startup business - HKWJ Tax Law

Startup – Are You Ready to be an Entrepreneur?

Have you ever thought of creating your own business? Some people are of the view that it would be especially good for the young generation to start their own business due to their creativity, flexibility, hunger for success, fearlessness and technology knowledge. The young entrepreneurs are capable of bringing new ideas and skills to the traditional business/industries. Facebook, Instagram and ‘ofo’ are all good examples of startups by young entrepreneurs.

Favourable Tax Factors for a Startup

For the last about 15 years, Mainland China has been undergoing an economic restructuring i.e. from focusing on the traditional manufacturing industries it went into the development of new innovation and technology industries. With the implementation of the “One Belt One Road Initiative”, the Chinese market will be further opened and hence the business opportunities will be further enhanced, not only in Mainland China but also in Hong Kong and other connected jurisdictions.

  • Mainland China Startups

The Chinese government authorities have introduced a number of policies to support startups, medium sized enterprises, and foreign investment in China. For example, there are some favorable tax treatments, such as

  1. The reduction of enterprise income tax rate from 25% to 15% for those entities qualified as a high technology enterprise
  2. The reduction of enterprise income tax rate from 25% to 20% as well as reduction of assessable income by half for those enterprises whose annual assessable income is not more than RMB 500,000
  3. The utilisation of certain percentage of investment capitals to offset the enterprise income tax liabilities for those eligible start-up investment enterprises, provided that certain conditions can be satisfied.

The Chinese government has issued initiatives such as One Road One Belt and the Greater Bay Area business integration of Hong Kong, Macao, Shenzhen and other cities of the Guangdong province as a business hub and economic  power house which is ripe for startups to move in due due to its appealing regulatory and tax incentives.

  • Hong Kong Startups

Hong Kong is also an ideal place for investments by youngsters. It is considered as the world’s freest economy and has well established banking and legal systems. From a tax point of view, Hong Kong adopts a simple and low tax regime. With a view to reduce the tax burdens of companies, Hong Kong has offered a tax reduction at the maximum of HK$20,000 for each enterprise per year in recent years.

The Chief Executive of Hong Kong has further proposed a two-tiered profits tax rate regime whereby the profits tax rate for the first HKD 2 million assessable profits of a corporation will be reduced from 16.5% to 8.25%, which is subject to legislation. Moreover, certain tax incentive policies have been introduced for encouraging research and development as well as purchasing intellectual property rights.

Hong Kong also provides financial supports for start-up enterprises, such as:

  • Implementing SME Financial Guarantee Scheme
  • Establishing a HKD 2 billion Innovation and Technology Venture Fund which will co-invest in local innovation and technology start-ups
  • Introducing a Pilot Technology Voucher Programme to subsidise the use of technological services and solutions by SMEs at the maximum of HK$200,000 for each eligible SME.

Apart from the government’s support, some private enterprises in Hong Kong have been setting up investment funds such as Alibaba Entrepreneurs Fund to support young people’s start-ups in Hong Kong and also encourage them to start their own business in Mainland China. The aforesaid fund has assisted more than 10 startups in Hong Kong for the past two years.

Important Factors for Establishing a New Company

Although there are a number of business opportunities and government supporting policies, young entrepreneurs have to be well aware of the legal and tax requirements/consequences of setting up a company in Mainland China and/or Hong Kong.

For example, it is required to supply relevant information and documents and obtain approval from several government authorities before a company can be set up in Mainland China. It is also required to provide, amongst others, a comprehensive business plan together with the relevant documents/information to banks for opening a new corporate bank account in Hong Kong.

If one intends to set up a new company in Hong Kong or Mainland China, it is recommended for the startup entrepreneurs to consider in advance, amongst others:

  1. What kind of business he/she would like to conduct
  2. Whether the business is encouraged, permitted, restricted or prohibited in Mainland China
  3. In which city of Mainland China he/she would like to set up the company due to the potential different policies among the industries and cities
  4. What is the mode of business operation, e.g. whether import and/or export of goods will be conducted for which import/export licenses may be required
  5. The shareholding structure & the incorporation form of the company for the purpose of achieving tax efficiency
  6. What are the tax implications of the intended business transactions in all the relevant tax jurisdictions
  7. Who should be the directors/legal representative of the company.


There are plenty of business opportunities for startups in Mainland China and Hong Kong. Young people may use their talents and knowledge to grasp these opportunities and develop their own business. By paying attention to the related legal and tax issues, their business can be operated even more smoothly and profitable.

We can assist you to get you started with your business registration and providing you with our expert advice and business support that you need to make your startup as success story.

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