SETTING UP A COMPANY

If you’re not an investment banker, running your own business is one of the main ways to make a small or big fortune in Hong Kong, according to Debbie Annells, a director at trust and fiduciary services company Equity Trust:

People don’t make a lot of money on investments, by and large, unless they’re special. Most people make most money on starting a business, and there’s a whole variety – bars, manufacturing, trading with China … they find a niche and they do very well.

In fact there are hundreds of SMEs (small/medium enterprise) run by expats in Hong Kong in a wide variety of industries, including financial services, accounting, IT, recruitment, consultancy, building, architecture, house maintenance and repair, education, executive training, security, clothing, leisure, recreation, sports, dining, pet care and healthcare, as well as creative industries such as the arts, antique promotion and sales, interior design, publishing agency work, marketing, editing, writing, book selling, life coaching, image and fashion consultancy, graphic design and web design. Although the fixed costs are reasonably high – rental, deposits, staffing costs and regulation and compliance costs – these disadvantages are compensated for by the exceptionally favourable tax conditions.

Which business vehicle?

There is a choice of business vehicles available to those running their own business – including sole proprietorship, partnership and limited company.

All businesses carried out by individuals (sole proprietors) or as a partnership should register first with the Business Registration Office (4/F, Revenue Tower, 5 Gloucester Road, Wanchai; tel. 187 8088), from which you can obtain a ‘Business Registration Certificate’. Processing time is a day and a one-year certificate costs around $2,600. You should apply for the certificate within a month of starting your business.

• Sole proprietorship. If a business is carried on by an individual, Form 1 (a) should be completed (specimens available at www.ird.gov.hk/eng/tax/bre_abr.htm). The form should be submitted together with a photocopy of the proprietor’s ID card or passport. Separate arrangements must be made if the sole proprietor does not reside in Hong Kong.
• Partnership. In the case of a partnership, Form 1 (c) should be completed (specimens available at www.ird.gov.hk/eng/tax/bre_abr.htm). The form should be submitted together with photocopies of all the partners’ ID cards or passports. Separate arrangements must be made if the partners do not reside in Hong Kong.
• Company. Incorporating limited companies and registering branches of overseas companies is very common in Hong Kong. A new limited company should first register at the Companies Registry (14/F, Queensway Government Offices, 66 Queensway; tel. 2867 2600/2234 9933), where Articles of Association, Memorandum of the company, declaration of compliance and proforma name and contact details will be required. The process takes six days and costs $170–1,720. An application for a Business Registration Certificate should be made within a month of the date of incorporation or registration with the Companies Registry. Form 1 (b) (specimens available at www.ird.gov.hk/eng/tax/bre_abr.htm) should be submitted with a photocopy of the Certificate of Incorporation or Certificate of Registration of Overseas Company issued by the Companies Registry. Branch businesses should also register at the Companies Registry, submitting documents such as company constitution, accounts, particulars of directors, etc. The process takes 22 days and costs $1,740. The business must also apply for a Business Registration Certificate within a month of its commencement. Form 1 (d) should be completed.

Alternatively, you may prefer to buy a shelf company from a reputable accountant and save yourself a lot of red tape.

Business licensing

The Business Licence Information Service (Room 609, 6/F, Trade & Industry Department Tower, 700 Nathan Road, Kowloon; www.licence.tid.gov.hk; tel. 2398 5133; fax 2737 2377) is a one-stop service run by the government. It provides information on all licences, permits and certificates necessary for business operation in Hong Kong (for example, Food and Beverage, Animals, Education, etc.)

Managing your tax

Generally, all expenses that have been incurred in the production of chargeable profits are tax deductible. Examples include interest on borrowed funds and office supplies bought to use in producing profits. Losses can be carried forward and offset against future profits. Allowances are given with regard to capital expenditure incurred on construction costs and expenditure incurred for the purpose of producing chargeable profit. In the case of capital expenditure on plant and machinery, depreciation allowances are given. An immediate 100% write-off is allowed for capital expenditure on plant and machinery specially related to manufacturing, and on computer hardware and software – except capital expenditure incurred under a hire-purchase agreement.

Big accountancy firms operating in Hong Kong include Pricewaterhouse-Coopers (www.pwchk.com), Deloitte Touche Tohmatsu (www.deloitte.com) and Ernst & Young (www.ey.com; tel. 2846 9888). Depending on the complexity and size of your company, you could also consult one of the many competent smaller accountancy firms. Accountants such as Millie Shing at MSP Shing & Co. (tel. 2881 1992; e-mail millie.shing@mspshing.com) can help with auditing, tax, accounting, company formation and business consultation.

BANKS

There are 136 licensed banks in Hong Kong and the banking system here is well-regulated, efficient and automated. Banks can offer a whole range of international standard services to customers, including foreign currency accounts, and there are no restrictions on remittances in and out of Hong Kong. The major banks serving businesses in Hong Kong include:

• HSBC (www.hsbc.com.hk);
• Bank of China (www.bochk.com);
• Hang Seng Bank (www.hangseng.com); and
• Standard Chartered Bank (www.standardchartered.com).

HSBC’s website is one of the most comprehensive and easy to navigate. Amongst other things, it provides a profile of doing business in China, including a brief introduction to Labour Management and Advertising Law, Taxation and Banking on the mainland. The locations of dedicated Business Banking Centres are also listed on the website.

Unlike the UK, it can be difficult to get a bank loan for a start-up and most banks will only lend against assets (that is, property) held in Hong Kong.

Details on personal banking services are included in Chapter Ten, ‘Money’.

SETTING UP AN OFFICE

Office space

Rental on business units is still high, despite the decline in the property market in Hong Kong in recent years. When setting up an office, check the operating hours of the air-conditioning (which may operate between fixed hours, for example 9:00 am to 6:00 pm), the usable space, the wiring for broadband access, telephones and computers, management fees, and rates. Two useful sites for checking out office rental, power and utilities charges are www.investhk.gov.hk (under their ‘Investment Guidebook’ link) and www. business.gov.hk. When leasing, be prepared to bargain hard. Most offices are leased as bare shells, meaning that the tenant will have to equip the space with partitions and install electrical and lighting systems, carpeting, fittings and furniture. A rent-free period is sometimes given whilst the office is being set up.

Serviced offices

These days, ‘serviced offices’ are often preferred, but you’ll need to shop around to get a reasonable deal. Companies such as Regus (www.regus.com; tel. 2824 8888), LevelOne Central (39/F, One Exchange Square, 8 Con-naught Road, Central; tel. 3101 7200) and Servcorp (www.servcorp.net; tel. 2251 1888) can provide short- and long-term leases, fully furnished and wired office spaces, secretarial staff and call answering, photocopying and fax services. Costs vary depending on the size, location, view, lease term and service plan, but expect to pay around $5,500–15,000 a month for 55–120 square feet.

Virtual offices

Companies providing serviced offices also commonly offer virtual offices – particularly useful for sole proprietor companies. The virtual office can include services such as a business address and post box, call answering and forwarding, IT Helpdesk, and use of meeting rooms from around $600 a month.

Telecommunications

A comprehensive range of SME business communications packages are offered by companies such as PCCW (www.pccw.com). Packages include call plans, Internet services and communication equipment. A price list is available on their website, or call 1000. China-based services and products are also available (tel. 2883 0906).

For more information on telecommunications service providers, refer to Chapter Five, ‘Accommodation’.