Hong Kong is renowned for its ease of doing business. The city ranked third in the World Bank’s Ease of Doing Business Index and second in the Fraser Institute’s Economic Freedom of the World Index.
The high business efficiency and degree of freedom found in the territory fosters a favourable business climate, and makes it easy for Swedish companies to set up a presence or invest in Hong Kong. The advantages include:
Business friendly taxation system
The taxation system in Hong Kong is very permissive and is a major factor for attracting foreign businesses and investors. The corporate profit tax rate is low, between 8.25 per cent and 16.5 per cent, and businesses operating in Hong Kong benefit from a territorial source principle, only requiring taxation on profits originating in Hong Kong.
With mainland China counting as an overseas market, this opens up opportunities to reduce taxation for companies operating in China. Overseas businesses do not incur any capital gains tax, and there is no sales tax, VAT or withholding tax on dividends. This greatly reduces the cost of business in Hong Kong for many international companies.
Comprehensive legal system
A legal system that is comprehensive and accessible to outsiders is key to Hong Kong’s success. Hong Kong is the only common law jurisdiction within China, courts in Hong Kong have extra-territorial jurisdiction in mainland China for IP injunctions, and parties in arbitral proceedings in Hong Kong can apply for interim relief from mainland Chinese courts.
The established legal system with its commercial precedents provides flexibility and clarity for international companies doing business in the city, and makes it a preferred location for international dispute resolution.
At the same time, there are factors that add a level of complexity and uncertainty. Ongoing integration into China means that building an understanding of the mainland Chinese system is critical in order to maximise the value that Hong Kong has to offer.
While Hong Kong maintains a separate financial and judicial system, the autonomy of Hong Kong has been called into question with the enactment of the Hong Kong national security law and enforcement of articles under the Hong Kong Basic Law. Navigating this uncertain situation requires a deep grasp of the market, which can be difficult from the outside.
No foreign investment restrictions
Hong Kong is the world’s fourth largest recipient of Foreign Direct Investment (FDI), the seventh largest source of outgoing FDI, and about two thirds of China’s inward and outward FDI originates in or passes through Hong Kong. Hong Kong is also the world’s tenth largest exporter of merchandise trade, and 70 per cent of global RMB payments are settled through Hong Kong.
The free flow of capital facilitates international trade and underpins Hong Kong’s position as a key regional financial hub and the gateway to mainland China. Profits from business in Hong Kong can be freely converted and remitted, which makes Hong Kong an appropriate base for business with limited restrictions to maximise potential in the region.
THREE REASONS WHY HONG KONG IS A SOURCING AND LOGISTICS HUB
Hong Kong has long been a key sourcing hub in the region. Proximity to the manufacturing bases in southern China, combined with beneficial business and trade regulations and extensive free trade agreements, means that over 90 per cent of all imports to Hong Kong are re-exported.
Companies are attracted to Hong Kong for its high degree of connectivity and high standards of living, and the ease of living for international businesses and employees makes up for the high cost of living. Nearly half of all overseas and mainland Chinese companies in Hong Kong work in import/export trade, wholesale, and retail.
But now, as supply chains are being diversified, sourcing operations in Hong Kong have evolved from focusing on mainland China to now covering the entire region. Here are three reasons why:
- Strong expertise in sourcing and logistics
Hong Kong’s history as a sourcing hub has spawned a well-established logistics ecosystem and attracted top talent to the city. Today 40 per cent of Swedish companies in Hong Kong use their Hong Kong office as a regional hub for purchasing and sourcing, and permissive taxation creates access to warehousing and forwarding services with no tariffs or taxes incurred.
English is an official language and is widely used for business in Hong Kong, reducing the language barrier, and local staff and partners can fluently work between Swedish companies and Chinese stakeholders without the need for translators.
- Access to necessary logistics infrastructure
Hong Kong is in the world’s largest cluster of seaports and airports, the Hong Kong International Airport handles the most cargo in the world, and the shipping routes around Hong Kong are some of the busiest in the world.
Costs for warehousing are often higher in Hong Kong than in surrounding markets, but access to the necessary infrastructure to handle consolidation, distribution, and transhipments has convinced many multinational companies to set up warehouses for their regional operations out of Hong Kong.
- Strong presence of supportive industries
Whether it’s freight forwarding, insurance or trade arbitration, all supportive industries needed to facilitate sourcing and logistics are present in Hong Kong. With the city’s small size, they are always nearby, and the short distances have fostered a culture of flexibility and adaptability in Hong Kong in what is otherwise a rigid industry.
TIME TO SEIZE THE OPPORTUNITIES
With industries and sectors open to the world, Hong Kong presents numerous opportunities for companies ready to grasp them – and ready to navigate the fierce competition.
Business Sweden has supported Swedish businesses in Hong Kong with strategic advice and its local network since 1982. Together with our colleagues in China, the office in Hong Kong also covers Macao and southern China.
How can your company harness Hong Kong’s strategic location and growing opportunities? Contact our local office to find out.
