Setting Up A Trading Company In Hong Kong

In order to start a trading company in Hong Kong, you will have to make careful considerations and research to gain knowledge as well as information that are required. 

Hong Kong’s free trade policy is one of the main reasons behind the city-standing state’s status as one of the world’s top trading economies. Hong Kong Customs and Excise Department does not impose any tariffs on good imports and other trade barriers are kept to a minimum. 

Import/export licensing is only required when there is a legitimate need to satisfy Hong Kong’s responsibilities to its trade partners, or to meet public health, safety, or internal security concerns, according to the Hong Kong Trade and Industry Department. 

SIX REASONS TO START A TRADING COMPANY IN HONG KONG

• Reduced risk exposure – Hong Kong incorporated company is a limited liability business therefore foreign investors’ responsibility is restricted to the amount of share capital injected in the Hong Kong firm, and they are not personally accountable. 
• Legal System – Hong Kong’s legal system is built on the rule of law and the judiciary’s independence from mainland China. The Hong Kong Basic Law establishes the legal system’s constitutional basis. 
• Low tax rate – The revenue generated in Hong Kong is only 16.5%. There is also no dividend tax and no capital gain tax.
• Simple tax system – if there are no profits generated in Hong Kong, businesses can act as a zero-tax intermediary structure in your international trading business.
• Simple setup – Any foreign person or corporation can easily set up a Hong Kong company within 3 to 5 business days in Hong Kong.

The region allows shareholders from any nationality to hold 100% shareholding in their Hong Kong Company. In addition, there are no local resident director requirements. Hence the foreign director residing overseas can also be appointed as the sole director.

There is no requirement for paid-up capital – this is a great cost-cutting opportunity.

DIFFERENT TYPES OF TRADING COMPANIES IN H0NG KONG

Hong Kong, similar to its neighbouring regions, has various types of trading companies. Generally, trading companies in Hong Kong are separated into three categories of trading firms in Hong Kong. You should be aware of the following characteristics of each business entity: 

These are the three categories: 

Import Trade 

An import trade firm is the first form of business in Hong Kong. It is the art of purchasing goods and services from other countries in order to raise people’s living standards and minimise product shortages. 

Machinery and transport equipment account for 66% of total imports, followed by miscellaneous produced commodities (14%), manufactured goods (9%), and food and live animals (2%). (4 percent). China (47 percent), Taiwan (8 percent), and Singapore (8 percent) are the top three import partners (7 percent).

Trade in Exports 

Export trade is the second sort of trade. It refers to the sale of locally produced goods and services to foreign countries. 

Gold ($33 billion), broadcasting equipment ($7.28 billion), gas turbines ($6.57 billion), integrated circuits ($5.94 billion), and telephones ($4.58 billion) are Hong Kong’s top exports, with the majority going to China ($25.9 billion), the United Kingdom ($14.8 billion), India ($14.2 billion), Switzerland ($12.1 billion), and the Netherlands ($5.72 billion).

Trade Entrepot 

Simply put, it is a type of international trade that includes both import and export transactions. 

This type involves importing goods and services from one country in order to export them to other regions of the world. The imported items are not sold or consumed in the nation of origin. Hong Kong, Singapore, Amsterdam, and London are traditionally key centres for entrepot trade.

GETTING A HONG KONG TRADING FIRM REGISTERED

A trading company in Hong Kong, like any other sort of business, must be registered and incorporated with the appropriate authorities. The procedure of starting a business is simple and straightforward. 

The correct business form must be chosen by business owners. A limited liability company (LLC) is a good business solution for trading activities. They must also select the company’s name, appoint shareholders and directors, and pay the necessary costs. You can begin trading once your company is set up and you have the company incorporation documents. 

Import/Export licenses, permits, and declarations must be obtained and filed. 

Trading companies must obtain essential licenses and licenses in order to begin operating their business. Because trading enterprises deal with a variety of items, a special licence from Hong Kong’s Customs and Excise Department is required. 

Under the import and export registration rules, all products and articles must file an Import/Export Declaration unless they are exempt. Within 14 days of the goods or articles being imported or exported, it must be filed with the Commissioner of Customs and Excise.

All imported and exported items will be thoroughly inspected by the Hong Kong Customs and Excise Department. In reality, if the shipment does not meet the requirements, they can personally inspect it.

PROCEDURES FOR EXPORT AND IMPORT, AS WELL AS REQUIRED PAPERS

To obtain the obviously imported dutiable items, the importer must file a “Removal Permit” to the Customs Department. However, a permit holder should be mindful of the following points while dealing with dutiable commodities: 

• The goods must be removed within the specified removal date and time. 
• The products shall be removed from the departure point and shipped directly to the designated reception destination; and 
• According to the permission, the description, packing, and quantity must match the specified information. 

The following papers require import/export clearance: 

• Manifests, 
• Bills of Lading, 
• Airway Bills and other documents of a similar nature 
• Packing list 
• Invoice 
• Import/export license 
• Pro Forma invoice 
• Insurance 
• Inspection Certificate 
• Sales Contract

Taxes on exports and imports 

If you have already set up a Hong Kong Company and considering the tax implications for your import and export activities. Read on further, as we have highlighted the most crucial.

VAT or GST:

Hong Kong does not levy a goods and services tax or a value-added tax on products or items imported or exported into the territory. 

In Hong Kong, there is no VAT or sales tax. The standard rate of the Goods and Services Tax (GST) is 5%. GST is collected from taxable products and services by the Inland Revenue Department. 2.30 GST is charged at a standard rate of 12.5 percent on all non-zero-rated or tax-exempt goods and services.

Custom Fee:

Hong Kong does not charge customs fees on imports or exports because it is a free port. 

Excise Duty:

Only four types of commodities are subject to excise duty in Hong Kong, regardless of whether they are imported or exported. Liquors and tobacco are among them. 

Methyl alcohol with hydrocarbon oil.

Duties are levied at particular amounts per unit quantity for methyl alcohol, tobacco, and hydrocarbon oil. Duty on liquors, on the other hand, is calculated at different percentages depending on the alcoholic strength of the liquor.

Liquor with alcoholic strength more than 30% will have to pay 100% tax rate whereas liquor, other than wine, with an alcoholic strength of not more than 30% will pay 0% tax rate. 

FREE TRADE AGREEMENT BETWEEN HONG KONG AND CHINA

One of the advantages of establishing a trading company in Hong Kong is that Hong Kong-based trading companies can take advantage of the Hong Kong-Mainland China Free Trade Agreement (FTA). 

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is a bilateral free trade agreement that took effect in January 2004 between mainland China and Hong Kong. Hong Kong-based enterprises and Hong Kong-made items benefit from preferential access to the mainland Chinese market under CEPA.

In particular, all Hong Kong-made items exported to mainland China will be duty-free. Each consignment of goods exported to the mainland must be accompanied by a Certificate of Hong Kong Origin – CEPA issued by the Trade and Industry Department or one of the five Government Approved Certification Organizations (i.e. the Hong Kong General Chamber of Commerce; Federation of Hong Kong Industries; the Chinese Manufacturers’ Association of Hong Kong, the Chinese General Chamber of Commerce, and the Indian Chamber of Commerce) in order to claim the tariff preference.

CEPA also makes it easier and faster for certain Hong Kong-based service providers to access the mainland China market. 

CEPA also helps to facilitate trade and investment between Hong Kong and the mainland in a number of crucial areas, including customs clearance, trade and investment promotion, and law and regulatory transparency, among others.

DECLARATION OF IMPORT/EXPORT IN HONG KONG

Every person who imports or exports any goods or articles (except exempt goods/articles) must file an Import/Export Declaration with the Commissioner of Customs and Excise within 14 days of the goods or articles being imported or exported, according to the Import and Export (Registration) Regulations. The declaration can be filed electronically through government-approved service providers. 

Procedures for Import/Export Clearance 

The Hong Kong Customs and Excise Department will rigorously inspect all import/export related paperwork in order to clear imported commodities or products that are to be exported. When the Customs Department believes it necessary, it may conduct a physical investigation of the consignment.

The importer must file a ‘Removal Permit’ to the Customs Department in order to clear imported dutiable goods. When dealing with dutiable commodities, a permit holder should remember the following: 

The products must be removed within the allowed removal date and time; they must be removed from the releasing location and transported directly to the designated receiving site; and they must be removed from the releasing location within the approved removal date and time. 

The items’ description, amount, and packaging must all match what is specified in the permission. 

The following documents are necessary for import/export clearance: 

Manifests, bills of lading, airway bills, or any other document of a similar nature, invoices or packing lists, and other documents such as import/export licences, removal permits, and so on.