%20compressed.jpg)
Introduction
If your company considers establishing or expanding operations in Asia, Hong Kong may still be an ideal destination. It is a global financial center. And more than that. Hong Kong offers a rare combination of legal reliability, huge tax advantage, logistical convenience, a well-developed business infrastructure, and availability of international talents.
We hope this guide provides you with valuable and practical information regarding some key legal, tax, and employment issues applicable to operating business in Hong Kong.
Choosing the Right Business Entity
In Hong Kong, there are three main options. Each has different implications for tax, liability, compliance, and market activities.
Incorporation: Private Limited Company (Ltd)
This is the most commonly used structure for foreign-owned businesses in Hong Kong. It is an independent legal entity from its shareholders. It has its own name, can own property, enter into contracts, sue or be sued in its own name. Similar to the same concept of a limited liability company in any other jurisdiction, liability is limited to the Hong Kong company’s assets, offering strong protection for directors and shareholders. In addition, a private limited company is easy to be incorporated and benefits from Hong Kong’s favorable tax regime.
Key Requirements for Incorporating a Private Limited Company
- Have at least 1 Director: At least one natural person director is required, but there is no requirement for directors to be Hong Kong residents or nationals.
- Have a “local” Company Secretary: Such role must be a Hong Kong resident or a local corporate service provider. The secretary is responsible for maintaining statutory books and filings.
- Have a “local” Registered Office: The company must maintain a local registered address. This is where legal documents will be served.
- Disclose Shareholder(s): Can be individuals or corporate entities. 100% foreign ownership is allowed.
- No Capital Commitment: There is no minimum capital requirement.
Setting up a private limited company is relatively quick (5–7 working days) and involves the following key steps:
- Company Name Approval: Conduct a name search and reserve your company name through the Companies Registry’s online portal.
- Prepare Incorporation Documents: Key documents include the Articles of Association, a completed incorporation form (Form NNC1 for companies limited by shares), and identity proof of directors and shareholders.
- File with the Companies Registry: Submit the application online or in person. Once approved, you’ll receive a Certificate of Incorporation.
- Obtain Business Registration Certificate: Register the company with the Inland Revenue Department to obtain your Business Registration Certificate, which is required for conducting any business in Hong Kong.
- Open a Corporate Bank Account: Choose a local or international bank operating in Hong Kong. Banks will often require:
- Certified copies of incorporation documents
- Business plan
- Proof of address and identity for directors and beneficial owners
- Know Your Customer (KYC) documentation
FYI, setting up a bank account can take 2–4 weeks depending on the bank and complexity of the ownership structure.
Incorporation of a private limited company is suitable for a wide range of commercial activities, from trading and consulting to all sorts of tech business or financial services. It is likely the best option for SMEs seeking to have a formal operation in that region.
Branch Office
A branch office is not a separate entity and still part of the parent company. While it can carry out commercial activities in Hong Kong, the foreign parent remains liable for the branch’s obligations and debts. A branch must also register with the Companies Registry and the Inland Revenue Department.
Multinational companies, such as many financial institutions, looking to establish a direct presence without setting up a new legal entity often choose this option.
Representative Office
This option is ideal for companies that want a presence in Hong Kong for marketing, sourcing, or research purposes, but do not intend to generate revenue locally. A representative office cannot sign contracts, issue invoices, or receive payment for services or goods in Hong Kong.
This option fits the needs of early-stage market exploration, liaison activities, or regional coordination without commercial operations.
However, it’s worth noting that a rep office is not recognized as a legal entity in Hong Kong and is not the option you look for if your company intends to engage in sales or substantive business operations in Hong Kong.
Understanding the most business-friendly tax regimes in the world
In terms of tax, Hong Kong stands out. It is not a tax haven with questionable reputations, but a transparent, well-regulated economy with a straightforward business-friendly tax system.
In my view, Hong Kong is the most business-friendly tax environment in the world. It has very low corporate tax, no capital gains tax, no withholding tax, and no VAT or GST. The appeal is clear - it is simple, predictable, and efficient - everything businesses need.
NO Capital Gains Tax
Similar to Singapore and UAE, Hong Kong does NOT tax on gains from the sale of shares, assets, or business interests, unless such activities are considered a trade. It means no tax on capital gain and only frequent, active trading may be taxed as business income.
For example, if your business or your family office has long-term investment in crypto, Hong Kong is one of the top choices for you to engage in such investment activities because profits from the sale of crypto assets (if not treated as "trading income") are not taxed.
NO Value-Added Tax (VAT) or Goods and Services Tax (GST)
Better than Singapore or UAE (and of course better than most other jurisdictions), China, Hong Kong does not impose any VAT or GST, either.
NO Withholding Tax on Dividends, Interests or Royalties
Again, most countries impose withholding tax as a default (may sometimes allow reductions through tax treaties). Only Hong Kong (and a couple of tax havens) does not charge withholding tax on any dividends, interests or royalties payments to foreign entities. This obviously makes Hong Kong very attractive for you structuring holding companies or IP-licensing arrangements.
Low Corporate Income Tax
The standard corporate income tax rate in Hong Kong is 16.5% (and the first HKD 2 million (appro. US$ 258,000) of profits is taxed at a reduced rate of 8.25%.)
It means that the effective corporate income tax rate in Hong Kong ranges from 8.25% to a maximum of 16.5%, applied to net profits after all business expenses are deducted.
Comparatively speaking, Hong Kong's standard corporate income tax rarte is one of the lowest in the world. For example, Singapore 17%, China 25%, U.K. 25%, India 25%, U.S. 25-30% (federal and state combined), Canada 26.5% – 31% (federal and provincial combined).
Low Personal Income Tax
Hong Kong's personal income tax structure is still another strong justification as to why many companies (and global talents) would choose the city as their regional headquarters or residence.
Hong Kong operates a straight and low-rate tax system with graduated rates ranging from 2% to 17% of net chargeable income after deduction and allowance. Or, there is the flat rate of 15% on net income minus allowance. The taxpayer pays the lower of the two calculations. Similar to its policy on corporation tax, Hong Kong does not charge people interest income, dividends, and capital gains.
Apparently, Hong Kong's personal tax regime is appealing, compared to many other territories, e.g. the United States (up to 37%), China (up to 45%), the United Kingdom (up to 45%), Australia (up to 47%), and Canada (up to 53%).
Territorial Tax System
Unlike most countries that tax your income globally, Hong Kong only taxes business profits earned from activities carried out within the city. In other words, only profits arising in or derived from Hong Kong are subject to profits tax at 16.5%. Offshore profits are generally not taxed—even if your business is incorporated or managed from Hong Kong—as long as those profits are generated entirely outside the territory.
Here’s a practical example: if your Hong Kong company coordinates sales, but the contract is signed and fulfilled overseas—say, products are shipped directly from a factory in China to a buyer in Europe—that income may qualify as offshore and fall outside of Hong Kong’s tax net. Of course, this only applies if the business is properly structured and backed by the right documentation.
And this territorial principle isn’t just good for companies—it also benefits individuals. In Hong Kong, salaries tax only applies to income from work physically performed in the city. So, if you’re working for an international company and spend most of your time outside Hong Kong, your income may not be subject to local tax. For founders, executives, or remote teams, that flexibility can be a big advantage—as long as you can clearly show where the work was done.
NO Tariffs
One more reason businesses love using Hong Kong as a hub: it’s a true free port—there are no customs duties or tariffs on the vast majority of goods entering or leaving the territory. Whether you’re importing electronics, exporting finished products, or moving components through Hong Kong as part of a global supply chain, you won’t be hit with extra taxes at the border.
There are also no general licensing requirements for most imports and exports, which makes cross-border trade faster, cheaper, and more predictable. This kind of customs simplicity is a big advantage for manufacturing, trading, and distribution companies using Hong Kong as their regional headquarters.
NO foreign exchange control in Hong Kong.
Different from many jurisdictions in Asia like China, Taiwan, India, Vietnam or even Indonesia, Hong Kong does not have any foreign exchange control. Companies can move capital in and out of Hong Kong freely, and there are no restrictions on currency exchange, profit repatriation, or foreign remittances.
Hiring in Hong Kong: Employment Law, MPF, and Visas
In terms of employment law, Hong Kong is a pro-business regulatory environment balanced by statutory protections for employees.
Employment relationships in Hong Kong are primarily governed by the Employment Ordinance (Cap. 57). This law applies to all employees working under a contract of employment, whether full-time, part-time, local, or expatriate.
No "At-Will" Employment
Unlike in the U.S., you cannot terminate an employee in Hong Kong without notice or cause. Termination must follow either the agreed contractual notice period or statutory requirements, and may trigger severance or long service payments.
Employment Contracts
Employment contracts should be in writing and specify at least such matters as (i) job title and duties, (ii) work location and hours, (iii) remuneration, bonus, and leave entitlements, and (iv) termination notice and conditions. It is important to note that businesses should always use a Hong Kong-compliant contract if the person is working in Hong Kong, even when sending employees on secondment from another country.
Statutory Entitlements
Employees in Hong Kong are entitled to the following statutory protections.
(1) Minimum wage: Statutory Minimum Wage (SMW) has been raised to HK$42.1 per hour with effect from 1 May 2025.
(2) Statutory leaves: Employees in Hong Kong are entitled to (i) statutory holidays and annual leave based on length of service. (ii) Statutory sickness allowance payable after four consecutive days of sick leave with a medical certificate. (iii) 14 weeks of maternity leave (paid by employer) and 5 days of paid paternity leave.
(3) Severance and Long-Service Payments: Employees dismissed after two years of service are entitled to these payments unless dismissed for cause.
Mandatory Provident Fund (MPF)
If you’re hiring in Hong Kong, you’ll need to enroll your local employees in the MPF retirement savings scheme—a legal requirement for most staff aged 18 to 64. There are some exceptions for expats employed in Hong Kong for fewer than 13 months or employed under an overseas pension scheme.
Both the employer and employee contribute 5% of income on a monthly basis up to a maximum of HKD 1,500 (2025 rates).
Hiring Foreign Talent in Hong Kong
If your Hong Kong company—a new subsidiary of a foreign corporation—is planning to hire non-local employees or relocate senior employees to the city, it is important to understand how Hong Kong's work visa system works. Most employment visas fall under the General Employment Policy (GEP).
Essentially, Hong Kong's system aims to protect local employment opportunities, but still allow room for foreign professionals who have skills and expertise in short supply in the territory.
To qualify to have a work visa granted, the company being interviewed must prove that:
- The position requires specialist expertise or experience not readily available in Hong Kong.
- The candidate has the appropriate qualifications—generally a university degree—or satisfactory, relevant work experience.
- The job description fits the qualifications of the candidate, and the suggested pay is on par with the local market for similar jobs.
In addition to supporting the hiring, the company should also demonstrate that it has the funds to support the employee. This usually involves showing:
• Up-to-date bank statements with adequate operating capital
• Contracts, invoices, or other proof of ongoing business activities
Even if your company is newly established, as long as there is a legitimate business with proper documentation and a genuine need for the job, a work visa application can go through successfully.
Final Thoughts
Starting in Hong Kong is about choosing a business environment that gives you the legal certainty, tax advantages, and global mobility to grow with confidence.
Trustiics connects you with vetted lawyers who understand the realities of international business.
Have a question? Email us anytime atsupport@trustiics.com or book a consultation today.