Starting a new international company with a good business idea can be an exciting time for new entrepreneurs. However, careful consideration and the final decision to start a trading company in Hong Kong requires a lot of research. Without understanding the procedure, the required licenses, and the benefits of operating an import/export business in Hong Kong, it can create several challenges for new business owners.
If you are planning on expanding your international business to Asia, then you should be aware of what a trading company in Hong Kong is all about. Keep on reading to know more!
Why Choose Hong Kong to Start a Trading Company?
Hong Kong is one of the world’s leading financial and trading centers. Despite its small size, the port of Hong Kong is recorded as one of the busiest ports in the world. Hong Kong is also known as the gateway to China, as it offers easy access to Mainland China business opportunities, but operates under a different legal and business jurisdiction more open to The West.
All thanks to its geographical position, a low taxation regime and free trade economic policy. That’s why it is said that Hong Kong is the ideal location for foreign companies who want to engage in trading and import and export activities in the Asian market.
In fact, importers from Europe and America choose Hong Kong to establish their trading company to expand their business and experience the maximum benefits from the city. There are no tariffs and barriers for the import or exports of goods in Hong Kong.
Hong Kong’s Main Trading Partners
In 2019, Hong Kong exported US$535.7 billion worth of goods around the globe. With its continental lens, over three-quarters (77.6%) of Hong Kong’s exports by value were delivered to other Asian countries, while 10.8% were sold to importers in Europe. Another 8.6% worth of goods of Hong Kong shipped to North America. And 1% of the remaining percentages were shipped to Latin America, Africa (1%), then Oceania (0.9%) led by Australia.
Advantages of a Hong Kong Trading Company
When you operate a trading company overseas, you normally need to pay for the costs for different tariffs on goods imposed by each country’s government. However, when you set up a trading company in Hong Kong, this can be largely avoided, as Hong Kong doesn’ impose tariffs on the import and export of the goods.
Minimizing the tax burden on your business entity should always be an important factor. And when you start your business in Hong Kong, you will get the best deal on taxes and access to enter the Asian market. Below are some of the advantages of operating a Hong Kong trading company.
- Rule of Law– Hong Kong follows the rule of law and an independent jurisdiction from Mainland China. Hong Kong’s basic law has provided the constitutional framework for the legal system.
- Easy Setup– In Hong Kong, there is 100% directorship and shareholding ownership for foreign corporates and individuals.
- Tax Rate- The business owners will be charged 8.25% (16.5% for profits over HKD$ 2 million) as their profits tax for incorporated bodies. There is no requirement for dividend and capital gain tax.
- Minimizing the risk factor– For incorporated limited liability companies, an investor is only liable to the amount of share capital invested in Hong Kong.
- Straightforward tax regime – Hong Kong works on the territorial tax regime. So, this tax regime enables Hong Kong’s trading companies to have a zero-tax intermediary structure if profits are not sourced from Hong Kong.
- Free trade policy – There are no tariffs on the import or export of goods in Hong Kong.
- Strategic Location – It’s geographic positioning along with the free trade economy policy, Hong Kong is a gateway to enter the Chinese market.
- Minimal Barriers – The license for import and export of goods will be imposed only when the trading partners are involved in meeting public health, safety, and security.
- Closer Economic Partnership Arrangement (CEPA)
Common Types of Trading Companies in Hong Kong
If you want to open a trading company internationally, then you should be aware of the common business entities of that place. In Hong Kong, there are three types of trading companies. Every business entity has its own characteristics that you need to know:
For practical purposes, trading companies in Hong Kong are divided into three major types. These are:
Import Trade
The first type of trade in Hong Kong is an import trade company. It involves the art of purchasing goods and services from foreign countries to increase the living standard of the people and reduce the scarcity of the products. For instance, India imports 82% of the crude oil from countries like UAE and Venezuela. In these places, there is an ample number of oil fields that can support the requirements of crude oil in India and other countries.
Export Trade
The second type of trade is export trade. It means to sell locally produced services and goods to foreign countries. This type of business is quite the opposite of its import counterpart. For instance, China exports electrical equipment, silk, mineral fuels, organic chemicals, and fertilizers to India. These types of goods and services are exchanged between both countries to maintain their respective production capacities.
Entrepot Trade
Put simply, it is a specific form of international trade that involves both import and export trade. Under this type, goods and services are imported from one country in order to export it to other parts of the world. The imported goods are not used for sale or consumption in the importing country. The important centers for entrepot trade are typically Hong Kong, Singapore, Amsterdam and London.
Below are the reasons why most countries deal in entrepot trade-
- When there are better logistical or processing facilities available with a country.
- When there is a lack of access or direct connection between any two countries
- When there is no trading agreement between the two countries
- There is no facility of trade finance in the banking sector available in the importing country.
Selling on Amazon with a Hong Kong Company
Speaking of trading goods around the world; many entrepreneurs look to Amazon to sell their products and start a company. This platform is ideal for business-minded individuals looking to import goods from Asia and export to Europe and the US. And Hong Kong is the ideal place to start an important and export business. The corporate tax rate in Hong Kong is just 8.25%, which is lower than the global index. On top of it, you can set up an offshore business with 0% exemption on the earnings you make outside of Hong Kong.
Due to this business friendly environment, many new companies have also started selling on Amazon from Hong Kong. All you need to start is to incorporate a new company and business registration certificate (BRC). With companies in Hong Kong able to be 100% owned by non-residents and low capital requirements, this is a good opportunity for entrepreneurs looking to start their Amazon business in Hong Kong.
Starting a Trading company in Hong Kong
To start a trading company in Hong Kong, you should know what the basic requirements and registration process are. Trading companies in Hong Kong work with several types of goods or services and have a wide range of customers. So, business owners need to have great logistics, robust organization, and also experienced personnel.
Registering a Hong Kong trading company
A trading company in Hong Kong must be registered and incorporated in Hong Kong with the relevant authorities, just like other types of companies. The process of setting up the business is quite straightforward and easy.
Business owners need to choose the right business form. For trading purposes, a limited liability company is considered as a good business option. They are also required to choose the business’s name, appoint shareholders and directors, and pay the required fees. Once your company is set up and you have the company incorporation documents, you can start trading.
Obtain and file required Import/Export license, permits and declarations
In order to start the functioning of the business, trading companies are required to obtain the necessary licenses and permits. Since trading companies work with various types of goods, depending upon their types, a special license must be obtained from the Customs and Excise Department of Hong Kong.
It is a requirement of the import and export registration regulations that any goods or articles should file an Import/Export Declaration unless they are exempt. It is filed with the Commissioner of Customs and Excise within 14 days of the importing and exporting of the goods or articles.
Hong Kong Customs and Excise Department will thoroughly inspect all the imported and exported goods. In fact, they can also physically inspect the cargo, if it doesn’t fit with the requirements.
To engage in the import and export activities, the business owners need to follow a set of basic procedures along with the documents to get the import or export customs clearance.
Export and import procedures and required documents
The importer is required to submit the ”Removal Permit” to the Customs Department to get the clearly imported dutiable goods. However, while dealing with the dutiable commodities, a permit holder should be aware of the following points-
- Within the approved removal date and time, the goods should be removed.
- From the departure point, the goods should be removed and directly ship to the designated receiving point; and
- As per the permit, the description, packing, and quantity of the should be matched with the mentioned details.
Below are the documents that require the import/export clearance:
- Manifests
- Bill of lading
- Airway bill or any other similar document
- Invoice
- Packing list
- Pro Forma invoice
- Insurance
- Inspection Certificate
- Sales contract
- Import/export license, removal permit, etc.
Export and Import Taxes
While operating a business in Hong Kong, you should be aware of what the export and import taxes are all about. Taxes are an essential part for the functioning of any business.
- VAT or GST- Hong Kong doesn’t impose any good or services tax and no value-added tax on the goods/articles imported or exported in HK.
- Custom Fees– Being a free port, Hong Kong doesn’t impose any customs fees on imports or exports.
- Excise Duty- Regardless of the factor that the goods or articles are imported or exported, Hong Kong imposes excise duty on only four types of goods. They include:
- Liquors
- Tobacco
- Hydrocarbon oil and
- Methyl alcohol.
For methyl alcohol, tobacco, and hydrocarbon oil, duties are charged at specific rates per unit quantity. However, for liquors, duty is assessed at different percentages based on the alcoholic strength of the liquor.
How can Startupr help you?
This is all about the procedure, required documents, and the methods to obtain the necessary import/export documents and processes. However, with enough research and support, you can organize all the required items needed to start your Hong Kong trading company.
This is where Startupr comes in. We have years of experience in managing thousands of companies over the years and handling the in and outs of doing business both in China and around the world. We can help you with information about the documents required and how to set up a company for your business in Asia. Incorporate your Hong Kong company today!