China is South Africa's largest trading partner, and this trade relationship has brought Hong Kong into focus as a vital gateway for South Africa's entry to China.
China accounted for 9.4% of South Africa's exports in 2022 and 20.2% of South Africa's imports. South African exports to China are dominated by two categories – mineral products and iron and steel products together account for 83.5% of exports to China.
The third category is precious metals, such as platinum and gold, but the expectation is that this category may this year be exceeded by the fourth largest category – fruit and vegetables. South Africa exported 108,104 tonnes of yellow maize to China between 25 March and 14 April this year, compared with average exports only 4,000 tonnes annually since 2013.
It is also notable that trade between China and the African continent as a whole reached USD94.4 billion in the first four months of 2023, up by 8.9% compared to the same period the year before.
China is also Hong Kong's largest trading partner, while Hong Kong is a key component of China's Greater Bay Area (GBA) project, an ambitious plan aimed at integrating the two SARs – Hong Kong and Macao – with the nine cities across the Pearl River Delta to ease the flow of goods, people and capital within the region.
The GBA is now the largest urban area in the world with a combined population of 72 million people and a current total GDP of about USD1.65 trillion – equivalent to the world's eleventh-largest economy – and provides a potential market 10 times the size of Hong Kong.
The Closer Economic Partnership Agreement (CEPA), entered between the Mainland and Hong Kong on 14 December 2018, further offers Hong Kong's products and firms preferential access to the China market and attracting more foreign companies to use Hong Kong as a jurisdiction to enter the Chinese market.
For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA if they satisfy eligibility criteria of a 'Hong Kong Service Supplier' or by partnering with or acquiring a CEPA-qualified company.
Hong Kong is a key international financial centre and is a very effective hub and logistics base with excellent access to the Chinese market. Along with a well-developed business-friendly environment and the freest economy in the world, Hong Kong offers significant commercial opportunities. Hong Kong will remain a key gateway for South Africa to access Mainland China for the foreseeable future.
Strategically located at the centre of Asia – all the region's key markets are within a four-hour flight and half of the world's population is within a five-hour flight – it is easy to see why over 8,000 businesses and companies have made Hong Kong their home. Many have placed their strategic functions, including sales, operations, research and development (R&D), distribution, regional headquarters and corporate treasury centres in the city.
There are five compelling reasons that make Hong Kong the top location for setting up a business to trade with the Chinese Mainland and to do business in Asia.
1. Swift business set-up with 100% foreign ownership
Opening a company is relatively quick and easy, company registration costs are low, and the overall environment encourages businesses to thrive. There are no restrictions on inbound or outbound investment and there are no nationality restrictions on company ownership. Foreigners can invest in almost any business and own up to 100% of the equity.
A company can be incorporated at the Companies Registry (Hong Kong) with any amount of share capital. There is no statutory requirement for a minimum amount of paid-up capital. There is also no requirement for a local resident director and a corporate director can also be appointed in addition to the individual director. In terms of shareholders, a private limited company can have a minimum of one and a maximum of 50 shareholders (100% foreign ownership is allowable) and nominee shareholders can be appointed. Directors and shareholders meetings can be held anywhere in the world.
Private limited companies can be registered in one to two working days and can then take advantage of all the tax benefits and concessions available to any fully incorporated business in Hong Kong, including the CEPA.
2. Low, simple and highly competitive tax system
Businesses and individuals in Hong Kong enjoy one of the most tax-friendly systems in the world. Under the two-tiered profits tax regime, corporations pay only 8.25% on the first HKD2 million of assessable profits, rising to 16.5% for profits above that amount. For unincorporated businesses (partnerships and sole proprietorships), the tax rates are 7.5% and 15% respectively.
All profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from trade, profession or business are taxable in Hong Kong. There is therefore no distinction made between residents and non-residents. A resident of Hong Kong can therefore receive profits from abroad without incurring tax in Hong Kong, even if they are remitted to Hong Kong.
Individual tax rates are also low. The salaries tax has a standard rate of 15% and property tax is 15%. There is no sales tax or VAT, no withholding tax on dividends and interest, no capital gains tax, no tax on dividends and no inheritance tax.
3. Robust legal system based on English common law
Hong Kong is the only common law jurisdiction within China and has built a well-established commercial case law that is highly regarded by the international business community and foreign investors. The common law system is maintained under Article 8 of the Basic Law and the Law Reform Commission aims to maintain a reputation for excellence in law reform, both internationally and in Hong Kong.
According to the World Economic Forum's 2019 judicial independence rankings, which is a ranking of courts that are not subject to improper influence from the other branches of government or from private or partisan interests, Hong Kong ranks first in Asia and eighth overall globally, for judicial independence.
In respect of arbitration-related matters, Hong Kong's arbitration ordinance is based on the United Nations Commission on International Trade Law Model Law which reflects international best practice. Hong Kong also has a unique advantage for arbitrations involving interests in mainland China as the only other jurisdiction where the mainland courts can grant interim measures in aid of a foreign arbitration if administered by an institution.
4. Competitive international financial platform
With its strengths in banking, capital markets and asset management, Hong Kong provides an all-encompassing and high-quality financial platform for investors, financiers, asset managers, funds and financial institutions from all over the world. Hong Kong is also a preferred location for corporate treasury centres.
The quality of Hong Kong's banking system enables it to play a key role in the region and offer a wide variety of products and services. Hong Kong is Asia's largest banking hub for Chinese and international banks with 200 authorised banking institutions, including the world's largest, and 70 of the world's top 100. In light of recent technological advancements, a number of initiatives have been launched to move Hong Kong into a new era of Smart Banking.
It is common for corporates to use corporate treasury centres (CTCs) to simplify and centralise their treasury activities. Being an international financial centre with a full range of services available, Hong Kong is an ideal hub for corporate treasury activities. To encourage more corporates setting up their CTCs in Hong Kong, the government has also introduced tax incentives.
5. In addition, Hong Kong has a superb infrastructure, which meets its population's needs and contributes to the efficiency and growth of the economy. It also has business friendly immigration policies, offering visa-free entry for visitors from over 170 countries and territories who can stay for between seven to 180 days, as well as dedicated visa schemes for entry for investment as entrepreneurs and for employment in R&D roles.
Short-term visitors can make the most of Hong Kong's light-touch visa policies and are permitted to conduct business negotiations and sign contracts while on a visitor's visa or entry permit. Foreign nationals working in Hong Kong for longer periods of time require a visa before they can live or work in Hong Kong, but there are plenty of options including the Entrepreneur Visa, the Technology Talent Admission Scheme (TechTAS) and the Employment Visa.
Sovereign is a leading worldwide corporate services provider with over two decades of experience in the Hong Kong market. Sovereign Trust (Hong Kong) can assist with your Hong Kong company formation. We will select the most effective and efficient legal entity to suit your requirements and will then form and register the new company with the Companies Registry (Hong Kong) in line with local laws and regulations.
A company will be required to maintain a minimum presence in its place of incorporation – a registered office and a resident company secretary and/or a resident agent. We generally provide these services for all our clients and describe them as 'domiciliary services'.
Sovereign Trust (Hong Kong) also provides the necessary expertise in administering and managing companies, including company secretarial services, company law, board procedures, director responsibilities and shareholder relations, and financial and corporate compliance requirements. This will enable the company's owners to focus on their primary business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
