Kong's goods and services to enter the mainland and international markets.
So far, Hong Kong has signed eight FTAs, respectively with
- The Mainland of China (June 2003);
- New Zealand (March 2010);
- The Member States of the European Free Trade Association (EFTA) (June 2011);
- Chile (September 2012);
- Macao (October 2017);
- The Association of Southeast Asian Nations (ASEAN) (November 2017)
- Georgia (June 2018); and
- Australia (March 2019).
It has also concluded FTA negotiation with Maldives.