Invest Asia Group in Hong Kong
Last Update: 13th September 2020
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Pedestrian Crossing in Central, Hong Kong
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Hong Kong, known as the Hong Kong Special Administrative Region (SAR) is a large metropolitan area and region of the People's Republic of China located on the Southern Coast opposite the Mainland City of Shenzhen. Being one of the most densely populated areas of the world, Hong Kong is highly developed and is both a multi-cultural city and international financial center.
Originally colonized by the British between 1842 to 1997, Hong Kong island, Kowloon and the New Territories attracted substantial foreign investment during the colonial years before continuing high economic growth during the late 20th and early 21st century. Hong Kong is one of the Four Asian Tiger economies and is one of Asia's most business friendly jurisdictions.
Originally colonized by the British between 1842 to 1997, Hong Kong island, Kowloon and the New Territories attracted substantial foreign investment during the colonial years before continuing high economic growth during the late 20th and early 21st century. Hong Kong is one of the Four Asian Tiger economies and is one of Asia's most business friendly jurisdictions.
Hong Kong: Overview
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Hong Kong is a highly prosperous special administrative region focused on the financial industry. As a respected offshore jurisdiction, multi-national companies also establish themselves within Hong Kong, primarily as a transitory point to entering the Mainland China market.
With a highly educated workforce, Hong Kong offers a combination of Eastern lifestyle with an internationally respected British Law system. This has been a contributing factor in the success of Hong Kong as a capitalist system within the 'one country, two systems' of the People's Republic of China. Consisting of Hong Kong Island, the Kowloon Peninsula, New Territories and Outlying Islands (e.g. Lantau, Lamma), Hong Kong is one of the major transit hubs in Asia. With connections to all corners of the world via air and numerous high speed rail options into Mainland China, this strategic location offers the 'best of both world's' to capable investors. |
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Areas of Hong Kong
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There are five main districts of Hong Kong per the following:
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Guangdong Macau Hong Kong Greater Bay Area
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The Guangdong Macau Hong Kong Greater Bay Area, also known simply as the Greater Bay Area (GBA) is a concept to develop a large metropolis encompassing cities within the Pearl River Delta and China's Special Administrative Regions. With a variety of different transportation options connecting all the cities, the aim of the Greater Bay Area is to rival America's 'Silicon Valley' through combining the manufacturing, technology and finance sectors of Southern China. The Guangdong Macau Hong Kong Greater Bay Area includes the following cities:
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By combining the financial sectors (Hong Kong) with high technology sectors (Shenzhen), manufacturing prowess (Guangdong Province) and entertainment (Macau), the development of the Greater Bay Area will benefit the large populace living within Southern China.
Business Operations in Hong Kong
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Hong Kong is one of the easiest places to conduct business in the world - ranking number 3 in the World Bank 'ease of doing business' rankings for 2019. Combining common law with the benefits of a financial center and offshore hub, Hong Kong welcomes investors and entrepreneurs from all over the world.
Aside from the ease of doing business, Hong Kong also offers numerous opportunities through its strategic location and integration with Mainland China. From trading companies to distributors, property development, investment banking and service sectors, the mix of companies thriving in Hong Kong is endless. With a low tax regime and offshore tax exemption for qualified companies, Hong Kong offers one of the best locations to establish business operations in all of Asia. |
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Forming a Company in Hong Kong
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Establishing a company in Hong Kong is a very simple process, only taking a couple of days and requiring minimal fees/investment. Moreover, Hong Kong offers the perfect 'bridge' for investors seeking to enter the Mainland China market whereby a Hong Kong head company can be established with the Mainland China company operating as a subsidiary. This structure can offer both tax benefits and an ease of entry into establishing within Mainland China.
With a ‘parent’ company structure established in Hong Kong, investors have the option to enter China with distribution agreements or representative offices. The below details include the different types of entities that can be incorporated within Hong Kong, with the most common being companies, sole proprietorship and partnerships. |
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Company Formation Procedure
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The Hong Kong company formation process for a Local Limited Hong Kong company is outlined as follows:
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For the processes involving other types of companies - they're largely the same but for specific details, please contact us directly.
Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes and assist with formation in Hong Kong. International Investors
Hong Kong is an internationally recognized financial center and largely welcomes international investors. With a highly educated workforce, favorable tax policies and common law jurisdiction, Hong Kong is an excellent location to establish as an international investor.
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Corporate Taxes
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Being a simple and low tax regime, the Hong Kong tax system is favorable compared to the vast majority of jurisdictions but there are nonetheless, taxes that investors should be aware of in advance. There are a few different corporate taxes within Hong Kong as outlined below:
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Where to Establish in Hong Kong
This depends upon your business type and goals for doing business in Hong Kong. Some investors choose to open an office in different areas of Hong Kong - whereby the rent is most expensive on Hong Kong Island and it becomes cheaper moving closer to Mainland China. Other companies also choose to operate a 'virtual address' where their company secretary provides a virtual address to receive correspondence and give a public presence in Hong Kong, without having to open a company.
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Tax-Friendly Policies
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Within Hong Kong, there are a number of tax incentives available for businesses incorporated in Hong Kong. Some of them include the following benefits:
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Financial Markets in Hong KongThe Hong Kong Stock Exchange (HKEX) is one of Asia's oldest stock exchanges and the third largest in Asia (behind Tokyo and Shanghai). With over 2,000 listings, the Hong Kong Exchange offers a highly liquid market in a world financial centered jurisdiction with exposure to Mainland China but without the capital controls associated. A brief overview of the Hong Kong stock exchange is outlined below
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Hong Kong Stock Exchange (HKEX)
The Hong Kong Stock Exchange is the third largest stock exchange in Asia (behind Tokyo and Shanghai) in terms of market capitalization.
With a strategic location and listing numerous companies with exposure to the Mainland China market, the Hong Kong Stock Exchange is a highly liquid exchange. Stocks are priced in Hong Kong Dollars (HKD) and investors are encouraged to gain a further understanding of the different options on the Hong Kong Stock Exchange. |
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Hong Kong Stock Exchange (HKEX) Securities & Products
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On the Hong Kong Stock Exchange (HKEX), there are a number of different listed securities, derivatives and OTC derivatives including the following:
Securities:
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Other ways to get exposure to Hong Kong Stocks
Aside from the aforementioned ways to gain exposure to Hong Kong, investors also have options to invest in Index Funds and Hong Kong stocks listing in US markets. There are a number of different Hong Kong related Exchange Traded Funds (ETFs) and some of the larger individual Hong Kong stocks listing on American stock exchanges include Sun Hung Kai Properties Limited (US OTC: SUHJY), Hong Kong Television Network Limited (US OTC: HKTVY) and AIA Group Ltd. (US OTC: AAGIY).
Most brokers will offer access to Hong Kong exposure Exchange Traded Funds as well as individual stocks listed on the US bourses.
The pro-business climate within Hong Kong should continue to offer investors a number of opportunities to invest within Hong Kong itself and the overall Mainland China market.
Most brokers will offer access to Hong Kong exposure Exchange Traded Funds as well as individual stocks listed on the US bourses.
The pro-business climate within Hong Kong should continue to offer investors a number of opportunities to invest within Hong Kong itself and the overall Mainland China market.
Foreign Exchange
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Commencing in 1983 following the 'Black Saturday' crisis, the linked exchange rate system in Hong Kong was adopted through a 'peg' of the USDHKD at a rate of 7.80. Backed by one of the world's largest foreign reserves, the Hong Kong Dollar has been pegged to the USD ever since between 7.75 - 7.85 HKD/USD.
This policy has greatly benefited Hong Kong and helped establish its dominance as a global financial center, in addition to the other structural benefits of adopting a fixed exchange rate (devalued currency, cheaper exports etc.). Moreover, unlike Mainland China, Hong Kong hasn't implemented currency controls, allowing the free movement of funds worldwide. Mainland China citizens and companies often utilize Hong Kong cross border remittance services for both inflows and outflows to bypass the capital controls within Mainland China. |
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Listed Derivatives:
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OTC Derivatives:
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Commodities
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Being the 5th largest export economy in the world (due to goods being shipped from Mainland China via Hong Kong), Hong Kong has one of the larger GDP per capita (at USD $58,000) in the world.
The economic growth of Mainland China over the past few decades has particularly benefited Hong Kong during this period and lead to an infrastructure boom across all of China with high demand in particular for infrastructure related commodities (energy and metals) as well as exports of manufactured/soft commodities. With a total size of 1,100 square kilometers and approximately 4% of this consisting of water, Hong Kong relies on Mainland China for over 90% of its food including meat, rice and vegetables, electricity, fresh water as well as fuel supplies. Nonetheless, Hong Kong does have some natural resources (albeit very limited) including the following:
Some of the top commodities Hong Kong imports include:
Aside from commodity imports, other notable Hong Kong imports (non-commodities) include the following:
As for exports, this can be further divided into commodity exports and other manufactured exports. Commodity Exports:
Other Notable Exports:
The Hong Kong Stock Exchange offers commodities to trade including USD Gold, CNH Gold, CNH Silver, USD London Metal Mini (Aluminium, Zinc, Copper, Nickel, Tin & Lead Mini Futures), CNH London Metal Mini (Aluminium, Zinc, Copper, Nickel, Tin & Lead Mini Futures), USD TSI Iron Ore (Monthly & Quarterly Contracts) and Commodities Index (USD and CNH Gold Futures Indices). |
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Cryptocurrency in Hong Kong
Within Hong Kong, cryptocurrencies aren't prohibited either through trading or possession of what the regulatory authorities deem as 'non-SF virtual assets'. There are regulations on ICO listings. Cryptocurrency is permitted provided they're possessed & traded in 'good faith' and aren't considered monetary commodities.
Property in Hong Kong
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Hong Kong has the most expensive housing market in the world in 2020 with an average property price of USD $1.25 million. Despite the protests and sluggish economy throughout 2019 and the pandemic in 2020, Hong Kong property has maintained its world's most expensive title. Moreover, aside from the high costs to purchase, rent is also extremely expensive, owing to a tight housing supply (due to various policies). All Hong Kong property is leasehold (as opposed to freehold), which is typically granted for 50 years (although in the past it has been 75, 99 or 999 years) and Hong Kong allows foreign ownership of property, albeit with some additional taxes in recent years to help cool down the market.
Within Hong Kong, pricing of housing varies between different locations, with Hong Kong Island retaining the most expensive districts followed by Kowloon and the New Territories. Specific details of Hong Kong's housing market can be provided upon request. |
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International Investors & Hong Kong Property
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Foreign Investors, overall can purchase certain types of properties within Hong Kong and rent them out. However, citizens from the following countries/jurisdictions are not permitted to purchase properties in Hong Kong:
Aside from the above restrictions, most foreign investors can invest into the Hong Kong property market subject to specific circumstances and investment type. |
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Property Taxes
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The property market in Hong Kong has contributed to a significant imbalance and wealth disparity within the Hong Kong economy where entry level purchases are largely un-affordable. Apartments located on Hong Kong Island are substantially more expensive than those located within the New Territories but overall, pricing remains elevated throughout the jurisdiction.
The Hong Kong Special Administrative Region Government further imposed an additional 15% buyers' stamp duty for property sales to foreign investors. This is in addition to extra stamp duty fees for second home purchases as well as homes that are resold within three years of initial purchase (to reduce speculation). When purchasing a property in Hong Kong, investors should be aware that there are a number of fees associated in doing so. Some of these fees include the following:
There are further specific property taxes relating to renting properties and other details - to find out more, please contact our team. |
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Best Locations to Purchase Property
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Overall, many analysts view Hong Kong's property market as overpriced and in a bubble with substantial risks associated with the Hong Kong protests and US/China trade war, among other things. However, Hong Kong has maintained a buoyant (and expensive property market), continuing to maintain the title of the world's most un-affordable property market.
Some of the more better value locations within Hong Kong to purchase property (after larger price declines in 2019 from earlier overvalued levels) include the following areas: Hong Kong Island:
Kowloon:
Further details will be provided as new figures become available following the re-opening of Hong Kong's economy post COVID-19 pandemic. Price declines will likely be more widespread due to a number of different economic and political factors. |
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Venture Capital/Private Equity in Hong Kong
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Venture Capital in Hong Kong developed in line with the other developed countries of Asia during the late 1980s and into the 21st century with the creation of internationally recognized companies and as a gateway to/from Mainland China. With the rapid development of the People's Republic of China and the substantial investor funds flooding in, Hong Kong has benefited enormously with venture capital & private equity firms establishing within both Hong Kong and Mainland China markets. The Hong Kong Venture Capital and Private Equity Association (HKVCA) was established in 1987 to encourage a vibrant venture capital and private equity scene within Hong Kong.
Some of the most famous companies/startups from Hong Kong include the following:
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