Why Foreign Companies Relocate to Hong Kong

Why Foreign Companies Relocate to Hong Kong

Geographical proximity to China and the Greater Bay Area

As a Special Administrative Region (SAR) of China, Hong Kong enjoys a highly active and cooperative business relationship with the mainland. It is both Hong Kong's leading conduit for foreign investment and its primary offshore capital-raising center. As one of the world’s largest IPO markets, Hong Kong is expected to attract more Chinese companies to list amid tensions between the US and China.


Hong Kong’s geographic position enables businesses to easily tap into the various opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and the mainland market. The GBA – now the world's largest and most populated bay area in the world – will strengthen Hong Kong’s geographical and economic ties with the mainland.

Hong Kong has been actively seeking to expand its Free Trade Agreement (FTA) network to secure favorable conditions for its goods and services to enter the mainland and international markets.

Hong Kong has signed eight FTAs:

Hong Kong is currently negotiating investment agreements with Saudi Arabia, Bangladesh, Egypt, and Peru. Additionally, efforts are underway for Hong Kong's early accession to the Regional Comprehensive Economic Partnership (RCEP). 

Effective from March 1, 2025, the Second Agreement Concerning Amendment to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) Agreement on Trade in Services introduces new liberalization measures across several service sectors. These measures aim to enhance market access for Hong Kong businesses in Mainland China. 

The recent CEPA amendments allow Hong Kong businesses to adopt local laws and arbitration services for their operations in Mainland China, providing greater legal certainty and flexibility.

Mainland China and Hong Kong CEPA

The Mainland and Hong Kong Closer Economic and Partnership Arrangement (CEPA) holds significant importance. It provides expansive opportunities for Hong Kong’s goods and services, further enhancing the economic cooperation and integration between the Mainland and Hong Kong.

CEPA follows a progressive building block approach, with both sides collaboratively introducing ongoing liberalization measures.

Despite Hong Kong's integration with China, variations exist in terms of tariffs, duties, and Hong Kong's status as a Free Port. Mainland China and Hong Kong established CEPA in 2003 to address these distinctions. CEPA is an evolving Free Trade Agreement (FTA), continually expanding its scope and content.

CEPA encompasses four broad areas:

Trade in goods

Trade in goods has been fully liberalized. Hong Kong’s products that fulfill the CEPA rules of origin (ROO) requirements can enjoy zero-tariff treatment upon importation into the mainland.

Trade in services

Substantial progress has been made in liberalizing service trade between the Mainland and Hong Kong. Businesses and individuals in Hong Kong's service sectors can leverage preferential arrangements to conduct and expand their operations in most Mainland sectors.

Investment

Hong Kong investments and investors enjoy investment protection and facilitation in the mainland.

Economic and technical cooperation

The two sides have agreed to enhance economic and technical cooperation in various areas to cater for and support the development between the two places and promote collaboration in the financial and trade zones of the Belt and Road Initiative and Sub-regional Cooperation.

Hong Kong - New Zealand CEPA

The Hong Kong-New Zealand Closer Economic Partnership Agreement is Hong Kong's first FTA with a foreign economy and the second FTA following the Closer Economic Partnership Arrangement with Mainland China.

New Zealand was Hong Kong's 42nd largest trading partner in 2022, with merchandise trade amounting to HK$7.7 billion (US$984 million) in 2022. Regarding services trade, New Zealand was Hong Kong's 37th largest trading partner in 2021, with bilateral services trade amounting to HK$1.1 billion (US$140 million).

The CEP Agreement is a comprehensive and high-quality FTA that is entirely consistent with the rules of the World Trade Organization. It comprises trade liberalization measures for trade in goods and services between the two signatories.

Hong Kong and the member states of the EFTA FTA

Hong Kong and the Member States of the European Free Trade Association States, namely Iceland, Liechtenstein, Norway, and Switzerland, signed a comprehensive FTA in Liechtenstein on June 21, 2011. This agreement is Hong Kong's first FTA with the European economies.

It is an essential milestone in Hong Kong's trade relations with the four EFTA states.

The agreement covers trade in services and goods, investment, and other trade-related issues, such as intellectual property protection.

The European Free Trade Association (EFTA), taken as a single entity, was Hong Kong's 16th-largest trading partner, with merchandise trade between the EFTA and Hong Kong amounted to HK$80.9 billion (US$10.3 million) in 2022. The EFTA was the 14th largest trading partner for services, with bilateral services trade totaling HK$13.5 billion (US$1.7 million) in 2021.

Hong Kong and Macao CEPA

Macao was Hong Kong’s 18th-largest trade-in goods partner in 2021, with bilateral trade between these two economies amounting to HK$69.5 billion (US$8.8 million). Further, Macao ranked 21st among Hong Kong’s trade-in service partners in 2021, with a total bilateral trade of approximately HK$5.1 billion (US$652,402).

Macao also played a significant role as the 17th major source of inward direct investment (IDI) into Hong Kong at the end of 2021. The total stock of IDI from Macao to Hong Kong was HK$38.4 billion (US$4.9 million). Furthermore, Macao was the 12th major destination for outward direct investment (ODI) from Hong Kong, with the stock of ODI in Macao amounting to HK$97.6 billion (US$12.4 million) at the end of 2021.

These figures underscore the significant economic bonds between Hong Kong and Macao, with robust trade and investment activities playing a pivotal role in strengthening their bilateral relations.

ASEAN-Hong Kong FTA and Investment Agreement

The AHKFTA and AHKIA cover goods, services, investment, cooperation, dispute resolution, and more. They benefit trade partners and foreign investors in Hong Kong, mainland China, and ASEAN, fostering trade and investment growth.

ASEAN nations must reduce customs duties on Hong Kong goods, cutting costs for Hong Kong businesses and boosting competitiveness globally.

Hong Kong’s service sector gains in professional, business, telecom, and construction services. The investment agreement ensures fair opportunities in ASEAN countries, with compensation for unforeseen losses.

Hong Kong, a key hub for global trade and services to mainland China and ASEAN, strengthens its role with the FTA, attracting foreign investors and ASEAN SMEs.

ASEAN ranks Hong Kong second in merchandise trade in 2022 and fifth in services trade in 2021, with HK$1.2 billion (US$153,503) in merchandise trade in 2022 and HK$101.1 billion (US$12.9 million) in services trade in 2021.

Hong Kong and Georgia FTA

The FTA, which entered into force on February 13, 2019, aims to enhance trade and investment flows between the two regions by providing legal certainty and better market access. It covers various areas, including trade in goods and services, investment, and dispute settlement.

Under the agreement, Georgia will eliminate import tariffs on 96.6 percent of its tariff lines for Hong Kong's products, while Hong Kong will grant tariff-free access to all products originating from Georgia. The FTA also establishes provisions for customs cooperation, technical barriers to trade, and sanitary measures, along with commitments regarding trade remedies such as anti-dumping and countervailing measures. Overall, the agreement serves as a strategic gateway for Hong Kong to access the Caucasus region and aligns with the Belt and Road Initiative.

Hong Kong and Australia FTA

Under the HKAFTA, a reciprocal elimination of import tariffs will be enforced on all goods from Australia and Hong Kong. Some goods, such as consumables, can now enter the market via simplified procedures.

Financial, professional, accounting, engineering, construction, education, transport, and logistics providers are now guaranteed market access and treatment similar to local service provider counterparts under like circumstances.

The HKAFTA also allows deeper financial ties to be forged, as Australian banks in Hong Kong have access to streamlined establishment requirements in Hong Kong.

Moreover, business travel will be made easier through the agreement as temporary entries may be granted to Hong Kong and Australian business travelers to improve the ease of business in each location.

The HKAFTA aims to safeguard many of the liberal trade policies currently adopted by Hong Kong and Australia and commits both economies to eliminate all tariffs. It will bring relief to manufacturers, suppliers, and businesses alike.

Hong Kong and Chile FTA

Chile ranked as Hong Kong’s 3rd largest trading partner in Latin America in 2021, with the total bilateral merchandise trade reaching HK$20.9 billion (US$2.6 million).

The trade agreement between Chile and Hong Kong covers various aspects such as trade in goods and services, investment, and other related areas. Remarkably, it marks the first Free Trade Agreement (FTA) between Hong Kong and a South American economy, presenting promising opportunities for Hong Kong businesses to access the Chilean market, both an emerging market and a gateway to the broader South American region.

This FTA also extends Hong Kong’s FTA network to the American region, complementing its connections with the Asia-Pacific and European regions.

Did You Know
The agreement, signed on September 7, 2012, emerged after three rounds of negotiations. This development highlights the growing economic ties between Hong Kong and South America.

Alongside the FTA, Hong Kong and Chile have signed a separate Memorandum of Understanding (MoU) on Labor Cooperation. This MoU addresses labor-related matters of mutual interest between the two nations, further enhancing their bilateral relations.

Hong Kong and Peru FTA

Peru is a significant trading partner for Hong Kong in Latin America, ranking fifth among its merchandise trading partners in the region with a bilateral trade value of HK$5.2 billion in 2023.

The FTA is comprehensive, covering trade in goods and services, investment, intellectual property, and dispute settlement, among other areas. Under the agreement, Peru will eliminate tariffs on 98.3 percent of its tariff lines for Hong Kong's goods, with most tariffs taking immediate effect upon the FTA's entry into force.

Conversely, Hong Kong will maintain its zero-import tariff regime for all goods originating from Peru. The FTA also establishes procedures for customs facilitation and cooperation on technical barriers to trade and sanitary measures, enhancing transparency and predictability in trade. Overall, the FTA aims to provide a favourable environment for Hong Kong traders and investors to expand into Peru and the broader Latin American markets.

Double Taxation Avoidance Agreements

Hong Kong has signed comprehensive DTAs with 51 countries and is negotiating agreements with 17 others. The DTAs specify the tax rates for dividends, interest, royalties, and technical fees these countries can charge Hong Kong residents. The methods for eliminating double taxation are outlined in each DTA or the country's domestic law, with the tax credit method being the most common.

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Hong Kong's Double Taxation Agreement (DTA) network provides a mechanism to mitigate the challenge of double taxation faced by global investors. Hong Kong follows a territoriality-based taxation system, taxing only income/ profit sourced in Hong Kong, thus avoiding double taxation for its residents.

Additionally, Hong Kong offers unilateral tax credit relief to its residents who operate businesses in other countries, ensuring they avoid issues with double taxation.

Further, the Mainland and Hong Kong Closer Economic Partnership Agreement (CEPA) allows Hong Kong products and services easier access to the vast mainland market.

The CEPA goes beyond China’s WTO commitments, eliminating tariffs and allowing earlier or preferential access to some service sectors. Overseas companies can also benefit from CEPA. For trade-in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin (ROO) requirements. For trade-in services, companies incorporated in Hong Kong by foreign investors can utilize CEPA as long as they satisfy the eligibility criteria of a “Hong Kong Service Supplier.”

Financial sector-wise, Hong Kong and Mainland China have made remarkable progress in opening new channels to enhance their financial connectivity, including the establishment of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect, Mainland-Hong Kong Mutual Recognition of Funds arrangement, and the most recent two-way cross-boundary Wealth Management Connect in the GBA. Hong Kong’s status as an international financial hub is expected to be further strengthened under the GBA development plan.

Simple and low tax regime

Hong Kong offers one of the most tax-friendly systems in the world. It imposes only three kinds of direct taxes – profits tax (for incorporated bodies), salaries tax (for personal income), and property tax (for income sources from Hong Kong property). There are also generous allowances and deductions to reduce the burden on taxpayers.

Did You Know
Hong Kong has no turnover taxes, including sales tax or value-added tax, making it a favorable location for profit shifting and conducting re-invoicing.

Unlike other jurisdictions, the city adopts a territorial basis of taxation – only income sources from Hong Kong are taxable. There is no distinction made between residents and non-residents. Therefore, a resident of Hong Kong can receive profits from abroad without incurring tax in Hong Kong, even if they are remitted to Hong Kong.

One of the world’s freest economies

Hong Kong’s economic system is defined as a free-market economy characterized by minimum intervention from the government, low taxation, free port trade, and a highly internationalized and modernized financial market.

As one of the most Laissez-faire economies in the world, the government’s policy is strictly non-interventionist. The absence of exchange controls, corruption-free government, and free flow of information, capital, and talents has enabled Hong Kong to maintain a free and efficient business environment for business activities and commerce.

Further, Hong Kong is well-perceived for its “free port” and straightforward customs clearing. The city has no tariffs on imported goods and quotas, no dumping tax laws, and applies excise duties to only four commodities – hard alcohol, tobacco, oil, and methyl alcohol.

Government support for businesses

Hong Kong offers robust government support for businesses, fostering a favorable entrepreneurship and economic growth environment.

The government actively promotes business-friendly policies, including simplified business registration procedures, easy access to government services through the online platform "GovHK," and streamlined visa arrangements for skilled professionals.

Keeping that in mind, foreign investors have several options to carry out business through multiple business vehicles, including:

  • A company incorporated in Hong Kong;
  • A branch office of the foreign corporation;
  • A representative office;
  • Sole proprietorship; and
  • Partnership.

While some options are more commonly adopted than others, investors are advised to choose the most appropriate business structure based on the pros and cons of each option.

Further, the government agency InvestHK also provides one-stop support services for companies looking to establish or expand their presence in Hong Kong. It offers guidance on various aspects of business development, including incorporation, taxation, and regulations.

Developed financial services landscape

Hong Kong has established itself as one of the world's leading international financial centers. Businesses in this sector can leverage several factors:

  • Prime Location: Hong Kong's strategic location has made it a go-to destination for businesses looking to tap into the vast markets of mainland China and the broader Asia-Pacific region. It serves as a crucial gateway to China's booming economy.
  • Robust Financial Infrastructure: Hong Kong boasts a highly developed and sophisticated financial infrastructure. It offers premium banking, insurance, and asset management services. Moreover, it has a strong regulatory framework and legal system that supports transparency and stability.
  • Currency Stability: The Hong Kong Dollar (HK$) is known for its stability and can be freely converted. This stability is maintained through a linked exchange rate system with the U.S. dollar.
  • Strong financial regulations: The city has a reputation for prudent regulations that adhere to international standards. Oversight is managed by institutions like the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA).
  • Global connectivity: Hong Kong is well-connected to international markets and is a central hub for foreign exchange trading, trade finance, and cross-border investment between China and the rest of the world.
  • Financial Innovation: Hong Kong embraces financial technology (FinTech) and innovation. Initiatives like virtual banks and blockchain applications are actively promoted to adapt to industry changes.
  • Belt and Road Initiative (BRI): Hong Kong plays a crucial role in China's Belt and Road Initiative (BRI) by serving as a hub for financing and advising on projects spanning Asia and beyond.
  • Wealth Management: The city has witnessed significant growth in private wealth management services, catering to high-net-worth individuals and families.

Hong Kong's status as a leading international financial center results from its strategic location, strong financial foundation, stable currency, and unwavering commitment to open markets. These elements, coupled with effective regulation and a culture of innovation, continue to draw businesses and investors worldwide.

Why invest in Hong Kong

A highly dynamic city that serves as a gateway to Mainland China and Asia, Hong Kong is the ideal place for business in Asia. Hong Kong’s business-friendly environment, low taxes, rule of law, free economy, modern infrastructure, I&T capabilities, and robust intellectual property protection will all help businesses and individuals in this most competitive and international city.

Hong Kong is a hotbed for companies looking to leverage market advantages such as:

  • An open, fair, and efficient business environment
  • Competitive tax regime
  • Excellent legal and dispute resolution services under the rule of law
  • Close proximity to markets in Asia, including mainland China
  • Leading global financial services center
  • Network of international free trade and tax agreements
  • World-class infrastructure with sophisticated support services
  • Highly skilled and multicultural talent pool and a liberal Immigration policy

Investing in Hong Kong offers a unique blend of stability, access, innovation, and opportunity in the heart of Asia. It continues to be a preferred destination for both seasoned and emerging investors seeking a prosperous and dynamic business environment.

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