Hong Kong’s strategic location in the heart of Asia, business-friendly environment, advanced infrastructure, skilled workforce, and access to the Chinese market make it an ideal destination for foreign business in Hong Kong setup and expansion. Additionally, the article explains why setting up a business in Hong Kong to invest in mainland China is advantageous. Hong Kong’s status as an important offshore RMB and international financial center, as well as the strong and long-standing relationship between European companies in Hong Kong or US companies in Hong Kong, are also mentioned.
Foreign business in Hong Kong looks to the long term generally
1. 5 reasons encouraging the foreign business to expand in Hong Kong
Hong Kong is well-known for its business-friendly environment, strategic position, and advanced facilities. It is a popular choice for entrepreneurs and international companies looking to extend their presence in Asia. The following are 5 main reasons why Hong Kong is desirable for foreign businesses to establish long-term.
- Strategic Location
Hong Kong is strategically located in the heart of Asia, making it an ideal location for business expansion. It is within a five-hour flight radius of half of the world’s population, including China, Japan, and South Korea.
- Business-Friendly Environment
Hong Kong has consistently been ranked as one of the world’s freest economies, with a business-friendly environment and low tax rates. Its legal system is based on English common law, and it has a transparent and efficient regulatory framework that supports business growth and development.
- Advanced Infrastructure
Hong Kong has a highly advanced infrastructure, including world-class transportation, telecommunications, and logistics networks. Its state-of-the-art airport and seaport facilities make it a hub for international trade and commerce.
- Skilled Workforce
Hong Kong has a highly skilled and educated workforce with proficiency in multiple languages, including English and Mandarin. Its universities and business schools are among the top-ranked in Asia, providing a steady supply of talents for businesses.
- Access to Mainland China
Hong Kong has unique advantages in terms of access to the mainland Chinese market. Its proximity to mainland China, coupled with the Closer Economic Partnership Arrangement (CEPA), allows Hong Kong businesses to enjoy preferential access to the Chinese market, including lower tariffs and easier market entry.
Hong Kong’s strategic location, business-friendly environment, advanced infrastructure, skilled workforce, and access to the Chinese market make it an ideal destination for business setup and expansion. If you are an entrepreneur or a foreign business looking to tap into the Asian market, Hong Kong should be at the top of your list.
2. Setting up a business in Hong Kong to invest in mainland China?
Hong Kong is one of the top business cities in the world. It has one of the world’s most adaptable and supportive corporate governance frameworks. The following are some advantages of investing in China through Hong Kong corporations.
- Double Tax Agreement (DTA) – Comprehensive
DTA between China and Hong Kong China and Hong Kong entered into a comprehensive DTA in August 2006 to replace the limited scope agreement signed in 1998. The comprehensive agreement took effect on 1st January 2007 in China and on 1st April 2007 in Hong Kong.
The comprehensive agreement includes provisions that benefit Hong Kong enterprises that invest in China. The table below briefly illustrates the tax benefits relating to dividends for a foreign investor (Parent Company) to invest in China via a Hong Kong holding company.
- Closer Economic Partnership Arrangement (CEPA)
CEPA is the first free trade agreement concluded between China and Hong Kong. Under CEPA, both sides have agreed to enhance cooperation in trade and investment promotion to improve the overall business environment. Hong Kong Service Suppliers (HKSS) can enjoy greater liberalization measures compared to foreign investors when entering China‘s service sectors. Professional bodies in Hong Kong and the regulatory authorities in China have also signed several agreements or arrangements on mutual recognition of professional qualifications. Since the signing of the main text of CEPA in June 2003, another eight supplements have been signed between 2004 and 2011 to further enhance the liberalization measures for various service sectors. CEPA opens the door for Hong Kong enterprises to have greater access to the Mainland market. Foreign investors with business establishments in Hong Kong may leverage the CEPA benefits to tap the vast opportunities of the Mainland market
- RMB offshore center
Hong Kong serves as a critical link for money flows between China and the rest of the globe. In 2004, Hong Kong became the first place outside China to conduct personal renminbi (RMB) business. Since then, the Hong Kong Government has been actively investigating with Mainland authorities the introduction of new forms of RMB business in Hong Kong, to further improve Hong Kong’s financial system’s ability to handle RMB-denominated transactions. The Chinese Government also actively supports the growth of the RMB market in Hong Kong. Starting from July 2011, eligible enterprises in China can settle cross-border trade in RMB with their trading counterparts in all foreign countries and jurisdictions. This further strengthens the status of Hong Kong as an important offshore RMB and international financial center.
3. Trade picture of European companies in Hong Kong
Hong Kong and the European Union (EU) share a strong and long-standing relationship. The EU is one of Hong Kong’s largest trading partners and investors, with a significant presence in the city’s business landscape. This article provides an overview of the European companies in Hong Kong.
- European companies in Hong Kong at the glance
Bilateral commercial relations between the EU and Hong Kong are often reviewed during yearly Structured Dialogue sessions, which have been conducted every year since 2007 and include representatives from the European Commission and the Hong Kong administration. Here is the overall economy of European companies in Hong Kong.
- In 2018, Hong Kong was the EU’s 20th largest goods trading partner and its 8th trading partner in Asia. After China, the EU is Hong Kong’s second-largest trading partner.
- Machinery, transportation equipment, and telecommunications equipment dominate EU imports from Hong Kong. Machinery and transport equipment, telecommunications equipment, chemicals, and other semi-finished items dominate EU exports to Hong Kong.
- EU-Hong Kong trade in commercial services has been consistent in recent years. The primary sectors of EU-Hong Kong service trade are air transport and transportation, business, and financial services.
- According to data on foreign direct investment, the EU has been a key source of foreign direct investment in Hong Kong. Hong Kong was the EU’s third-most popular FDI destination in 2017.
- According to the most recent study conducted by the Hong Kong SAR government (2018), over 2,200 EU firms have established their operations in Hong Kong, with around half of them having Hong Kong as their regional headquarters or regional offices. The EU’s commercial footprint spans a wide range of industries, namely financial and business services, trading, logistics, construction, and retailing. EU firms have important roles in a variety of areas of the Hong Kong economy, including banking, insurance, and securities.
4. Some potential reasons why European companies have to expand in Hong Kong
Hong Kong is an exciting market with many of the advantages listed above. In this part, we’ll cover some key reasons to explain why European firms select Hong Kong as a commercial haven.
- Trade Relations
In 2020, the EU was Hong Kong’s third-largest trading partner, with total trade amounting to HKD 354 billion (USD 45.5 billion). The EU is also one of Hong Kong’s largest sources of imports, with products ranging from machinery and equipment to pharmaceuticals and food products.
- Investment Relations
The EU is a significant investor in Hong Kong, with a total stock of foreign direct investment (FDI) of HKD 644 billion (USD 82.9 billion) in 2020. EU companies are active in a range of sectors in Hong Kong, including finance, logistics, and professional services. Meanwhile, Hong Kong companies have also invested in a range of sectors in the EU, including energy, telecommunications, and real estate.
- Bilateral Agreements
The EU and Hong Kong have entered into a number of agreements aimed at strengthening trade and investment relations. These include the EU-Hong Kong Free Trade Agreement (FTA) and the Investment Agreement, which provide for the elimination of tariffs and non-tariff barriers, as well as the protection of investments.
- Business Environment
Hong Kong’s business environment is known for its openness, transparency, and ease of doing business. The city’s legal system is based on English common law, providing businesses with certainty and predictability in their operations. Hong Kong also has a highly developed infrastructure, including modern transportation systems and world-class telecommunications networks.
5. Overview correlation of US companies in Hong Kong
Hong Kong is a Special Administrative Region of the People’s Republic of China (PRC), with an independent customs territory and economic entity. US policy towards Hong Kong is to promote its prosperity, autonomy, and way of life. However, after the PRC’s decision to impose national security legislation, the US suspended or eliminated special and differential treatment for Hong Kong, including with respect to export controls, imports, immigration, and cultural exchange programs. Hong Kong is active in counterterrorism efforts and has passed legislation to comply with UN anti-terror resolutions and most Financial Action Task Force recommendations. The US and Hong Kong signed a Tax Information Exchange Agreement in 2014. Some challenges for US companies in Hong Kong:
- Political instability: Hong Kong’s ongoing political and social unrest, including the implementation of the National Security Law, has created uncertainty and risks for US companies operating in the city.
- US-China trade tensions: The ongoing trade tensions between the US and China have created challenges for US companies doing business in Hong Kong, particularly those that rely on China as a market or a source of supply.
- Rising costs: The high cost of living and doing business in Hong Kong can be a challenge for US companies, particularly those that are small or medium-sized enterprises.
- Language barrier: Many business transactions in Hong Kong are conducted in Cantonese or Mandarin, which can be a challenge for US companies that do not have a strong presence in the region or do not have employees who are fluent in these languages
Although US companies in Hong Kong have to face a lot of challenges, the advantages for expanding to Hong Kong outweigh the disadvantages.
Conclusion
In conclusion, Hong Kong is a heaven environment for foreign business due to its strategic location, business-friendly environment, advanced infrastructure, skilled workforce, and access to the Chinese market. Hong Kong is an ideal destination for entrepreneurs and international companies looking to expand in Asia. With its Double Tax Agreement, Closer Economic Partnership Arrangement, and RMB offshore center, foreign investors may leverage on the benefits to tap the vast opportunities of the mainland market through Hong Kong corporations. Additionally, Hong Kong’s strong and long-standing relationship with the European Union makes it a popular choice for European companies. Hong Kong’s stable economy, robust legal system, and efficient regulatory framework make it a dynamic business hub that attracts investors and businesses from around the world.
