Not only is Hong Kong a popular tourist destination and shopping paradise but also a global business and financial hub. Strategically located in the center of Asia, Hong Kong is a metropolitan area and Special Administrative Region of China.
It is one of the world’s most densely populated places, with a population of over 7.5 million people. If you are planning to target the Asian market, then look no further than Hong Kong. It is the right place to base your online business. Now, let’s see why it is the right place to start your dropshipping business in 2021.
Here Are the Top Reasons to Set Up a Dropshipping Business in Hong Kong”
Ease of doing business
Hong Kong is one of the best places in the world to start an e-commerce business. In 2019, it took third place in terms of “Ease of Doing Business” according to the latest World Bank annual ratings. This can be attributed to various factors, including the simple and time-saving business formation process, free-market economy, advanced IT infrastructure, etc.
Large e-commerce market
With nearly 6.5 million internet users, Hong Kong had an internet penetration rate of 87% in 2019. Taking into account these numbers, it comes as no surprise that retail e-commerce sales are projected to amount to US$7.5 billion in 2021.
More importantly, Hong Kongers are digitally savvy shoppers who love online shopping, especially clothing. The clothing & apparel segment is the most popular in Hong Kong, with a projected market volume of US$2.3 billion in 2021. Having said that, starting a clothing dropshipping business in 2021 here would offer a great strategic advantage.
World-class IT infrastructure
As you probably know, IT infrastructure plays a crucial role in technology-related industries, including the e-commerce sector. This means that it is essential to the efficient operations of e-commerce businesses. Each online start-up requires proper access to reliable data centers, servers, and profound technology.
Luckily, Hong Kong has some of the most advanced IT infrastructures in the world. Its world-class IT infrastructure allows you to run your online business as efficiently and seamlessly as possible. With such IT infrastructure, you can launch and scale your business with ease and meet your customers’ needs.
Business-friendly tax system
In addition to having world-class IT infrastructure, Hong Kong also enjoys a simple and business-friendly tax system with very few and low tax rates. It actually has one of the simplest and most favorable tax systems in the world, adding to its allure to e-commerce businesses, especially start-ups.
Efficient banking system
With the highest concentration of banking institutions in the world, Hong Kong is considered one of the leading international financial centers. It is home to over 70 of the world’s largest banks and over 30 international banks. But why is this so important for e-commerce businesses?
As a new online merchant, you can take advantage of Hong Kong’s efficient banking system. That is to say, you can access a plethora of banking services, from international money transfers to multi-currency accounts.
Now that you have a few reasons to start an e-commerce business in Hong Kong, let’s talk about how to do that.
How to Start an Online Business While Complying With the Laws and Regulations in Hong Kong
Pick a business name
Naming your business is the first part of the process of starting an e-commerce business in Hong Kong. While choosing a name for your business, you must follow specific criteria set out by the Hong Kong government.
Namely, you must register your business with a Chinese name, an English name, or a Chinese and an English name. Using a combination of Chinese and English characters in a business name is not allowed. Chinese business names have to end with “有限公司”, whereas business names in English have to end with the word “Limited”.
You must choose a unique name for your business to avoid legal problems. Therefore, it is a good idea to check if the name is available. You can do so through the Intellectual Property Department Online Search System, the Company Search Mobile Service, and the Cyber Search Center. For more information on this topic, refer to the Company Names Guideline.
Select the most appropriate form of business ownership and register your business
Selecting the right legal structure for your business begins with analyzing your business goals.
First, you need to identify what you are working toward as a business. Then, you need to consider what effects each structure may have on your personal liability, taxes, autonomy & control, and daily business activities. Finally, you need to weigh up the pros and cons of each structure. In addition, you should carefully evaluate which one best meets the specific needs of your business.
Remember that the best structure for your online business is the one that gives you the perfect balance of legal protections and benefits.
We have outlined the most common forms of business ownership in Hong Kong:
This form of business ownership is appropriate for small-scale and low-risk businesses, particularly those run by only one person. A sole proprietorship is a non-incorporated entity.
While it is easy to set up and gives you full control over your business affairs, it is not your best choice for asset protection. To put it simply, your personal assets will not be protected, provided that your business faces a lawsuit.
To set up a sole proprietorship, you must register it with the Inland Revenue Department’s Business Registration Office. You must also get a Business Registration Certificate (BRC).
If you are a non-resident and want to become a sole proprietor, it is recommended to engage a Hong Kong company formation firm to register the business on your behalf. After registering your sole proprietorship in Hong Kong, you are obliged to apply for an Investment Visa.
If you want to work together with someone, who can complement your lack of knowledge and skills to operate an online business, then consider registering a partnership.
In Hong Kong, you must clearly state the responsibilities and profit and loss distribution of each partner in a partnership agreement. This is actually a mutual agreement among partners. It is regulated by the Partnership Ordinance.
The most common type of partnership in Hong Kong is a Limited Partnership. This is because it offers personal asset protection to limited partners. You have to register your business with the Companies Registry and apply for a Business Registration Certificate to set up a limited partnership.
But keep in mind that this form of business ownership is not recommended for people who reside outside of Hong Kong. Mainly because there might be further difficulties in incorporation.
Limited Liability Company
A private limited liability company is the most popular form of business ownership among e-commerce entrepreneurs in Hong Kong. It is very popular as it offers personal asset protection. In this business structure, no one can hold you personally responsible if your business suffers a loss.
Setting up a limited liability company in Hong Kong is usually a simple and fast process. The first thing you need to do is to register your company with the Companies Registry under the Companies Ordinance. If you do not live in Hong Kong, you can register your company without even visiting Hong Kong. You do not have to be physically present to register a company in Hong Kong. E-registration is available to both residents and non-residents.
Another important thing you need to consider is that your company must have a registered physical address in Hong Kong. Also, appointing a Company Secretary based in Hong Kong is obligatory. It can be either an individual or a business.
While you are reading this, you may be feeling a bit discouraged. But you should not feel that way because we are here to help! As mentioned earlier, starting a company in Hong Kong is a simple process.
Plus, you do not have to hire a full-time company secretary or rent an office. Many local professional firms and agencies are willing to provide these services to you for about US$700 annually. Some of the best agencies for this purpose are Startupr, Indah Global Limited, BBCIncorp, and Hawksford, to name a few.
Whether you want to set up a sole proprietorship, partnership, or company, you must register your business within one month from the date of commencement of business.
Register for taxes
Taxes are the biggest challenges e-commerce entrepreneurs face when setting up their online businesses. However, Hong Kong has one of the most favorable tax systems with low tax rates, especially for foreign investors.
In other words, Hong Kong has a territorial tax system. This means that you do not have to pay corporate tax on profits derived from selling products online to people outside of Hong Kong. But if you are selling products online to people residing in Hong Kong (gain profits within the boundaries of Hong Kong), then you must pay taxes on your profits.
You do not have to worry about registering for Capital Gains Tax, Inheritance Tax, or Withholding Tax. Why? Because Hong Kong does not impose these types of taxes.
The Inland Revenue Department (IRD) collects taxes in Hong Kong. So, visit its official website to learn more about how to register for the right ones.
Apply for business permits and licenses
Each online business in Hong Kong is not required to apply for a business permit or license. You are planning to sell products online in Hong Kong, right? In such a case, the type of products you are going to sell will determine whether you need a business license or not. So, it’s smarter to find products for your dropshipping store before applying for any type of license.
For example, you don’t usually have to obtain a license or permit for selling clothing in Hong Kong. But if you are about to sell Chinese herbs or cosmetics online, you must apply for a business license with the Hong Kong’s Department of Health. For more information on this topic, visit this page.
- Open a business bank account
With a large number of financial institutions to choose from in Hong Kong, you really have various options to find the best bank for your business needs. However, opening a traditional business bank account may not be an easy task.
To be more specific, banks in Hong Kong will ask you to provide in-depth information about your business. This includes official company documents, proof of address, a business plan, etc. They may also ask you to physically visit Hong Kong to open a bank account for your business.
But, fortunately, there is a seamless way to open a bank account for your e-commerce business in Hong Kong. If you are a foreigner, you can take advantage of virtual banking in Hong Kong. Many fintech solutions such as Currenxie, Neat, or Wise offer a completely online and super-fast registration process and multi-currency account availability.
Other Legal Tips for Online Start-UPS
In Hong Kong, there are no specific laws that regulate e-commerce activities. But this does not mean that you are allowed to engage in unfair trade practices. As an online merchant in Hong Kong, you must comply with the existing consumer protection laws. These laws are the Sale of Goods Ordinance and the Trade Descriptions Ordinance.
As a global business and financial hub, Hong Kong boasts an efficient banking system. This includes an incredibly favorable tax regime, world-class IT infrastructure, a strategic location, and a welcoming business climate. With the abundance of lucrative opportunities for online merchants, it is unsurprising that millions of people from all over the globe are looking to participate in its fast-growing e-commerce industry.
This place provides the essential motivational framework required for e-commerce start-ups. So, belive in yourself, take the entrepreneurial leap, and start selling online in Hong Kong! Try to follow these guidelines as best as possible to avoid making some of the biggest mistakes in dropshipping and in e-commerce in general.