Hong Kong can be a strong jurisdiction for some companies, but it is not a simple “default” offshore solution. The main drawbacks are banking difficulty, annual audit requirements, expensive substance, misunderstood tax treatment, and currency/payment infrastructure issues.
Banking can be difficult
Banking is one of the biggest practical problems for new Hong Kong companies.
In the past, a Hong Kong company with a Hong Kong bank account was comparatively easy to use. That has changed. Banking has become tighter, especially for newly formed companies without an operating history.
A company with an established track record, visible transaction history, and a real business background may have a different experience. Visiting Hong Kong in person may also help. But for a new company, access to high-quality banking can be difficult.
Possible alternatives include:
- Electronic money institutions operating in Hong Kong
- Banks or EMIs outside Hong Kong
- Singapore banking
- European EMIs
The caveat is that some EMIs may be restrictive about the types of businesses they accept and may close accounts quickly if the business does not fit their profile. For many companies, the inability to secure reliable banking can make Hong Kong impractical.
Annual audited financial statements add cost and administration
Hong Kong companies generally require annual audited financial statements. This increases both cost and administrative work.
The process can be useful in some situations. Audited accounts may improve credibility with banks, investors, or counterparties. They can show that the company has formal financial records and a clear annual reporting history.
However, for small or simple businesses, the audit requirement can become a recurring burden. Depending on transaction volume, the audit may add a few thousand dollars per year in extra costs, along with the time needed to prepare and complete the process.
Hong Kong is described as business-friendly, with clear rules and predictable enforcement. But the annual audit still makes it less convenient than jurisdictions where small companies can avoid audited statements below certain thresholds.
Real substance in Hong Kong is expensive
More companies now need real substance in the jurisdiction where they are formed. This means more than simply registering a company on paper. A company may need people, operations, office space, and real activity in that location.
Hong Kong is not ideal for low-cost substance.
The main issues are:
- Office space is expensive because Hong Kong real estate is among the most expensive in the world.
- Wages are not especially low.
- The employment market is competitive.
- The value received for the cost of creating local substance may be poor compared with other jurisdictions.
For a company that needs local employees or an office, Hong Kong may not offer strong cost efficiency. If a business does not want to hire people or maintain operations there, the company may also have weaker substance support.
Hong Kong is not automatically tax-free
A common misconception is that Hong Kong companies are zero-tax companies. They are not.
Hong Kong uses a territorial tax system. The key issue is where the income is considered to arise. The transcript describes this as an “operations test,” meaning tax applies to operations arising in Hong Kong.
A company may be able to apply for an offshore exemption if it can demonstrate that it has no relevant connection to Hong Kong, such as no people or operations there. But this is not automatic. It requires a process, documentation, time, and approval. It may also be denied.
This means Hong Kong can create tax complexity rather than simplicity.
If tax is payable, the rates are not always especially low compared with alternatives. The transcript gives the following figures:
- Around 8.25% under roughly $300,000
- Around 16.5% above that level
While 16.5% is not extremely high, it may not be competitive enough to justify the extra complexity. Other jurisdictions may offer lower or comparable rates, such as Hungary at 9% or Bulgaria at 10%. Some countries also have small business regimes where the tax rate may not be very different from Hong Kong’s lower rate.
For some businesses, the tax advantage may therefore be limited or nonexistent.
Currency and payment infrastructure can be inefficient
Hong Kong’s financial infrastructure may create problems for companies that operate internationally, especially around currencies and payment processing.
One issue is card availability. Hong Kong often uses China UnionPay rather than Visa, and UnionPay may not be as broadly accepted.
Another issue is the Hong Kong dollar. If a company’s revenue, expenses, or customers are mostly outside Hong Kong, the business may constantly deal with currency conversion.
For example, a company using a Hong Kong dollar-denominated card may spend in foreign currencies, have those amounts converted into Hong Kong dollars, then need to convert funds again to pay the bill. This can create unnecessary exchange-rate costs and operational inefficiency.
Payment processing can also be more expensive. Stripe and PayPal are available in Hong Kong, but the transcript says rates may be higher than in other markets. Stripe pricing is cited as approximately 3.4% plus about 45 cents per transaction in Hong Kong, compared with 2.9% in the United States and 1.4% across the EEA.
Settlement currencies may also be more limited, often involving Hong Kong dollars. For companies with customers and expenses in other currencies, this can make payment processing less efficient.
When Hong Kong may not be the right fit
Hong Kong may be a poor fit if the company needs:
- Easy banking for a new entity
- Low annual maintenance costs
- Cheap local employees or office space
- A simple zero-tax structure
- Low-cost payment processing
- Multi-currency efficiency
- Visa card access and broad payment flexibility
It may still work well in some cases, especially where the company has a real reason to be connected to Hong Kong, can manage banking, and can justify the audit, substance, tax, and currency issues.
The practical takeaway is that Hong Kong should not be chosen simply because someone else uses it or because it is assumed to be tax-free. The right jurisdiction depends on the owner’s residence, business model, clients, team location, banking needs, payment processing, tax treaties, and substance requirements.
