5 Reasons Your Internet Business Should be Based in Hong Kong — Even if You Are in the USA

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5 Reasons Your Internet Business Should be Based in Hong Kong — Even if You Are in the USA post image

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I often say “location independent” isn’t location arbitrary. Your location matters. If you’ve got a little freedom to move around, you should use it to benefit your business.

Ian and I have been interested in offshore corporations for just over a year now. Before that time, our discussions on business structure revolved around LLC vs C-corp and California vs. Delaware. We heard about offshore corporations, but we thought they were the domain of the rich and powerful– the jetset and ballin’.

That’s changing. The barrier to entry is lower than ever. The information is out there. It’s feasible for most internet business owners to get set up in Hong Kong, Singapore, the British Virgin Islands, or elsewhere. If you run your business from your laptop, you can enjoy the same benefits that the rich, powerful, and jetset have for decades.

I’m learning about all this as I go. That’s why I’m writing about it. Please don’t take my word for it. In fact, I’m hoping for your feedback. There are many people in our forum who know way more than myself. Those are the folks who schooled me.

I owe a huge thanks to DCers Mike and Chris for flying from China to the first Tropical MBA summit in Puerto Galera. They were able to spend hours with me walking me through the details. That helped me to turn complicated information into action. I owe those guys more than a beer. They saved me 1000′s of dollars and made the whole summit worth it for me financially. Even if they hadn’t shared their business experience, those guys are tons of fun so it still would have been worth it :D (Also HT required for many DCers, but most importantly to Chris for writing up his experiences, and to Matt for being an insanely generous super-guru).

I suspect that for many internet business owners, the prospect of having a Hong Kong corporation seems distant, irrelevant, and maybe just off the radar.

Here are the 5 benefits I didn’t know about Hong Kong corporations before last year.

1) Getting a Hong Kong Corporation is Relatively Cheap and Easy.

When you are growing a business you are strapped for cash. The task of setting up offshore companies can be daunting and distracting. Setting up in Hong Kong, though, is cheaper and easier than you probably think. If you start your own company and work through a firm like Jumpstart, you can get your company started in a few weeks for about $600 USD.

You’ll also need an address and phone number– that’s about $30 USD a month for us. There are tons of companies in Hong Kong that provide that service.

The biggest expense? You’ll need to fly to HK to open a bank account. As far as I know, you can only open one in person at the bank. It only takes 20 minutes. You need to have a minimum balance in business accounts at most banks (we use HSBC), but it’s small. There are also places you can stay in central HK for $50 bucks a night on AirBnB. It’s a great place to visit anyway. Win, win! You could get all of this done for less than 2K (including travel) if you are coming from a western country.

2) Hong Kong Corporate Tax Rate is 0% For Transactions Outside of Hong Kong.

For all transactions completed outside of Hong Kong, the tax rate is zero. That’s sweet. Keep in mind for Americans this doesn’t mean you don’t pay taxes. Americans must pay taxes on all income they earn from corporations, even if they are overseas. You need to keep track of how much money you earn from that corporation and ensure you pay personal income taxes on it. It’s complicated, but that’s the basic gist. Either way you’ll save on sales taxes and corporate taxes at minimum.

3) You Can Write Off More Expenses Against a Hong Kong Corporation.

I find the US tax code stingy in what one can write off against corporations. I feel I spend most of my time working towards the success of my enterprises. Because of this, it drives me crazy that the IRS doesn’t let me write off my commute as a business expense. How about that beer I bought a client? No. What about the apartment I stay in? I rented it because it’s close to the office! No.

Here is the straight shot– if you are set up in Hong Kong you can write off a great number of expenses against your corporation that the IRS considers “personal.” This move alone could save you thousands annually.

4) Hong Kong is a World Recognized Leader in Banking and Business.

Not so pumped up about the track record of your American bank? I don’t blame you. Hong Kong’s economy is built on the idea of safe, secure, and easy banking for businesses. It’s a great first step to diversifying your assets outside of American borders.

Working with Hong Kong also won’t put you on any IRS blacklists. Also, you can easily keep and transfer your cash into multiple currencies. Hong Kong banks are highly international and adept and handling currencies from all around the world. In fact, when a customer pays me in Euros, my HK bank holds it in Euros until I tell them to transfer currencies.

Further, you’ll be able to sign up for merchant banking accounts with ease. You can have your HK Paypal account up and running 2-3 days after you walk out of HSBC’s head office in Hong Kong. Try that in the Philippines!

Finally, your customers will generally see your official company name upon checkout. In certain industries it’s a big issue. People won’t want to check out through “Tropical MBA China Co.” Hong Kong has a brand that Westerners trust more than any other in Asia.

5) A First Step Towards Globalization.

As the costs of ‘globalizing’ your business go down, taking the first step out of the door, in this case a relatively low cost one, can be a huge competitive advantage. In the first niche I entered, we crushed it because we manufactured in China. We won in our second niche because while our competition was getting Joomla themes designed by contractors in California, we had a whole team building and optimizing websites in Southeast Asia.

In my experience so far, Hong Kong feels like a better place to bank and do business than the US, and that alone is worth something. You are also only 2 hours away from the largest manufacturing base in the world, plus a short plane ride from all my favorite Southeast Asian destinations.

I see doing business in Hong Kong as our first step in making a more financially efficient company.

From what I’ve seen so far– and on this point I’m most interested in your feedback– if you run an internet business, and aren’t seeking huge investment in the US, and you have the 2K to fly off to HK and stay there a few days, you should be set up in Hong Kong.

If you are planning to set up in Hong Kong, and want to have in-depth and specific feedback on your plans, or want to compare Hong Kong with other popular offshore destinations like Singpaore, and British Virgin Islands among others, these are exactly kind of things we discuss in our forum. It’s the cheapest place in the world to get this kind of information (I’ve looked everywhere, if you know of some great place let me know) and it’s chock-o-block full of people who have done it before.

Thoughts?

Cheers,
Dan

PS, read about my friend Chris’ experience here: Setting Up a Hong Kong Company
PPS, if you like this post you can hear directly from me by putting your email address in to the form below.

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Published on 09.01.11
  • http://www.tropicalmba.com/ Dan

    IMO HK is a little more paperwork intensive that US corps, accountants in US can do a lot of things virtually where in HK it’s like Chris said, they want originals, chops, signatures, etc.

  • Сашко

    Hello Dan
    I’ve read your words, just believed Jumpstart is a good choice.
    NO WAY!!

    I’ve a really bad experience with Jumpstart preparing a documents to open EU bank account for BVI company, it takes 3 month and still I can’t get what I need (just simple apostilled documents package).

    So, -10 for them and their way of business.

  • Randy

    Need help in setting up a corporation in HK. Can someone pls direct me to the forms? Thx for being a life save! Pls send me details to randy@thecelebrergroup.com

  • http://www.nomadcapitalist.com/ Nomad Capitalist

    Americans should, however, keep their servers outside of the US for this reason. Ask a tax lawyer; it is the result of an arcane US court ruling.

  • http://www.nomadcapitalist.com/ Nomad Capitalist

    HK servers are expensive anyway. Shinjuru in Malaysia and Singapore is good, but European hosts are better. I like Iceland as its out of the EU.

  • Bruce Light

    Dear Dan,

    Great article mate, I just have one question for you. Can you open an HSBC business bank account with a visitor’s visa? Also do they charge you any monthly or annual fees. Also about opening the Bank Account, what documentation did they ask for?

  • http://www.clear-frame.com Nick @ ClearFrame Software

    You can’t legally operate in mainland China through a Hong Kong company only – at best you can only conduct “marketing activities”.

    In reality the line can be grey and as long as all your money is being received in Hong Kong and not mainland China, you would probably be safe.

    If you’re targeting mainland consumers, have you thought about doing it from Hong Kong? It’s convenient enough to travel to the mainland when you need to, without all the hassles of mainland life (pollution, capital controls, etc).

  • http://www.clear-frame.com Nick @ ClearFrame Software

    This is a good article and something we have done ourselves (the tax benefits were not the sole driver though they are certainly an additional benefit).

    For anyone interested, I’ve previously blogged about how you would actually go about setting up a company in Hong Kong

    http://www.clear-frame.com/incorporating-a-company-in-hong-kong-part-1/

    http://www.clear-frame.com/incorporating-a-company-in-hong-kong-part-2/

  • Chris

    Good luck with opening a Hong Kong corporate account now if you happen to have a U.S. passport. I have been in HK the past month trying to open up a bank account for my HK limited company. NO ONE will open a bank account for a corporation with a U.S. director now. Not HSBC, Hang Seng Bank, Standard Chartered…the list goes on. What is even worse is that the banks will not even admit that you are blacklisted the moment they see the U.S. passport; they will make you wait 1-2 weeks to go through their “process” only to call you back later and say they can not give you an account for some bogus reason (such as not even having invoices in the company name when it was JUST formed and when you have no banking account, creating quite the chicken or the egg problem…) or no reason at all. I spoke to a local consultant who said that it has become all but IMPOSSIBLE for a U.S. citizen to open a bank account in Hong Kong, but banks do not want to admit it publicly because they do not want to appear like they are discriminating. And, of course, the companies that sell incorporation services and most “bank introduction services” will not tell you that either (I paid two bank introduction services who were not frank at all with me on this). Only when I tried to hire one of the higher priced services did I get the truth. One thing is sure. When I get back home, I am ditching my US citizenship as soon as I can even if I have to be stateless for 2 years.

  • http://www.tropicalmba.com/ Dan Andrews

    Very interesting Chris, I had heard a few murmurings about this but this is the first time I’ve heard of somebody just not being able to get it done. I’ll keep my ear to the ground on this appreciate the update.

  • http://www.netnethunter.com/ Net Net Hunter

    I operate an investment business (www.netnethunter.com) and am looking to incorporate in Hong Kong. I found this on the tax implications of US server placement, Hong Kong tax rules, etc. It might be useful for some people:

    http://www.ey.com/Publication/vwLUAssets/Tax_considerations_in_cloud_computing_global_survey/$FILE/Cloud_computing_survey_results.pdf

  • Emma Boyd

    This is all to do with FATCA – US legislation announced a few years ago & coming into force now. FATCA requires ‘foreign’ (non-US) banks to provide detailed reporting on any & all US clients all over the world. For most banks this is just a pain from a systems/reporting pov & also may open them up to all sorts of fines for non-reporting so most are choosing not to accept US clients & asking existing clients to move their business. As inadvertent mistakes in complex businesses could end up jeopardising any related business entities in the US, you can see why they don’t want to take the risk. Try Citibank or any other American bank, they shouldn’t have the same problem.

    At the same time there may be local rules on equal access to services so they can’t be seen to be unfair, hence the avoidance of expressing the real reason behind your experience.

    Hope that may help your understanding, if not the end result ;+}

  • Emma Boyd

    The Singapore process is easy, HOWEVER you do need a Singapore Citizen or Permanent Resident to be a shareholder. The rules do say a Resident, however some advisers have taken the cautious view that my resident status is insufficient. There are also restrictions on being a shareholder, a director AND an employee unless you are indeed Citizen or PR. So from reading the above I would say that HK is definitely offers a more flexible arrangement.

  • Fred

    Hi guys, even this article is dated, i would like to have some advices on the following scenario. I am European citizen but I am now expatriate in Philippines and identified as permanent resident. I am a freelance and will have collaboration contracts with different companies. Therefore, I would like to create my business in HK as everything is done by internet and I don’t have any customer in Philippine. I will also be paid in foreign currency.
    As I want to avoid paying too much taxes, am I correct that if I create my own company in HK I will not be subject to any taxe there or even in PH?

    Thanks for any advice your can provide online or offline and I will definitely listen to your podcasts now that I am registered :)

  • steven shopnick

    asia is the world leader there time is first they lead by example ceo steven shopnick

  • http://www.marcoschwartz.com/ Marco Schwartz

    Hi Bruce,

    It might be too late, but I got the information as I just did that today. You can perfectly open an HSBC business bank account with a simple visitor visa, they didn’t ask any questions at the airport. They waive the fees if you have more than approx. $6000 on the account. And they asked for my passport + proof of residence where I live. However I am French, so I wasn’t concerned about FATCA & co.

  • Allstars

    UK Citizen, Live in Thailand, Hong Kong Company work as a contractor for US company. I invoice every month service fees. In order for them to generate a contract for me and for my new shares they require a Social security number – National insurance number for Tax identification. The Us company say “We are a Big publicly traded company. We must abide by Sarbanes Oxley regulations and labor laws”

    Does this mean i will have to pay tax in the UK now? Solutions.

  • Cyril

    Hi mark, I’m in the same scenario as you, still investigating my options (thinking of a RHQ or ROHQ), what is your current situation? That would be great if we can connect to exchange experience and ideas.

  • Cyril

    Hi Fred, I’m in the same scenario as you, still investigating my options (thinking of a RHQ or ROHQ), what is your current situation? That would be great if we can connect to exchange experience and ideas.

  • Fred

    Hi Cyril, if you can find a way to give me an email, I am fine because I don’t use FB.

  • Cyril

    kicklover [at] hotmail.fr

  • Christian

    Steven, I have some expat friends living in the Philippines, and they do just that; have a HK setup, do business outside of HK, pay zero% tax in HK, and may transfer any funds from the HK company to a personal account in the PH, where they are not taxated. According to my friends all this is 100% legal, although I haven’t done it myself – yet! Let me know your personal experience, should you move forward – good luck! :)

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