Benefits and Challenges of Expanding to Hong Kong
When your company is seeking international growth opportunities, Hong Kong may quickly rise to the top of your list. It scores high in several rankings of the best economies for business, offering the advantages that come from free trade, enviable market access, and a talented workforce.
Before expanding, your company will need detailed information about the risks and benefits of doing business in Hong Kong. This article explores those advantages and disadvantages in depth so your business can make a more informed decision.
What's In This Content?
- 1 Reasons to expand to Hong Kong
- 2 Top challenges of expanding to Hong Kong
- 3 Expanding to Hong Kong with a global employment platform
- 4 Build international teams in Hong Kong with Globalization Partners
Reasons to expand to Hong Kong
Why expand your company to Hong Kong? With its ideal location, exceptional workforce, low taxes, and general ease of doing business, this unique place offers many business advantages. Let’s take a closer look at some of the most compelling reasons to expand your company to Hong Kong.
1. Robust, growing economy
Hong Kong’s economy is large and increasing every day. The gross domestic product (GPD) stood at about US$346 billion as of 2020. Hong Kong’s economy’s growth rate has typically increased by about 2 to 6 percent per year for most of the past decade. The International Institute for Management Development in Switzerland has recognized Hong Kong’s economy as the second most competitive economy in Asia and the seventh in the world.
The economy in Hong Kong offers incredible business freedom, which we’ll discuss in more detail below. Hong Kong’s renowned free trade, free markets, and free enterprise present many growth and profit opportunities for businesses.
2. Strategic business location
Hong Kong’s prime location on China’s southeastern coast gives companies ready access to several large Asian markets, including, of course, the immense mainland Chinese market. Business travelers can reach most of China’s major cities within a single day, and Beijing travel is especially convenient via the Beijing-Hong Kong high-speed trains.
Hong Kong also grants convenient access to lucrative markets in countries like Japan, India, Singapore, and Thailand. Companies operating from Hong Kong can take advantage of favorable trade agreements with these countries to make international business connections and boost profits.
Hong Kong’s domestic markets also provide ample business opportunities. Though Hong Kong is small geographically compared with many of its Asian neighbors, it boasts thriving industries such as financial services, tourism, medicine, education, and creative industries.
3. Robust free markets
Hong Kong is internationally renowned for its exceptionally free markets. The Heritage Foundation’s Index of Economic Freedom cited Hong Kong as the world’s freest economy for more than two decades until replacing it with Singapore in 2020 and 2021. Hong Kong’s trade freedoms, monetary freedoms, low taxes, minimal tariffs, and limited government interference in business matters all contributed to its position at the top of the list.
Hong Kong places no limits on inward or outward investments, so trade can flow freely in either direction across the country’s borders. Hong Kong also has no controls on international exchange, so businesses can exchange currency easily.
4. Trained, educated workforce
In general, Hong Kong’s workforce is highly skilled, trained, and educated. Education in Hong Kong is free, and attendance is compulsory through junior secondary school.
Hong Kong has a strong domestic university system, and many students also seek higher education abroad before returning home. Technical training is available at the Hong Kong Institute of Vocational Education. A tremendous 75 percent of the workforce has obtained advanced education.
Hong Kong’s workforce also speaks several languages. Many citizens of Hong Kong speak Cantonese, the language native to Hong Kong and southeastern China, and Mandarin, the most widely spoken language in mainland China. English is the language most commonly used for business. If your company needs linguistic fluency in its workers, Hong Kong is an excellent place to find talented bilingual or trilingual employees.
5. Unique trade access
Hong Kong provides preferential trade access for companies doing business from within its borders.
The Closer Economic Partnership Agreement (CEPA), for instance, creates a trade deal between Hong Kong’s autonomous government and the Central People’s Government of mainland China. This agreement provides several singular benefits. All goods that qualify as originating in Hong Kong may travel to mainland China duty-free. Additionally, Hong Kong-based service providers across dozens of industries receive preferential treatment in providing services to the mainland.
Hong Kong also has a crucial free trade agreement with the Association of Southeast Asian Nations (ASEAN). This trade agreement and its investment agreements, signed in September 2017, encompass all aspects of trade, from trade in goods and services to investments to economic cooperation and dispute settlements. They allow for enhanced market access and equitable trade treatment between Hong Kong and the 10 ASEAN member nations:
- The Philippines
Hong Kong’s excellent and always-improving infrastructure makes much of that trade access possible. The country continually completes upgrades to make the physical process of international business more manageable. It offers clean, economical, efficient transportation — buses, trains, ferries, and taxies — to and from its major transportation hubs. Its port, which can handle more than 20 million 20-foot equivalent unit (TEU) containers a year, is one of the busiest in the world. Its airport was also ranked one of the best in the world.
6. Strong financial and political institutions
In addition to its strong economy, Hong Kong has a strong and stable banking system. International companies can entrust funds to local banks and be sure of their security.
Hong Kong has large international exchange reserves as well. These are essential for maintaining stable exchange rates, paying international debt, and generally maintaining public trust in the economy. These factors contribute to Hong Kong’s highly business-friendly environment.
The country’s sound, transparent legal system and stringent anti-corruption measures also mean your company can expect to operate with relatively little risk of crime and corruption. You can expect fair treatment in the judicial system if legal questions arise.
Hong Kong’s institutional strength extends to healthcare as well. Medical care is safe and affordable, and the country boasts expert practitioners across a range of medical disciplines.
Finally, Hong Kong’s robust social and political infrastructure is evident in its low crime rate. The homicide rate in the country is one of the lowest in the world — only one intentional homicide per 100,000 people took place in 2018, for instance.
7. Relatively low cost of business operations
In Hong Kong, companies can often establish and run their businesses for less than they would pay in other countries.
Paying taxes is often more manageable because of Hong Kong’s exceptionally low tax rates. Taxes in Hong Kong vs. those in the USA are much lower, for instance. The corporate tax rate in Hong Kong is 8.25 percent for profits up to HK$2 million and 16.5 percent for profits over HK$2 million. In contrast, the corporate tax rate in the U.S. is 21 percent and may rise to 28 percent.
In addition, the rules and regulations for establishing a company, which can be complex and expensive in many countries, are relatively straightforward and economical in Hong Kong.
For all these reasons, Hong Kong has earned the third-best spot in the World Bank’s ranking of countries by ease of doing business.
Top challenges of expanding to Hong Kong
Though Hong Kong is an excellent place overall for your company to grow, the expansion process involves a few challenges to consider. Let’s take a closer look at some of the disadvantages of doing business in Hong Kong.
1. Unfamiliar regulations
One of the most significant challenges of international growth is learning the labor laws and other applicable regulations in your new country. When you are ready to scale your business in Hong Kong, you’ll need to spend time learning the rules for hiring and paying workers. You’ll also need to know the regulations that govern establishing and running your business.
Some of these regulations make company registration more challenging if companies choose to form subsidiaries. For instance, international employees must present extensive documentation of their experience and education before they can obtain employment visas.
Working with seasoned legal advisers is always a sound strategy. Hong Kong employment experts can help your company learn best employment practices and ensure compliance with Hong Kong’s regulations.
2. Tax laws
Although Hong Kong’s tax regulations are relatively business-friendly, learning and abiding by the ins and outs of these complex laws can be complicated. For instance, companies must submit annual audited financial statements to the Inland Revenue Department and pay both corporate and payroll taxes.
The penalties for minor missteps in this area are serious. Failing to comply with tax requirements could earn your company stiff financial penalties. Here, too, you can give your company peace of mind by partnering with experts in Hong Kong as you plan for growth. Experienced professionals can advise you on the nuances of tax law and help keep your company compliant.
3. Labor costs
Labor expenses in Hong Kong can add up in your company’s budget. Consider that the cost of living in Hong Kong is relatively high. According to the Economist’s Intelligence Unit, Hong Kong is tied with Zurich, Switzerland, and Paris, France, for first place worldwide as the most expensive city to live in.
Wages in Hong Kong, though not exorbitant, must also be somewhat high to match that high cost of living. As of 2020, the median monthly wage for employees in Hong Kong was HK$18,400, and the median hourly wage was HK$74.40. These figures equate to about US$2,376 per month and US$9.57 per hour.
4. Challenging bank account opening procedures
Your company will need a Hong Kong bank account to do business in the country. However, despite Hong Kong’s generally business-friendly environment, opening a bank account can be complicated. Recent international efforts to combat money laundering and terrorist financing have led banks to implement more stringent processes for both new and existing customers.
Many banks in Hong Kong, especially traditional banks, charge high fees and have lengthy processes for opening new international accounts, and not all account applications receive approval. The paperwork requirements can be particularly burdensome.
Different banks will have different requirements. However, in general, your company may need to provide items like these to open an account:
- Proof of identification, such as valid travel documents, for beneficial owners
- Certificate of incorporation
- Certificate of incumbency
- Certificate of good standing
- Partnership agreement of deed
- Proof of registration
- Company registry report
- Details of the company’s control structure and ownership
- Details of the company’s business nature and methods of operation
- Purpose of the account and its intended use
- Documents pertaining to the Foreign Account Tax Compliance Act (FATCA) and the Automatic
- Exchange of Financial Account Information (AEOI)
Additionally, by law, all shareholders, directors, and signatories on bank accounts must travel personally to Hong Kong for bank interviews. Opening a corporate bank account can also be challenging and time-consuming because of lengthy bureaucratic processes and the banks’ selectivity with international clients.
If your company decides to open a bank account in Hong Kong, it’s worth communicating with several banks to see which ones best fit your needs. That way, you may be able to avoid unnecessary paperwork, expenses, and delays, and you’ll be able to get your company operational sooner.
Expanding to Hong Kong with a global employment platform
When you’re building teams in Hong Kong, partnering with a third-party entity such as an Employer of Record (EOR) is an excellent strategy. Globalization Partners already has an established professional presence in Hong Kong. Our global employment platform allows you to simplify and expedite your new operations by minimizing setup obligations.
Here are some of the specific benefits your company can reap by working with Globalization Partners:
- Saving time: If your company chooses to form a subsidiary in Hong Kong, doing so can take weeks, even months. You’ll take longer to realize profits and can miss out on hiring qualified employees. When you work with a global employment platform, your business operations begin much more quickly, and you can start adding team members right away.
- Saving money: Forming a subsidiary in Hong Kong is costly as well as time-consuming. Registration, fees, application fees, and facility rental expenses quickly add up. By working with Globalization Partners, you can minimize these setup costs.
- Gaining peace of mind: When you leverage our global employment platform, you can rest easy knowing your hiring and tax practices are compliant. Our AI-driven technology helps you maintain compliance with Hong Kong labor and tax regulations, minimizing financial penalties.
Establishing a subsidiary is a traditional option. However, sometimes your company needs to minimize the challenges of international growth, start hiring employees right away, and ensure complete compliance with Hong Kong’s regulations. In that case, working with Globalization Partners’ global employment platform is highly beneficial.
Build international teams in Hong Kong with Globalization Partners
When you’re ready to extend your company growth into Hong Kong, work with Globalization Partners. Our comprehensive and AI-driven global employment platform ensures you can meet the challenges of expanding to Hong Kong with confidence.
Request a proposal today, or download our Global Hiring Handbook to learn more about growing internationally.