Archive 29 September 2021

Are e-Commerce increasing margins just by incorporating a Hong Kong company?

e-Commerce: Hong Kong company?

China is the world factory; Hong Kong is a Chinese city with unlimited access to thousands of suppliers and millions of products. Although the access to product’s information with Alibaba and the likes is easy, purchasing in China could be a little bit difficult, in the past Hong Kong traders were the only beneficiaries of such difficulties and this was a source a wealth which is still displayed in the city.

Major advantages of incorporating a Hong Kong company

By incorporating a company in Hong Kong e-businesses will benefit from many advantages, the first being credibility with mainland China suppliers.

  1. Send a quotation request from France to a Chinese supplier and do the same from your Hong Kong company; for the second the response time with be twice faster and the price 10-15 % lower.
  2. The possibility to pay in RMB or Hong Kong dollars to mitigate currency variations, the possibility to keep and invest in RMB, the multi-currency accounts and faster payments are also protecting the margins of the ones whom decided incorporating a company in Hong Kong.
  3. The low tax environment is only one additional advantage, the ease of operations in a pro-business environment is a crucial element.
  4. By incorporating a company in Hong Kong, you are not only gaining credibility with Chinese suppliers, you are allowing the company an easy access to China market place and favorably positioning the company to welcome investors.

Digital economy / China market

Investors in the digital economy are paying great attention to:

  • Capital gain
  • Share transfers costs
  • Sustainable and stable tax environment

Many investors in the digital economy are from mainland China, they know and respect the Hong Kong advantages.

e-Commerce: Hong Kong company?

Most importantly for a e-business acquiring an investor from Mainland China represents a lot more than its financial contribution, the strategic partnership could drastically change the company future.

A Chinese or Asian investors will show great concern about the company tax exposure, but to be fair US investors might have a totally different approach and consider that by incorporating a company in Hong Kong the founders took a tax risk and so they would prefer to get a US entity where to invest.

Conclusion

As always, the rule is to incorporate only after a due review of the project and all its impacts: on the business & on the personal situation of each shareholder and directors.

Hong Kong shares transfer is an easy process which allow flexibility to the founders to transfer their share into a foreign holding company at very low costs, so should the company situation change… it would be very easy to adapt.

The cost of incorporating a company in Hong Kong will be compensated by the savings on the first order in mainland China!

99,405 new companies were incorporated in Hong Kong in 2020, Hong Kong is home for more than 1,380,000 companies this for a population of 7.5 million only! These simple facts are showing that Hong Kong is a resilient place of business, the perfect location for e-commerce and e-businesses.

Hong Kong economic freedom attracting actors of the digital economy

digital economy

The Economic Freedom of Hong Kong is attracting several actors from the Digital Economy. Digital entrepreneurs are crossing borders, they can leave anywhere and run their companies from various tax friendly countries, but the tax environment isn’t by far their main interest.

In most countries operating a SME is complicated, digital entrepreneurs will have to dedicate a lot of time filling paperwork for many government agencies.

Everything is time-consuming but this is considered normal in absence of comparison, so instead of focusing energy on sales and marketing a bright individual will end up spending hours on laws and regulation for its activities.

Hiring a new team member, understanding a complicated tax system, reporting VAT, managing accounting and audit, filling payroll…. each topic is a waste of energy, so the impact of bureaucracy is crucial for a company development and ease of operation.

Digital Economy

The Frasier Institute publish every year an index of economic freedom and basically ranks the countries for their ease of operation for a business in digital economy to operate in a simple and efficient environment. Hong Kong is number one since 1970, out of 165 ranked countries.

Let’s compare the 2020 ranking of few countries attracting digital entrepreneurs:

  • 1st Hong Kong
  • 2nd Singapore,
  • 4th Switzerland
  • 11th Mauritius
  • 25th Spain
  • 33rd Portugal
  • 40th Costa Rica
  • 47th Italy
  • 53rd France
  • 55th Malaysia
  • 58th Philippines
  • 68th UAE
  • 70th Indonesia
  • 89th Thailand
  • 126th Vietnam
digital economy

Operating a Hong Kong company in the digital economy is allowing digital entrepreneurs to focus on their company development without distraction, surviving a heavy competition and benefiting from a low tax environment, with pro-business attitude from multi-lingual team, purchasing at better costs to the world factory next door.

Living in Hong Kong remains attractive, despite the high costs of living, as the proximity with Mainland China offers access to better sourcing and cooperation with business partners. The current quarantine requirement makes it impossible to start the immigration process but this would change soon or later.

Covid situation

China economic dominance is a fact, this is creating political tensions and adverse medias but as a matter of fact this has no bad influence on a SME operation. The only issue faced by Hong Kong is the 21 days or 14 days strict quarantine at hotel requirement which is impacting negatively the businesses.

This quarantine requirement is similar to the ones in:

  • Australia,
  • New-Zealand,
  • Japan,
  • Singapore,
  • Indonesia,
  • Philippines,
  • Vietnam,
  • Thailand,
  • Laos, etc…

so we are all facing a divided world with totally different approaches on health management.

As you don’t need to be present to setup a Hong Kong company the digital entrepreneurs are benefiting from the world freest economy and could decide to leave in a low costs’ country (under the sun) such as Thailand and others.

Reference: Interactive map - See how countries position goes up or down from 1970 till 2020