Hong Kong 22 Years After the Handover: A Business Lawyer’s Perspective

Hong Kong 22 Years After the Handover: A Business Lawyer’s Perspective

Hong Kong 22 Years After the Handover: A Business Lawyer’s Perspective 680 850 Gary Wong
Reading Time: 6 minutes

Hong Kong is one of the first business hubs in the Asia Pacific region as well as globally. In this article, we give you several compelling reasons on why you should set up and operate a business in Hong Kong.

Geographic and cultural advantages

Not only Hong Kong is located right at the centre of East Asia – nestled between different business cities in Southeast Asia, Korea, Japan, India and Australia – but especially its proximity to Mainland China offers incredible opportunities for worldwide and regional business and for entering the potentially huge China market. The location also offers a great convenience as most of these economic hubs are within the same time zone, or within a few hours ahead or behind.

In terms of doing business in Mainland China there’s also a huge advantage from the cultural point of view. Hong Kong expertise and talent are readily available in the territory. Information and facilities needed for market penetration and business development are one of the best Hong Kong assets. Cross-border transactions benefit from a sound regulatory framework: these include the Arrangement for the Avoidance of Double Taxation concluded between Hong Kong and China, which undoubtedly assigns the right balance to tax between the two jurisdictions, and the Closer Economic Partnership Arrangement (CEPA), which further lure Hong Kong- based companies to enter the China market. With the unreserved support of the Central and Hong Kong governments, as well as the business community, the constant development of CEPA has benefitted the expansion of both investment and trade in a wider range of industries, as well as contributed to having more significant economic benefits, as we have already highlighted in our previous article “A New Agreement on Trade in Goods under the Framework of CEPA Takes Effect Today”. In the future, Hong Kong will surely reinforce its strategic position in the region with the further development of initiatives as the Greater Bay Area and the Belt and Road Map.

Local and international pool of talents

Hong Kong is at the right and centre of an incredible pool of talents, who possess the skills, knowledge, languages, multi-cultural background and international outlook to drive business in Asia. Many locals have been educated in top educational institutions in the territory and well as overseas. Foreign talent is readily available also given the selective immigration and investment policies promoted by the Hong Kong SAR government which in the past decades have attracted a wide range of profiles who are readily available to employers. From the financial industry to retail business, from property to tourism, Hong Kong has become one of the most desirable locations to work and develop one’s career. Talents in specific areas – e.g. asset management, marine insurance, medical research, FinTech, data science, cyber security, innovation and technology – are in high demand.

A sound Rule of Law

Hong Kong has a deep-rooted legal system based upon the Rule of Law and the independence of judiciary. The Special Administrative Region has a strong system of law making, legal protection and legal enforcement, under a Common Law system that originates from its colonial past and continues to give confidence to the global and local business communities to protect their interests here.

Hong Kong has a strong commercial law encompassing all aspects of Intellectual Property protection, contract law, companies, finance, and competition regulation, giving confidence to business operators for every simple and/or sophisticated international commercial transaction. It has a highly regarded judiciary responsible for the administration of justice. The Court system is well-established and sophisticated, consisting of the courts of first instance, and appellate courts, with jurisdiction to hear and deal with all types of legal disputes. The Court of Final Appeal, the highest court, includes judges from overseas common law jurisdictions. Hence, the judiciary of Hong Kong enjoys a well-founded reputation of high quality and independence. In addition, the Hong Kong International Arbitration Centre is one of the leading alternative dispute resolution centres in the world.

The legal system of Hong Kong is separate from the Mainland’s. Its stability, sophistication and maturity remains a key factor for the international community and foreign investors, who can also rely on the availability of top-tier professional legal services handling local, regional and international issues.

Friendly Tax Environment

Hong Kong relies on a territorial tax system, under which Hong Kong residents (both corporate and individuals) are only taxed on their Hong Kong income, while foreign-source income is not subject to Hong Kong tax.

Hong Kong companies are thus liable to profits tax on their Hong Kong income at the standard rates of 8.25% for the first HK$2 million of profits and 16.5% beyond. Foreign-source income is, in principle, not subject to Hong Kong profits tax and companies deriving most of their profits from offshore activities may apply for an offshore income exemption, though such preferential tax treatment is not automatic and requires some level of tax investigation from the tax authorities.

Hong Kong individuals are subject to salaries tax on any income arising in or derived from an office, employment or pension in Hong Kong. Salaries tax is levied at progressive rates on the net chargeable income and is capped at 17%. However, the total salaries tax charged to an individual residing in Hong Kong shall not exceed 15% of that person’s net assessable income.

Hong Kong does not levy tax on capital gains, dividends and/or interest, and withholding taxes only apply to certain types of royalties (paid to non-residents for the use of intangible assets located in Hong Kong). There is no Value Added Tax (VAT) or Goods and Services Tax (GST) in Hong Kong, while Stamp and Custom Duties remain non-existent or marginal.

These tax rates are much lower than what other Asia cities can offer.

Simple Accounting and Tax compliance rules

Hong Kong accounting, tax and regulatory compliance are similar to international standards yet remaining quite simple and straight-forward.

Companies established in Hong Kong are required to keep and file financial statements in accordance with local accounting standards. With a view to attract foreign investors, Hong Kong Accounting Standards (HKAS) and Financial Reporting Standards (HKFRS) are largely aligned with internationally accepted principles (IFRS), which is not the case in Mainland China where precise accounting standards must be adopted. Moreover, simplified standards are existing in Hong Kong for Small and Medium Enterprises (SME).

Reporting obligations are rather simple too. A Hong Kong company must complete three yearly declarations, as follows:

  • Annual Return: Within 42 days from the anniversary of their incorporation, companies need to submit an Annual Return to the Companies Registry, recording key information and changes occurred during the previous year.
  • Employer’s Return: Every year in April, Hong Kong companies shall report the salaries paid to their staff (permanent, part-time or freelance) and subject these to Hong Kong taxation.
  • Profits Tax Return: At the end of their financial year, Hong Kong companies are required to complete and submit a Profits Tax Return to the Inland Revenue Department, together with a certified copy of their audit report. Hence, audit is mandatory in Hong Kong, though exceptions can sometimes exist with the endorsement of the tax authorities for very small businesses, even though this eventuality is not automatic and depends on certain specific situation.
Government support of Tech and Innovation industries

The Innovation and Technology industry is one of the key economic areas that the Government seeks to further develop. Some examples include:

The Innovation and Technology Bureau (ITB) formulates policies encouraging the further development of innovation and technology; strengthening the coordination amongst the administration, industry, academia and research sectors; and accelerating the growth of innovation, technology and other related industries in Hong Kong. The Bureau comprises an Innovation and Technology Branch and supervises the operations of the Innovation and Technology Commission (ITC) and the Office of the Government Chief Information Officer (OGCIO). The Innovation and Technology Fund (ITF), administered by the ITC, assists local companies to upgrade their technological level and promotes innovative ideas to their businesses.

The Technology Voucher Programme (TVP) was launched as a pilot program under the Innovation and Technology Fund (ITF) to subsidise local small and medium enterprises (SMEs) in using technological services and solutions to improve productivity, or upgrade or transform their business processes.

The Technology Fund for Better Living (FBL) helps innovation and technology projects which improve a more comfortable and safer living to the public in general, or the needs of specific community groups.

The Research and Development (R&D) Cash Rebate Scheme strengthens the research culture among business enterprises and encourages them to establish stronger partnership with selected local public research institutions. Under the scheme, a company will receive a cash rebate equivalent to 40% of its expenditure in R&D projects.


These all make Hong Kong an attractive business centre in Asia, and an ideal “testing ground” to assess and validate the potential of growth in the Asia Pacific region. The territory is, and is destined to remain, a service economy so it ought to stay on the leading edge of providing the highest level of service and confidence in the world to everyone doing business or visiting the city and use its services.

Our team at Hugill & Ip has extensive experience in dealing with commercial, investment and trade issues – so if you need further advice on these subject and other topics discussed, get in touch with us to find out how we can help.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

Gary Wong

Gary is a corporate lawyer advising companies, funds and individuals on M&A transactions, investments, licensing, commercial and regulatory matters.

All articles by : Gary Wong
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