By Rashmi Pandya, COO of Macalvins and David Kerr, Commercial Director of Macalvins
Historically we have helped quite a few businesses establish and grow in Hong Kong, both setting up their initial base – planting their roots in a new business environment – or expanding a pre-existing business into the country’s market.
My experience of life in Hong Kong was a real eye-opener for someone used to doing business in the UK and US. The first thing is that the first 6 months are really important. The expat community is present, although diminished since COVID restrictions led to many people and businesses relocating to Singapore.
There are an abundance of clubs, chambers of commerce and events for people to build a network extremely quickly. Make sure you have something planned for every evening and don’t be shy in asking for introductions. Hong Kong is a vibrant place where people look to do business quickly, so having a network of contacts to help you get things done, is key.
So, I thought I’d take this opportunity to go over a few of the things we’ve learned through advising these clients.
Hong Kong’s taxes and how they affect your finances
Firstly, let me say that the tax code in Hong Kong is a pleasure to work with. It is widely considered one of the most streamlined and simple pieces of legislation of any nation.
(To put it into perspective, the British tax code is around 17,000 pages long whereas Hong Kong’s is only 300).
Having said that, there are a few taxes that you should be aware of before you make your move.
For personal tax purposes, you’ll have to pay:
- Salaries Tax – This applies to both your income and your pension and ranges from 2 per cent to 17 per cent. (There are allowances and deductions available to reduce this, however, such as residential property rental costs being tax exempt for expats).
- Property Tax – If you are planning on owning a property in Hong Kong, you’ll be subject to property tax at 15 per cent of the net assessable value.
When it comes to corporate taxes, you may have to pay Profits Tax.
As the name suggests, this is a tax on the profits that your company makes.
The current rate is 16.5 per cent for corporations and 15 per cent for unincorporated businesses.
On the positive side, Hong Kong’s tax system is territorial, so income sourced outside Hong Kong is generally not taxable.
Additionally, you will NOT have to pay:
- VAT or Sales Tax
- Dividend Tax
- Capital Gains Tax
- Inheritance Tax
The absence of the above taxes is hugely beneficial for any business looking to minimise their liabilities and means that Hong Kong is now considered one of the greatest locations for business in the world.
Bamboo scaffolding for modern skyscrapers
Hong Kong is a busy place, full of lights and life and to describe it as bustling is an understatement.
We often find that some of our clients are slightly unprepared for just how incredibly alive the city-state really is.
Due to its prominence as a business-friendly location, it has grown into one of the most technologically advanced countries, with skyscrapers and digital billboards to rival New York, Tokyo, and London alike.
It’s a city that never sleeps!
I worked on the 36 floor in Causeway Bay. One of my earliest lessons was to be prepared in the event of a fire alarm going off in the building. When it first happened in the office, descending the 36 floors was the least of my worries. The problem was getting back inside once the fire-crews had cleared the lifts for operations again. Trying to get over 7,500 people back into a building was not a queue I wanted to join!
Having said that, westerners are often surprised at the bamboo scaffolding that is used in the construction industry. It’s a welcome change to the steel poles used in the UK or US.
Perhaps this comes from a desire for more sustainable practices or is due to Hong Kong’s passionate defence of tradition, but either way, it looks truly incredible.
It is also a reflection of the wider society and business practices – based on tradition but build around a hub of innovation and growth.
It’s a green, but hilly, and sometime windy city
Hong Kong is hilly. Very hilly. There aren’t too many inclines in Kowloon – the area that’s connected to mainland China – but on the island of Hong Kong you might find yourself out of breath more than a few times during your daily commute.
In fact, the island is home to the longest covered outdoor escalator, the Central-Mid-Levels escalator, which climbs 443 feet (135 meters) and is 2,600 feet (800 meters) long!
In the morning, the escalator moves downwards to carry commuters into the financial district at the bottom. After the morning rush hour, it switches direction and travels upwards.
The hills themselves are often covered in greenery so if you love the outdoors and would like to get an impression of what the island used to look like, before the city grew into what it is today, it’s well worth a trek through the jungles.
If you don’t fancy hiking up into the hills, there are plenty of parks and green spaces to explore on the lower levels. It is an incredible place to visit and do business.
Finally, beware and be prepared for Typhoon season. These are real and credible threats to life and every precaution is made to ensure people’s safety. Once Typhoon level 3 is raised it is a legal requirement to allow all staff to return home before the winds make travel dangerous. So, ask staff members to be prepared to work from home.
The typhoons can last for days, and all shops and restaurants are shut and you are strongly advised to stay indoors.
For my first typhoon, I spent a weekend in my apartment with only instant coffee and crackers to survive on! So be prepared!
A note on Hong Kong’s greenness when it comes to tax
Not only is the place alive with vegetation, but the Hong Kong Government is also actively promoting environmental policies that can directly benefit your business.
For example, businesses purchasing eligible environmentally friendly vehicles can benefit from a 100 per cent deduction on the first-year capital expenditure.
Similarly, you can receive tax deductions for environmentally friendly upgrades made to buildings and properties.
In the 2021/22 budget, the Government also introduced the Green and Sustainable Finance Grant Scheme to support sustainable bond issuance and lending in the country.
So, it’s not just the hills that are green, it’s the taxes too.
Should you make the move to Hong Kong?
Judging by the increased interest in the country, Hong Kong is not just a passing trend.
It appears the island is becoming ever more popular with businesses looking to capitalise on the generous tax incentives and allowances that the Government is offering.
The fact that there are fewer taxes to pay, and those that you do pay are reduced, should also be a great motivator for your move.
If the above article hasn’t convinced you and you’d like to speak to a qualified tax adviser who can look at the situation of your business and tell you if Hong Kong is right for you, please don’t hesitate to get in touch.
Visit our contact page, call our team on +44 (0)20 8863 1234 or email more@macalvins.com