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Doing business in Hong Kong

Hong Kong is a special Administrative Region of the Republic of China and was established on 1^st July 1997. Even if is a part of China the system is different, indeed, Hong Kong have a high degree of autonomy, for mainland China is 一国两制 means one country with two systems. Hong Kong is ranked second in terms of ease of doing business in the world, which make Hong Kong a competitive hub for investors who want to start their business.

How to start a business in Hong Kong

 There are a lot of advantages doing business in Hong Kong, indeed, Hong Kong is one of the best cities for businesses. It has one of the most flexible and supportive corporate governance regime in the world. No barriers to trade (no tariffs, no quota, no exceptions), no restrictions on investments inward or outward, no foreign exchange controls, no nationality restrictions on corporate or sectoral ownership.

Setting up a business in Hong Kong is straightforward. Procedures are transparent and simple.

How establishing an entity in Hong Kong? The principal forms are as follow:

• Companies incorporated in Hong Kong (either private or public via listing on the Stock Exchange of Hong Kong).
• Branch of a foreign company
• Representative or liaison office of a foreign company
• Joint venture (can be set up either as a company or partnership)
• Partnership
• Sole proprietorship

The most commonly used business vehicles for doing business in Hong Kong are private limited companies and branches of foreign companies.

To establish a private limited company process are:

• To do a name search at the Companies Registry (CR), to see if the proposed name has already been registered
• If the proposed names are acceptable for registration under the Companies Ordinance, the company will be registered and the certificate of incorporation will be issued.
• Any person who applies for incorporation of a local company will be deemed to have made a simultaneous application for business registration.

A foreign corporation is required to be registered under the Business Registration Ordinance within one month from its date of commencement of business in Hong Kong. In addition, taxation in Hong Kong is low. The main applicable taxes for doing business in Hong Kong are Profit tax (profit tax rate are 16.5% for corporations), Salaries tax, Property tax.

While compared to China, which has a lot of main applicable taxes such as:

• Taxes on income (Corporate income tax and Individual income tax) and the Corporate income tax is levied at a flat rate of 25%
• Taxes on transactions (Value-added tax, Business tax, Consumption tax)
• Other taxes

Major forms of investment vehicles include representative offices, equity joint ventures, cooperative joint ventures, wholly foreign-owned enterprises, joint stock companies and partnership enterprises. Before setting up in China, a foreign company should review its current investments and future business plans to determine the optimal investment vehicle to set up in accordance with the current China investment regulations and specific industrial policies.

Relationship with the Republic of China: a gateway to mainland China

Since China became the second economy of the world, numerous of business person want to invest or create their company in China. As a result, at the first step, a lot of people start in Hong Kong. Hong Kong’s proximity to mainland China has made it the gateway to mainland China for business. English is the language of business in Hong Kong and many people speak English, Cantonese, and mandarin and have a good understanding of international and mainland Chinese business.

There is nowhere better than Hong Kong to obtain the expertise, information, and facilities needed to tap into the immense Chinese market. The Closer Economic Partnership Arrangement (CEPA), the first free trade agreement concluded between China and Hong Kong, this agreement enhances the co-operation in trade and investment promotion to improve the overall business. Hong Kong can enjoy greater liberalization measures compared to foreign investors when entering China.

Moreover, there is some advantage of using Hong Kong companies for investing in China, indeed, China and Hong Kong entered into comprehensive “Double Tax Agreement” in august 2006. Provisions in the comprehensive agreement provide beneficial treatments for Hong Kong companies investing in China. For instance, reduced withholding tax rates on dividends, interest, and exemption treatment for certain capital gain.

Hong Kong is ranked second in terms of ease of doing business in the world and for a lot of business people, it is also a gateway to mainland China. Indeed, Hong Kong is one of the most open and externally orientated economies in the world. Hong Kong and China have signed a number of agreement and arrangements on professional qualifications.Hong Kong plays a vital bridging role for money flows between China and the rest of the world.

Contact us to know more about Doing Business in China at dx@daxueconsulting.com