Living in Hong Kong 2016 - Starting a Business

Chapter 12

Starting a Business Hong Kong has consistently topped international lists for being one of the easiest places to start a business.

The low cost of setting up a company and the city’s open and free trade environment make it the perfect place for entrepreneurs to embark on a new and exciting journey of doing business in the city.

STARTING A BUSINESS

12 Hong Kong is a great city in which companies – including large multinationals and small enterprises – can strive for business success locally and regionally.

High-quality business infrastructure and a talented and well-educated workforce provide a winning combination for those looking to start something new.

The Hong Kong economy grew moderately by 2.4% in 2015 and is expected to increase by 1-2% in 2016. Hong Kong’s performance is tied to global economic and financial conditions. Its proximity to Mainland China, which is currently the world’s second largest economy, along with other emerging economies across Asia, are what make the city an excellent location for companies and start-ups.

Kong is an extremely attractive location for foreign businesses seeking to set up in this region.

Incorporation How you structure your business will drive many of your future decisions and the initial setup of your business. Based on your needs, resources, finances and your plan for future growth of your enterprise, you must decide on one of the following structures:

Sole Proprietorship This is best if you plan to run a business on your own. It is the most common way of starting out for many home businesses and small entrepreneurs.

Partnership Coupled with a modern, reliable and high tech communications infrastructure; largely pro-business government policy with low taxes; minimal regulations and import/ export restrictions kept to a minimum, Hong

258

Living in Hong Kong

If you plan to work with another individual or individuals who will have ownership of the business and who are not employees, you are required by law to establish a partnership.

Limited Company Similar to a limited liability company in the US, a limited company in Hong Kong can be a complex business structure. You must register a limited company as a separate legal entity, and it is best that you seek the assistance of a Hong Kong-qualified solicitor and accountant to help you set it up.

Business Centers Finding a permanent office in Hong Kong may take some time. Using the services and offices of a business center may be the best way to get started while you are looking for a long-term lease or getting settled in a temporary office. Business centers in prestigious locations may be what you want.

Or if economy is the priority, then value-formoney business centers are available too.

Business centers, commonly known as “serviced offices,” were born from the efficiency of shared resources and the need for quick access into a target market. In Hong Kong, a suitable business center is definitely one of the key elements in the functioning of a successful global business enterprise, and this is determined by these important factors: location, service, staff, attention to detail and technology.

Location Most well-run business centers are located in Grade-A commercial buildings in strategic commercial locations. They are typically close to major hotels, convention centers and key areas of a given industry.

Convenience and a prestigious address are key attributes.

The core office districts are Central, Admiralty and the sub-districts of Sheung Wan, Wan Chai and Causeway Bay on Hong Kong Island. A secondary hub on the Island is in the areas of Quarry Bay and North

Point. Tsim Sha Tsui and Kowloon East are those on the Kowloon peninsula.

Central is the core central business district on Hong Kong Island, occupied mainly by legal firms, banks, financial services companies and multinational consultancy firms. Transportation services, hotels and eateries are everywhere. With the Airport Express Terminus located in Central, it only takes 24 minutes to travel from Central to the airport. Central’s peripheral business districts, Sheung Wan and Admiralty, boast similar conveniences and clientele.

East of Central are the popular business districts of Admiralty, Wan Chai and Causeway Bay – around 10-15 minutes away by MTR. Consulates, international trading companies, engineering firms, technology-related businesses are the most common tenants in these districts. With rents far less than that of the very expensive Central district, many businesses have certainly followed the migration to this more economical location.

Island East Island East in Quarry Bay and North Point, with an MTR link, hotel facilities and other amenities, are two of the best choices for sizable multinational companies that do not choose to locate in Central. Newly completed buildings in this area have been favored by technology-related and telecom companies, media and public relations businesses.

West Kowloon West Kowloon, a newly developed commercial area in Kowloon, is now becoming a viable alternative to Central for investment banks and related industries.

This new area, developed on the site of MTR’s Kowloon Station, provides close

259

STARTING A BUSINESS

12

STARTING A BUSINESS

12 proximity to Central (only one MTR stop away) and convenient, direct access to and from the airport with the Airport Express and onsite check-in service at the station.

West Kowloon is home to The International Commerce Centre (ICC), a 118-floor skyscraper, now the tallest building in Hong Kong and the new hub for the finance industry. West Kowloon, houses the ICC; several residential complexes (The Harbourside, The Waterfront, The Cullinan, The Arch and Sorrento); two five-star hotels, W Hong Kong and Ritz-Carlton; in addition to the ELEMENTS shopping center. It is poised to provide an alternative for businesses.

Kowloon East To increase the supply of business areas and commercial infrastructure, the government has announced the development of Kowloon East, an area close to the former Kai Tak Airport and the nearby industrial areas of Kwun Tong and Kowloon Bay into a new business district. The area is anticipated to become Hong Kong’s second premier centralized business district as development in Kowloon East will continue until 2030.

Already the opening of the Kai Tak cruise terminal, a mega structure designed by Foster + Partners to accommodate several large-sized cruise ships at any time, has brought a new breath of life into the area.

With the opening of Hong Kong’s new airport on Lantau Island in 1998, Kai Tak was retired after 77 years of service and is now positioned for the purpose of commerce once again. Kowloon East may be an attractive alternative.

Hong Kong’s efficient and dynamic transportation system makes all areas readily accessible by public modes of transport. The rapid development of new

260

Living in Hong Kong

business, shopping and entertainment hubs as well as residential property is reflected in the growing number of new towns, clusters of property and infrastructure as a result of MTR’s extension to the New Territories.

Similarly, the MTR’s rapid expansion to Hong Kong Island’s Southside and Western District will allow businesses more viable options for office space on Hong Kong Island beyond the traditional commercial hubs of Central and Admiralty.

Service and Staff It is generally accepted that the optimal size of a business center is 1,000 to 1,500 square meters. A space much larger may lose its optimal level of efficiency in terms of service and facilities. This aside, one of the key elements of a suitable business center should come from available options of support services and staff. Catering to small enterprises, a business center should be able to provide all of the support of a sizeable company.

It is a total office solution to enhancing a company’s effectiveness and allowing management to concentrate on its strengths without having to worry about office support, renovation and lease commitments.

Experienced and trained staff can often perform secretarial tasks such as phone answering and mail forwarding, as well as roles of a company’s receptionist, office administrator, messenger, accountant, human resources, driver and even personal valet. Good business centers will provide 24/7 security and access, receptionist services and maintenance staff.

A business center should also be able to provide the equipment and systems necessary in running a business. This may include meeting and conference rooms, which are often shared by other tenants of

Second, take notice of the amount and type of lighting provided. Interior lighting should be sufficient to enable your work, but should not be so bright as to cause discomfort. In addition to indirect lighting throughout the office, every section of the office should be well-lit for each individual employee and may require supplemental lighting. Also pay attention to spotlights that may cause glare on computer screens.

You should be able to control the amount of light from outside with curtains or blinds.

the building; food and beverage arrangement and related services; hardware for internal and external communication, such as intercom, telephone lines and broadband Internet connection and related equipment.

It is critical to know your requirements, and established centers generally have a customer-focused service culture.

Attention to Detail Besides equipment, facilities, furnishings as well as high-quality staff and availability of support services, an equally important factor is the “feel� of the premises. Noise levels, cleanliness and lighting may seem trivial, but in fact, the ambiance of a work environment is just as important as the basics.

First, a good business center should have sufficient noise reduction installation to provide a quiet working environment. Try to inspect a center during the busiest times of the working day, including just before or after lunch breaks, as these tend to be the noisiest. In a productive office environment, the only thing you should hear inside your office is nothing at all.

Third, note the level of cleanliness. Overall cleanliness of a business center is an indicator of how much effort has been put into creating a suitable work environment.

A lack of commitment in this area may signify a lack of quality in other areas.

Because their staff are often the first line of contact with your customers and clients, hence their quality and professionalism are of utmost importance.

Finally, newly developed or renovated business centers tend to have more modern furnishings and are clean-looking. However, you should also be keenly aware of their level of experience in dealing with matters concerning management of your business.

Technology A premier business center is technologically up-to-date, not only in business equipment but also in other related facilities. Certainly, things like multimedia presentation equipment for use in a meeting room, video conferencing facilities, intercommunication devices and ecommerce support technology should be available for deployment within the center at reasonable rates. Basic facilities such as air-conditioning units and elevators are not to be overlooked when choosing a well-run center.

261

STARTING A BUSINESS

12

STARTING A BUSINESS

12 Generally, a good business center should include the following: centralized or independent air-conditioning, noise reduction fittings, proper lighting, and if provided, ergonomic furniture and office equipment. By law, every office is to be fitted with fire sprinkler systems and fire extinguishers. Some older buildings in Hong Kong may not be fitted with elevators, but that is a rare case in commercial buildings.

And make sure the office can easily be accessible for those using wheelchairs.

Alarms and other security devices are great assets for any company. Some business centers offer fingerprint recognition access, but at the very least, CCTV monitoring systems should be in place throughout the building.

For business centers offering fully furnished offices, equipment such as printers, scanners and fax machines should be of the latest generation; Internet connections should be fast with Wi-Fi capabilities; multiple telephone lines should be offered; and in conference rooms, presentation equipment such as projectors, microphones, computers and Internet connections should be available. However, you might need to the total cost. Remember, rental price alone arrange inspection by your company’s IT does not determine the full cost or quality of professionals to ensure the security and the business center. reliability of the services.

Collaborative Workspace Newer business centers tend to use up-todate technology as a main selling point in promoting their facilities. However, be wary of hidden costs that are added for the use of each service or facility. Some may provide free water and electricity and the use of meeting rooms as part of the rent. But other “add-on costs” may cause your monthly expenditure to exceed what you anticipate.

So bear in mind what additional facilities you might need for a more accurate estimate of

262

Living in Hong Kong

With Hong Kong well-known for its energetic workforce and spirit for success, there is always an atmosphere of encouragement for start-ups. For the budding entrepreneur who needs a more flexible and economical option rather than a traditional business center, sharing an office or renting a “hot desk” may be sufficient. These have started to spring up around town targeting various types of industry, particularly those in the art and technology sectors.

STARTING A BUSINESS

12

Providers of workspace include:

CoCoon With 14,000 square feet of work space, it is a community of freelancers and start-ups located in Citicorp Centre in Tin Hau. www.hkcocoon.org

Dim Sum Labs Situated in the Sheung Wan district, members pay either annually or monthly and are given access to the facilities which include a rooftop. www.dimsumlabs.com

Fill in the Blank Based in Wan Chai, a 1,000-square-foot space is equipped with a library, long

worktables and positioned for creative types, such as writers and designers. www.fillintheblank.hk

Garage Society Located in Central and offering various types of work space, it is an ideal place for some to start a business. http://thegaragesociety.com

HK Commons With three floors of space in Sheung Wan on Hong Kong Island, it offers various types of workspace near Central. www.hkcommons.com

263

STARTING A BUSINESS

12 Smart-Spaces Cyberport Smart-Space provides coworking spaces for technology start-ups and companies. The facility, in Pok Ful Lam, is equipped with a fitness center and highspeed Internet access. www.cyberport.hk/en/offices/smart_space

The Hive With several floors of space in Wan Chai offering hot desks where you can use your own laptop or fully ready work stations. It is located next to Admiralty and Causeway Bay. www.thehive.com.hk

Business Environment Hong Kong’s world-class and businessfriendly environment includes a highly respected legal system, free market policies, the rule of law, free flow of information, zero sales tax (VAT) and an internationally recognized offering of professional services companies in an efficient, effective and transparent manner.

It is an open market in a free economy.

them for requirements of certification and obtaining the legal right to practice in Hong Kong.

Legal Advice Hong Kong is a jurisdiction of Common Law. Practicing legal professionals in Hong Kong are divided into two distinct categories. The two branches have specific roles – barristers, also known as “counsel,” have unlimited rights of audience in all courts and tribunals where legal representation is allowed; solicitors, on the other hand, have limited rights. Barristers must practice as sole proprietors. Solicitors may practice together in a partnership. In terms of setting up a business, or when you need a notary, you will need the services of a solicitor or a solicitor’s firm.

The Law Society of Hong Kong is the governing body of the profession. Its website is a resource for information on the legal profession as well as new legislation. They provide a legal services guide and have a directory of all law firms in Hong Kong. www.hklawsoc.org.hk

Accounting Setting up a business in Hong Kong may require a mountain of paperwork that is best handled by a Certified Public Accounting firm and/or a Company Secretarial firm.

Professional Qualifications Hong Kong has specific rules for professionals in law, medicine, accountancy, and other industries who are qualified in a different jurisdiction and are looking to practice their profession here.

Each profession has its own governing body and, as such, practitioners should consult

264

Living in Hong Kong

Corporate and secretarial services that you may need include: • Setting up a Hong Kong company • Buying a Hong Kong shelf company • Setting up bank accounts • Applying for a business registration • Providing a registered office • Preparing annual returns • Setting up offshore companies • Deregistration • Auditing

• Preparing financial statements • General accounting services • Preparing business tax and employees’ salary tax filing • Payroll services • Setting up Mandatory Provident Fund (MPF) accounts The Hong Kong Institute of Certified Public Accountants is the body authorized by law to register and grant practicing certificates to certified public accountants in Hong Kong.

Its website provides lists of its members and a database of CPA firms in Hong Kong and China. www.hkicpa.org.hk

Company Secretary Under the Hong Kong Companies Ordinance, every company must have a secretary. A Company Secretary maintains the statutory books and company records and ensures compliance with statutory requirements.

A company secretary of a company, if a natural person, must ordinarily reside in Hong Kong and if a body corporate, have its registered office or place of business in Hong Kong. The director of a company may be a company secretary of the company.

However no private company having only one director may have its director as the company secretary of the company.

It is best for you to engage a company secretarial firm to act as your company secretary. An annual service fee to the firm will ensure that the filings required by various Hong Kong government departments are done in a timely manner.

There are penalties, and you are subject to prosecution for missing statutory filings.

A company secretary service should provide you with a standard set of documents, a “company kit,” once your business is incorporated.

Employment of Staff Hong Kong’s economy is a dynamic place for employers and for employees.

Employees are highly mobile, and it is not uncommon for staff to only stay with a business until they get a better offer at another company, as in other competitive markets. Employers have the flexibility to employ and to terminate staff easily, as long as the Employment Ordinance guidelines are followed. Besides advertising in various newspapers and through job websites, Hong Kong Labour Department’s Employment Services Division is a resource for employers, including the posting of job vacancies, through its Interactive Employment Service. www.jobs.gov.hk The Hong Kong Employment Ordinance sets forth detailed requirements for the management of staff. Labor legislation in Hong Kong provides for a range of employment protections and benefits for employees. It covers wages, rest days, paid holidays, sick leave, maternity protection and termination of employment contracts.

The ordinance changes from time to time, and it is the responsibility of the business owner to comply with new legislation as updated provisions come into effect.

Recruitment ads in newspapers, professional journals and through recruitment agencies are the most popular channels of attracting candidates in Hong Kong. Local universities offer placement services and are an excellent platform on which to recruit fresh graduates looking for work opportunities.

Minimum Wage Ordinance Employee’s wages are subject to a minimum hourly wage rate as stipulated

by Hong Kong’s Minimum Wage Ordinance. The minimum wage rate as

265

STARTING A BUSINESS

12

STARTING A BUSINESS

12

well as guidelines for record-keeping and implementation are subject to change, so it is best to understand the legal ramifications of the statutory minimum wage and its impact on your business before you make any offer of employment.

The Employment Ordinance and Minimum Wage Ordinance updates are available on the Hong Kong Labour Department website. www.labour.gov.hk

Mandatory Provident Fund (MPF) Scheme Whether you plan to be a business of one person or of many, you are responsible as a business owner to follow the guidelines as set forth in the Hong Kong Employment Ordinance and in the Mandatory Provident Fund (MPF) Schemes Ordinance. It is a retirement savings protocol for the benefits of employees in Hong Kong.

The MPF scheme requires an employer to contribute five % of an employee’s monthly

266

Living in Hong Kong

salary, collect another five % from the employee’s salary (for a sum of ten %) and deposit the total with a registered MPF fund. A company which fails to deposit the required contributions within the prescribed time period is in breach of the Ordinance and is subject to fines and prosecution.

The MPF Schemes Ordinance has made amendments to the regulations, guidelines, contribution levels, and how employees may administer their MPF accounts.

Updates are available on the Mandatory Provident Fund Scheme Authority website. www.mpfa.org.hk

Profits Tax A newly formed Hong Kong limited company will usually receive its first profits tax return from the Inland Revenue Department (IRD) around the 18th month from its incorporation.

Registered companies in Hong Kong are required to submit audited accounts with

their profits tax returns. Therefore you need to prepare your accounting records and have them audited by an accounting firm and signed by a Certified Public Accountant as supporting documents of your profits tax return.

Business Registration and Annual Returns

The IRD will usually issue a tax demand note a few weeks after the profits tax return is submitted.

The payment of the annual business registration fee and the filing of the Annual Return for a private company are required every year. A company which fails to hold a current business registration certificate or to file Annual Returns within the prescribed time period is in breach of the Companies Ordinance and is subject to prosecution.

Employee’s Salary Tax

Setting Up a Bank Account

In Hong Kong, the collection of salary tax is not the responsibility of an employer.

However, an employer is responsible for the reporting of staff’s earnings to the Inland Revenue Department (IRD). Your obligation as an employer includes maintaining payroll records for at least seven years and reportfiling with the IRD of remuneration paid to an employee.

The required filings include: • Annual Employer’s Return (BIR56A and IR56B) • New Employment (IR56E) • Termination of Employment (IR56F) Information about the employer’s obligation with regards to tax is available on the Hong Kong Inland Revenue Department website. www.ird.gov.hk

Different banks have different requirements for setting up a business account.

The setup of a business bank account typically requires that you produce the originals of your corporate documents, such as a Certificate of Incumbency, Director’s Declaration, and certificate of an associated CPA firm. Many banks in Hong Kong have specific business divisions dedicated to serving small- and mediumsized businesses in handling the setup of business accounts. You’ll need to find out the requirements and meet with a representative in order to set up an account – a process which can take several weeks.

Business Insurance Although not required by law, it is advisable to take out a business insurance policy that covers your office content, business interruption and damage due to fire and theft. Business insurance policy premiums depend on the coverage required. Policies are readily available from brokers, insurance companies and some banks.

Employees Compensation Insurance An employer is required by the Employment Ordinance to hold Employees Compensation Insurance coverage. An employer is legally liable to paying compensation in respect of injuries sustained by employees as a result

267

STARTING A BUSINESS

12

STARTING A BUSINESS

12 of accidents arising out of and in the course of employment, occupational diseases suffered by employees and injuries while working outside Hong Kong. Many business insurance policies provide this coverage as part of their schedule of coverage.

Resources The Hong Kong Trade Development Council The Hong Kong Trade Development Council (HKTDC) was established to create opportunities for Hong Kong companies, especially towards small- and mediumsized enterprises (SMEs). With a variety of business-enabling services, HKTDC promotes trade of Hong Kong-produced goods and services worldwide, explores markets for Hong Kong SMEs and connects them with business partners around the world. www.hktdc.com

Hong Kong Productivity Council The Hong Kong Productivity Council (HKPC) is a multi-disciplinary organization that promotes excellence through the provision of integrated support. HKPC’s headquarters

268

Living in Hong Kong

in Kowloon Tong features various advanced manufacturing and testing facilities as well as exhibition and training venues. It also operates three wholly-owned subsidiaries in Guangzhou, Dongguan and Shenzhen to serve Hong Kong’s manufacturers in the Pearl River Delta. HKPC provides a multitude of services in technology transfer, consultancy and training in the areas of IT, manufacturing technology, environmental technology, and management systems designed to help industry move up the value chain. www.hkpc.org

InvestHK InvestHK’s primary mission is to attract and retain foreign direct investment – which is of strategic importance to the economic development of Hong Kong as an international financial center. It works with overseas and Mainland entrepreneurs, SMEs and multinationals that wish to set up an office or expand their existing business in Hong Kong.

InvestHK offers free advice and services to support companies from the planning stage right through to the launch and expansion of their businesses. www.investhk.gov.hk