Starting a business in Hong Kong is a topic that has received a lot of attention as the city is one of the major financial centers of Asia Pacific. Yet, in helping hundreds of companies to expand across the region we have found out that there are aspects related to incorporating a business in Hong Kong that business owners are unfamiliar with.
To summarize the most important aspects foreign entrepreneurs need to understand about starting a business in Hong Kong we have broken down the article into the following sections:
What you will learn on the topic of starting a business in Hong Kong:
- Understand what business licenses you will need
- Plan your finances
- Consider the implications of your company structure
- Foreign businesses / entrepreneurs have a large option of support available
- Select Your Accounting System in Advance
- Join professional communities
- Understand your annual compliance obligations
1. Understand what business licenses you will need when starting a business in Hong Kong
Hong Kong businesses may not necessarily be ready to operate the moment they are incorporated. Business owners must also make sure that they have acquired all necessary business licenses in relation to their company operations.
The most common licenses you may need when starting a company in Hong Kong are:
- Education Business
- Travel Agency
- Employment Agency
- Restaurants / Bars
- Financial Services
- Event Management
Having helped many entrepreneurs incorporate their businesses, we have noticed that many of our clients would complete their Hong Kong company incorporation procedure, only to realize that they have not begun the process of obtaining their business license. This slows down their business’ development and inhibits their ability to operate efficiently.
This can potentially result in lost revenue which may be especially damaging if the business is attempting to acquire difficult to obtain licenses.
2. Plan your finances
Businesses of all sizes must have a plan for how they will finance the newly started business in Hong Kong and its operations. Coming up with, and following through with this plan is among the most stressful aspects of running a business.
Many business owners assume that the primary source of financing should be from their own personal savings, or acquired through funding via a venture capital firm, accelerator, or other third party investors. This is not necessarily true as Hong Kong offers multiple financing options that are not commonly recognized.
The Hong Kong government has numerous financing initiatives to help SMEs and entrepreneurs. Many of these initiatives are for specific purposes, such as the Employment Support Scheme which is designed to help Hong Kong SMEs pay the wages of their staff, or the Distance Business Programme which aims to help companies adopt solutions that can facilitate remote working. As such, business owners should take time to look at what financing resources are available to them and see which is most applicable for their business and goals.
3. Consider the implications of your company structure
Deciding the most appropriate company structure is imperative during the Hong Kong company formation process as it will help determine how your company operates and the extent of liabilities that the company’s shareholders may find themselves in.
In Hong Kong, a company limited by shares is most commonly utilized by SMEs. This is due to the fact that it offers strong protection to its shareholders. However, some entrepreneurs may find other structures, such as partnerships, more appealing.
As each company structure has their own strengths and weaknesses that may or may not work advantageously to specific businesses / business models, it’s important to take time to consider what your company needs and what company structure is best suited when starting a business in Hong Kong.
4. Foreign businesses / entrepreneurs have a large option of support available
Hong Kong is an incredibly business friendly environment, especially for foreign companies. Foreign SMEs or entrepreneurs have fantastic opportunities, especially when considering to expand their business into new geographies. Having said that, if you are looking to simply grow your business in Hong Kong itself, the city has a plethora of options available to support foreign businesses, helping them establish themselves in the city.
InvestHK, a Hong Kong government funded SME department has the following services to help foreign businesses.
- Provision of resources and practical information to assist entrepreneurs with the preliminary planning of their business
- Facilitating the smooth start of a Hong Kong business
- InvestHK can support a business’ launch via the provision of media and public relations support, free marketing and access to InvestHK events
- Provision of business networking opportunities, business matching and advice on how to utilize the Hong Kong government’s various initiatives and grants
5. Select your accounting system in advance
A proper accounting system is among the most useful parts of a company’s internal infrastructure. Not only do they help business owners better understand the health of their company, but will also help a business stay efficient and compliant with their audit and tax obligations.
At first, many entrepreneurs will not focus on this aspect of their business and will rely on manual accounting methods, such as utilizing excel spreadsheets. While this may work for a business initially, it becomes increasingly difficult to utilize these systems as a company grows. More often than not, manual accounting methods cannot keep pace with a company’s growth and will therefore, become inefficient.
Transitioning from a manual accounting system to another is a tedious process that businesses do not have to go through. This is especially true considering that transitions can be costly, and can result in accounting errors and inefficiencies during the transition process.
To avoid any complications with an accounting system, it is best to select a cloud based accounting system, like Xero or Quickbooks, that can grow with a business’ needs as necessary.
6. Join professional communities
Hong Kong’s SME community is extremely friendly and has demonstrated a willingness to help others when possible. For instance, there are frequent community events, seminars and networking sessions hosted by SMEs, for the purpose of providing others the opportunity to meet new individuals. These events not only provide potential leads, but also helps a company cement its place and role in the local community.
When starting a business in Hong Kong, don’t underestimate the strength of a good networking session! Participating in these events can create more traction for your business than you realize.
7. Understand your annual compliance obligations
If a company does not adhere to its annual compliance obligations, they may run the risk of incurring heavy penalties and/or fines. While these acts of non-compliance are more often than not the result of unintentional actions, incurring these consequences can have substantial impact on an SME. This is because these penalties / fines will result in large cash outflows for the Hong Kong company.
To make sure that a business does not come across any unexpected outlays, it is important to stay on top of your annual compliance obligations the moment your company is incorporated. Oftentimes, SMEs will engage a professional service provider who can assist them in meeting these obligations! We at Greenhouse work with a variety of great partners like FastLane Group that can help you with such work.
Business owners have a lot to consider when starting a business in Hong Kong. Their responsibilities extend past what is typically advised in the company incorporation process.
To ensure that their business succeeds and is not hindered by unexpected developments, it’s best to be knowledgeable of all aspects of a business. It is the parts they do not pay attention to, that often has a large impact on a business. Make sure you invest sufficient time in researching the Hong Kong market and understanding what would be the best way to expand your business into Hong Kong.
FastLane initially published this article on July 13, 2020. Greenhouse has received permission from FastLane to distribute the content.
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