The Challenges of Doing Business in Hong Kong

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Hong Kong is a world-class city-state and has always been recognized as one of the premier business hubs in Asia. It is the doorway to China for many businesses, but it is far easier to do business in the mainland. Because Hong Kong was a British protectorate for decades, nearly everyone you want to do business with speaks English, which makes it a natural choice for many American investors. Not to mention that it's a free port and very open to foreign trade. These are all points in favor of doing business in Hong Kong.

However, Hong Kong is not exactly like doing business back home. As a matter of fact, it is very different in many ways, which is why you need to be prepared before you make the jump. Let’s look at some of the challenges of doing business in Hong Kong.

Real Estate

Hong Kong is perhaps one of the most densely populated places on the planet, which comes with its fair share of challenges. For one, this makes it difficult to rent or buy a home in the city for your employees. You can lower costs by having a 45-minute commute, but even then, the apartment will be small. This is why you'll need to make efficient use of your space.

You should also expect to pay more for office space or a retail storefront. Office space in the business district of Hong Kong is so expensive that many businesses skip having a ‘real’ office. They instead let people work in coworking spaces or have a virtual office. This, however, could be a benefit to some who wanted to embrace remote work. On the other hand, you might also want to look at shared office spaces if you want to limit costs and you feel like you absolutely need a physical office.

Know that it is also harder to search for properties in Hong Kong. They don't have anything like the Multiple Listing Service, or MLS. You have to talk to realtors in each neighborhood because each one serves a small area. Registering property in the country takes about a month to complete.

Logistics

We’ve already mentioned that Hong Kong is a free port. The problem is getting goods from the port to consumers or from your warehouse to their front door. There can be significant delays that can add to the delivery time and shipping costs. This can make it harder to find computer equipment and office furniture for your business, too.

This makes eCommerce a far greater challenge than if you were in the United States, and is why people who were thinking of using this business model in Hong Kong might want to review their whole processes. They might not be able to offer things like free shipping, or next day express delivery, for instance. If this is a large part of your marketing back home, you may have to look at alternatives. This might also be an issue if you were in a sector that relies on fast delivery.

On the flip side, trading across borders is cheap, easy, and fast. Whether you're importing or exporting, it can take less than a day to complete the process for a given shipment and only a few forms are required. This is one of the reasons why Hong Kong has always been an epicenter for international trade in the reason, and why so many foreign investors set up shop there.

The Legal Aspects

Contrary to what some may imagine, establishing a new business in Hong Kong is rather simple. The first step is to pick a name. You then need to obtain a certificate of information and a business registration certificate. These are required to sign up for the Employee Compensation Insurance and Mandatory Provident Fund or MPF. Business registration is required to open a business bank account in Hong Kong, though you can open an account with an international bank.

However, know that there is a faster way to make it happen. One way would be to work with an employer of record (EOR) in Hong Kong. You could work with an employer of record like New Horizons and have someone with a local presence that can handle the administrative side for you. For example, they can pay salaries, handle tax withholding, and manage employee benefits. They'll also ensure that any non-disclosure clauses or training fees are included in the employment agreement that new hires sign. If you want to learn more about their services and what an EOR does, you can find employer of record information here.

We would recommend using an EOR rather than trying to bring in foreign employees since they are subject to different regulations. Foreign employees must have a work visa, for instance, which is not always easy. The only real reason to bring people in would be if they have skills or experience not available locally. Also, note that the work visa application can take up to two months to process.

Any business incorporated in Hong Kong must identify significant controllers and keep this list up to date with a significant controllers’ register. The SCR is not a public record but must be available to law enforcement on demand.

On the other hand, paying taxes is relatively easy compared to the rest of the world. The only taxes they charge are property tax, salary tax, and profits tax. There is no sales tax, value-added tax, or capital gains tax. So, if you were afraid of doing business in some of the neighboring countries with heavier tax codes, Hong Kong is the place to go.

Hong Kong also does a lot to protect businesses. Hong Kong has conventional data protection laws, and they were the first country in East Asia to pass such laws. Hong Kong has laws intended to prevent anti-competitive agreements and prevent abuse of market power as well. This can affect mergers and acquisitions.

Insolvency procedures are also very straightforward in Hong Kong when compared to other countries around the region. If your business becomes insolvent, expect it to take around 10 months. Hong Kong also does a better job of making creditors solvent. They get almost 90% of what they’re owed. In contrast, the regional average is closer to around 30%.

The Government’s Hand

One thing you have to know is that Hong Kong's government monitors the financial health of companies and can dissolve the company if it is at a standstill. This means you can't just set up a business; you have to run it, and you must fulfill your obligations to customers and suppliers to remain open.

Hong Kong gets points for its transparent and efficient regulatory environment. You’re not going to have to jump through as many hoops to start manufacturing or running a service business here as you would in other Asian countries. Less regulation also means faster development times, which is why it is still one of the most popular destinations for tech investors.

Hong Kong is one of the premier business centers in the world. However, this doesn't mean that there are not challenges to doing business in this part of the world, so make sure that you're well prepared for them.

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