Establishing your business in Hong Kong

Why do business in Hong Kong?

Hong Kong is often described as one of the easiest places in the world to set up a new business and enjoy successful trade. Hong Kong has a stable economy and a prime location for trading with other nations. Local authorities also make life simple to do business.

Be aware that this makes competition fierce when trading in Hong Kong. Almost 10,000 foreign companies are operating out of the country already. Ensure you present a detailed business plan and be prepared to pay high salaries to skilled employees. If you do not, one of your competitors will.

Do not let this deter you from opening a business in Hong Kong, though. The ease of doing business, appealing business tax rates and encouragement of free enterprise ensure that Hong Kong is a genuine hub of thriving business opportunity.

Territory data

How to set up payroll in Hong Kong

Once you decide to set up a business in Hong Kong, decide what kind of company would suit your needs best. Most business owners opt for a Limited Liability structure. This will take around 8 weeks to complete.

Choose a company name and register your company. To do so, you will need the following:

• Incorporation Form
• Company’s Articles of Association
• Notice to Business Registration Office (IRBR1)
• Local bank account

When it comes to setting up a payroll, ensure that your potential hires have the legal right to work in Hong Kong. If not local, the employee will likely need a GEP visa. These can be applied for from the Immigration Department of Hong Kong.

Naturally, your employees will also need to pay income tax. This is a sliding scale between 2 and 17% of an annual salary. As with all nations, you will need to withhold income tax contributions from an employee salary and file these with the Inland Revenue Department. Income tax rates are:

• Salary up to HK$50,000 – 2%
• Salary between HK$50,001 and HK$100,000 – 6%
• Salary between HK$100,001 and HK$150,000 – 10%
• Salary between HK$150,001 and HK$200,000 – 14%
• Salary over HK$200,000 – 17%

These rates look quite generous but be aware that employees tend to attract high salaries in Hong Kong. In terms of cost of living, Hong Kong is comparable to London. Employees will expect this to be reflected in a salary offer. Thankfully, as we will discuss in a moment, social security contributions from the employer are low so you will not need to pay much above a salary.

Hong Kong employment law & HR considerations

Hong Kong employment law is governed by the Employment Ordinance. Benefits for employees do not typically kick in until a year of service has been completed. Employees in Hong Kong are entitled to the following mandatory benefits:

• 7 days of paid holiday per year after completing one year of service. This holiday allowance is increased to 8 days after 3 years of service. Holiday allowance continues to rise each year until it is capped at 14 days
• 4 days of paid sick leave accrued per month of service (2 days per month of service for the first year), capped at 120 days in any single sickness episode
• Up to 14 weeks of paid maternity leave (rate of pay will depend upon the length of service)
• Up to 5 days of paternity leave (rate of pay will depend upon the length of service)
• At least one day off per week, though most employers in Hong Kong operate a five-day week

In terms of social security, employers must pay 5% of any employee’s salary into the Mandatory Provident Fund (MPF) – Hong Kong’s public pension fund. The employee must match this contribution with funds withheld from their salary. You are welcome to pay more if you wish (and can afford it!)

Employers are not legally required to provide a private pension scheme or health insurance policy in Hong Kong, though some businesses will do so. A tax-free housing allowance of up to 10% of an annual salary is also a popular optional benefit for foreign workers. 

Although these benefits are not obligatory, they are advisable. As discussed, there are plenty of businesses vying for the best talent in Hong Kong. Your company will need to make itself as attractive as possible.

Setting up a subsidiary entity in Hong Kong

If you’re keen to get cracking with trading in Hong Kong, opening a branch of an existing business is the easiest way to establish yourself. A branch can be up and running in less than 14 days, and the tax implications are almost identical to a subsidiary entity. 

A Limited Liability Company takes longer to set up, and you’ll need to submit a bit more paperwork. This is worthwhile in the longer term, though. An LLC is seen as reputable and respectful in Hong Kong. To ensure ongoing legal compliance and accurate filing of disclosure requirements with Companies Registry, it may be advisable to consider employing a local representative. 

The corporate tax rate in Hong Kong is between 7.5 and 16.5%, depending on the business structure and annual profit margin. In a nutshell, expect to pay the following in business tax:

• 7.5% – an unincorporated business that earns below HK$2 million in a calendar year
• 8.25% – a corporate business that earns below HK$2 million in a calendar year
• 15% – an unincorporated business that earns above HK$2 million in a calendar year
• 16.5% – a corporate business that earns above HK$2 million in a calendar year

As you’ll see, whatever bracket your business falls into, Hong Kong offers extremely appealing business tax rates. This is why it is so popular as a trading base for overseas companies.

Country nuances

If you have read this far, you will realise that Hong Kong is hugely welcoming to overseas investors and business leaders. The local authorities will not blind you with paperwork and red tape, and the financial rewards are potentially great. You can start a business with 100% foreign ownership, and if you decide to take your business public, it is not complicated to sell shares and grow your company this way.

In terms of business etiquette, Hong Kong typically follows Cantonese traditions. Always shake hands with an associate – and anybody with them – when opening and concluding a meeting. Use a light handshake. While a firm grip is seen as confident in the west, in Hong Kong it is considered needlessly aggressive. 

It is considered polite to enquire as to the health of your associate and their family, and to address people by title and surname until invited to use first names. A small gift will also be appreciated. Avoid red or white flowers and clocks, however – these are associated with death and mourning in Hong Kong.

On a corporate level, the attitude in Hong Kong is comparable to the USA – namely, time is money. While you’ll need to be polite, don’t waste too much time with small talk. Look to conclude meetings and pitches quickly, focussing on the financial advantages that can be gleaned from working together. It may take a few meetings to conclude a deal and forge a relationship, but it will happen. A handshake is considered as binding as a contract in Hong Kong. Never promise something verbally that you plan to retract later. 

When it comes to your business space, be aware that Hong Kong natives can be superstitious. Bring in a feng shui professional to arrange and decorate your workplace. Some potential partners will refuse to do business in a location that has not undergone this process, as they consider it bad luck. Do not mention death, illness, business failings or financial difficulty in a meeting. Finally, dress to impress in Hong Kong. A good suit and an expensive watch will be noticed and mark you out as a serious professional.