HK retains competitive edge despite pandemic

Machiuanna Chu, corporate commercial partner at Deacons, a law firm headquartered in Hong Kong, said some businesses and expatriates have decided to leave for destinations less-affected by the pandemic. However, she believes a short-term impact on the city's economy resulting from social restrictions appears to be inevitable in order to contain infections.

"We believe a majority of these foreign companies take a long-term, strategic view when assessing their options for an Asian headquarters, and will decide to stay put," she said. "As the history of the HKSAR repeatedly shows, those who decide to leave eventually return when the challenges are over."

Chu feels that the overall legal environment in Hong Kong remains highly conducive for established and new businesses.

She cited favorable factors for companies setting up their Asian headquarters in the city. These include its proximity to the vast mainland market and its businesspeople, a common law system that is understood and trusted by the international business community, and a business-friendly tax regime.

The city also boasts a sophisticated and reliable regulatory environment, highly skilled professionals, high-standard international schools for expatriates' children, and a world-class financial infrastructure that allows the free flow of capital.

Stefano Mariani, Deacons' corporate commercial partner, said the city's tax system, in particular, is well-adapted to a modern economy oriented toward financial services.

Business profits sourced from outside are generally not taxable in Hong Kong, he said.

"This may render it convenient for multinational enterprises to establish regional headquarters locally with a view to mitigating the tax leakage that may otherwise arise in jurisdictions that tax residents on their worldwide income," he said.

The 16.5 percent corporate tax rate in Hong Kong is also competitive for companies operating in the region, with a concessionary rate of 8.25 percent available for the first HK$2 million ($255,590) of assessable profits, Mariani added.

In comparison, the corporate tax rate is 17 percent in Singapore, 19 percent in the United Kingdom, 21 percent in the US, and 25 percent on the mainland.

The InvestHK survey also found that a "simple tax system and low tax rate" was the most favorable factor for 63 percent of overseas and mainland companies choosing Hong Kong to set up their businesses.

According to the city's 2022-23 budget released last month, Hong Kong will invest more in the technology sector through various related funds to "enrich the information technology ecosystem" and seize opportunities in the Greater Bay Area.

Evan Auyang, group president of Animoca Brands, a multinational blockchain technology and investment company based in the city, said, "We are committed to Hong Kong."

He added that the city's competitiveness in the capital market can facilitate China's "going abroad" strategy.

Hong Kong is the only place in the country where the currency is convertible and international capital can be raised under a Western-based legal system, Auyang said, adding that the city is the ideal location for the development of blockchain technology.