Running an online business doesn’t shield your company from the many regulations that offline or brick and mortar businesses face. You will still need to obtain relevant business permits, pay tax and meet other requirements. However, you can greatly reduce the exposure of your e-business to such requirements by registering it in a jurisdiction that supports the establishment and growth of internet companies.
Hong Kong is one of the best countries to start your online business. The country is well-known as a global business hub with highly-advanced information and technology infrastructure, an incredibly favorable tax regime and a very efficient banking system.
The numbers tell a similar story, too. According to the World Bank, for instance, Hong Kong ranks highly in the ease of doing business index, while the country’s e-commerce market is expected to grow at an impressive annual rate of 10.5% through to 2021. Such a growth rate shows that more and more e-commerce businesses are being set up in Hong Kong.
In detail, here are the reasons why you shouldn’t look further than Hong Kong when searching for a country in which to open an online business.
1. Favorable Taxation Policy
High corporate taxes play a big role in driving investors into opening offshore companies in low-rate tax jurisdictions. Hong Kong does not levy any corporation tax on foreign-owned companies, as long as their profits are sourced from outside the country. What does this mean for online businesses whose sales activities are conducted over the internet? According to the Inland Revenue Department (IRD), “a purchase and sale contract that does not require travelling outside Hong Kong but is carried out in Hong Kong by use of telephone, or other electronic means including the internet, the contracts will be considered as having been effected in Hong Kong.” As such, all the profits you will earn from selling products and services to Hong Kong residents will be taxed.
Thee country also has zero:
- Estate duty/Inheritance tax – When you pass on, the total assets of your Hong Kong company won’t be subject to estate tax. Your appointed successors will take over every piece of the company
- Withholding tax – If you decide to publicly list your internet company in the Stock Exchange of Hong Kong Limited, it won’t be required to withhold any taxes on payment of share dividends to investors
- Capital gains tax – If your sell some of your company’s property (non-inventory assets) none of your profits (gains) will be taxed
- Sales or Value Added Tax.
It is not only the no-tax environment that makes Hong Kong a suitable jurisdiction for your online business. The IRD is very transparent on how it develops and enforces its tax administration processes. There is reduced tax certainty, so you can set up your company with the confidence that the current tax-regime won’t change abruptly in the future.
2. Easy Company Formation
Forming a Hong Kong company is a cheap and straightforward process. Once you have settled on the company name, all you need to do is submit an online application to the Companies Registry. Applications typically take less than a day to be reviewed, and successful applicants are issued a certificate of incorporation. If you plan to hire employees on a full-time or part-time basis, you must obtain compensation insurance from a private insurance company.
The Doing Business website notes that it takes HKD 2,000 (about 300 USD) to form a Hong Kong company. Remember, you can always use the services of specialist companies that specialize in opening offshore corporations.
3. Stable Jurisdiction and Good Reputation
Businesses cannot thrive in jurisdictions with political instability. It is not uncommon for politically-unstable jurisdictions to block or limit access to the internet, a move that greatly affects the performance of online businesses. Such countries usually record low rates of foreign direct investment.
Although there are civil movements that advocate for the transfer of Hong Kong’s sovereignty from China, the country has a very stable political environment and a free market economy. It is increasingly becoming a preferred destination for global companies looking to set up regional headquarters in the Asia-Pacific region.
Hong Kong has a reputation for good governance. In the course of doing business, you are unlikely to encounter bureaucratic or corrupt government officers. According to Transparency International’s Corruption Perception Index, Hong Kong is ranked among the 20 least corruption nations in the world.
4. White-Listed Country
Countries with very low rates often attract a lot of attention from powerful governments and international organizations like the United Nations. Even though tax havens or secrecy jurisdictions are not illegal, they make it possible for individuals and corporations with dubiously-acquired wealth to safely hide their assets from the reach of their home governments. While registering your company in such a territory may help to minimize tax liabilities, its image may suffer, as it will be known for its tax evasion practices.
The Organization for Economic Co-operation and Development (OECD) has developed standards for taxation transparency, which it uses to white-list, grey-list or black-list various low-tax jurisdictions. Hong Kong is a white-listed country, meaning its taxation policies meet international tax standards and is, as a result, not considered a tax haven. Hong Kong companies are typically known as vehicles for international business, so no one will raise a suspicious eye into the nature of your operations.
5. Efficient Banking System
When it comes to international trade, you need to set up your companies in countries with efficient banking systems. According to an article published by Credit Suisse, Hong Kong has a sound banking system and is home to 71 of the world’s 100 biggest international banks, including HSBC, DSB Bank, Standard Chartered and Citibank.
You will be able to easily access to a wide range of banking products and services, from merchant and multicurrency accounts to international money transfers, and you can bank on these financial institutions to securely hold your money. As long as your company is properly registered, you shouldn’t find any trouble opening a Hong Kong business bank account.
Electronic payments processors like PayPal are primary enablers of online businesses. They allow e-traders to receive payments for goods and services from customers in various parts of the world. Although, PayPal is the biggest and most commonly used payments processor, it only supports about 200 countries and 25 currencies, including Hong Kong and the Hong Kong dollar.
By opening your online business in Hong Kong, you will have full access to a variety of PayPal services, such as withdrawal of money in HKD or in any other currency it supports. To set up your PayPal merchant account, you will need to provide your identification details, as well as information about the nature of your online business. You can link your PayPal account to a Hong Kong bank account for easier transfer of funds.
7. Advanced Information and Technology Infrastructure
To efficiently run an online business, you need access to reliable servers, data centers and other pieces of internet infrastructure. In Hong Kong, you will find all the tools you need to establish and grow your online business. These include:
- Internet readiness – According to the Office of the Chief Government Information Officer, Hong Kong has the second fastest internet speed on the planet (114 Mbps on average). Fast internet connectivity ensures your e-commerce website is quickly accessible to internet users. There are also several companies that provide reliable web hosting and data storage services
- ICT Talents – To grow your online business, you need to assemble a team of skilled IT specialists such as web developers, designers and engineers. When you want to hire, you can tap your employees from Hong Kong’s pool of competent and multilingual ICT professionals.
- Power Supply – Internet infrastructure is powered by electricity. Frequent power disruptions can, therefore, affect the accessibility of your online business. Hong Kong has reliable power supply providers, and unplanned outages typically last for less than 3 minutes.
- Data Privacy – Although online businesses must protect their customers’ information, it can be difficult to do so if you register your business in a jurisdiction with weak data protection laws. Hong Kong enforces strict privacy laws, meaning your data centers cannot be accessed by unauthorized individuals or government authorities.
- Free flow of information – Without free flow of information, online businesses cannot thrive. Google, for instance, was forced out of China because of the country’s content censorship laws. Hong Kong’s laws support free flow of information, and it doesn’t interfere with the operations of online businesses.
These are some of the reasons why Hong Kong is the best country to register your online business. Whether you want to just form an offshore company for tax-reduction purposes, or you want to break into the huge Chinese market, Hong Kong will no doubt provide an enabling environment. Forming a Hong Kong company also has additional benefits, such as enhancing your chances of getting approved for a Hong Kong visa or entry permit.