Hong Kong as a Regional Hub: A Guide for Multinational Companies
As a well established international financial centre, Hong Kong serves as the regional headquarters for multinational companies around the world. According to data published by the Hong Kong government, in 2016, Hong Kong was home to 1,379 regional headquarters. Some of these regional headquarters serve as the hub for the Asia-Pacific Region. Others serve as the hub for the Greater China region, a function consistent with Hong Kong's traditional role as the gateway to and from the People's Republic of China ("PRC").
The reasons why Hong Kong is preferred as a regional hub by so many multinational companies are numerous.
Legal System and Rule of Law
Perhaps the most important reason multinational companies choose Hong Kong as a regional hub is its legal system. The Hong Kong legal system is underpinned by the rule of law, an independent judiciary and an English common law tradition.
Though concerns were voiced as to whether the rule of law and the independence of the judiciary would continue following the 1997 handover of Hong Kong back to the PRC, the experience since the handover has demonstrated that the rule of law remains very much intact and the judiciary remains very much independent. The World Economic Forum's Global Competitiveness Index 2017-2018 rankings of judicial independence as well as ethics and corruption places Hong Kong in a peer group that includes major common law jurisdictions such as the United Kingdom, Canada and Australia. The rankings place Hong Kong ahead of a number of major economies including Japan, the United States and France on both these key indicators.
At the top of the judiciary lies the Court of Final Appeal, a court staffed not only by local Hong Kong judges but also some of the best judges from leading common law jurisdictions, including the United Kingdom, Canada and Australia. The independence of the judiciary and its legal talent, particularly at the top, as well as the rule of law ensure that no one is prosecuted without due process and that commercial disputes can be resolved through a fair process on the basis of a laws which are understandable, if not familiar, to businessmen accustomed to operating in the developed world and, in particular, economies the legal system of which is based on English common law.
Hong Kong is a special administrative region of the PRC with a legal system and institutions distinct from the mainland of the PRC. According to the World Bank, in 2016, the PRC was the second largest economy in the world. Because it is part of the PRC, Hong Kong enjoys a high degree of linkage to the PRC mainland. The linkage takes a number of forms, including a shared time zone, transportation infrastructure to and from Hong Kong and the PRC mainland as well as a common language and culture. Given the many advantages of doing business in Hong Kong, the linkage makes Hong Kong the ideal base for multinational activity into and out of the mainland of the PRC.
At the same time, Hong Kong is strategically located within the Asia-Pacific region. This geographical location means that Hong Kong is in the same time zone as many economies in the Asia-Pacific region and that it is possible to quickly fly to most business centres around the Asia-Pacific region. All key markets within the Asia-Pacific region are accessible by air within 4 hours and over 100 airlines fly from Hong Kong to 190 destinations around the world.
Hong Kong operates a free and open market with minimal governmental interference. There are few barriers to trade and the regulatory environment is generally light. There are no foreign exchange restrictions. According to the 2018 Freedom Index published by the Heritage Foundation, Hong Kong ranks the highest in the world in freedom of business, which measures the extent to which regulation and infrastructure constrains the efficient operation of business, and freedom of trade, which measures the extent to which tariff and non-tariff barriers affect the import and export of goods and services.
Hong Kong's infrastructure is world class. The Global Competitiveness Index 2017-2018 published by the World Economic Forum ranks Hong Kong's infrastructure as the best in the world, taking into account road, railway, port, airport, electricity and telecommunications infrastructure.
Hong Kong is widely known as a tax friendly jurisdiction. Profits tax rate is levied at a flat rate, which is currently 16.5% with a concessionary rate of 8.25% for the first HK$2 million (approx. US$250,000) of income earned by a business.. By international standards, the tax rate is considered to be low and the establishment of a regional headquarters in Hong Kong can allow multinationals to reduce overall tax burdens. A concessionary rate of tax is available for any corporate treasury center located in Hong Kong.
There are no taxes on gains in the value of capital assets and no taxes on interest earned on bank deposits. Dividends are generally exempt from tax.