5 Steps to Setting Up an eCommerce Business in Hong Kong
As unprecedented challenges make it inconvenient for people to travel and meet, an increasing number of entrepreneurs choose to enter the online world to source, trade and sell their products and services. Here, we briefly detail some of the most relevant aspects to consider when setting up an eCommerce business in Hong Kong, the financial hub of Asia:
1. Set Up Your Hong Kong Company
The first step to running an eCommerce business in Hong Kong is to set up a company. Hong Kong has fast become a popular choice for those wanting to start an eCommerce business thanks to the city’s tax advantages, and its ability to connect investors from across the globe. eCommerce is also more accessible than setting up a traditional business, which is notoriously difficult for companies who don’t have substantial financial resources.
The most flexible option currently available is to register your organisation as a Private Limited Company (Ltd). The Ltd has a separate legal personality, limited liability for its owners, strong public perception, and an enduring structure. Therefore, raising capital and transferring ownership is seamless compared to other business structures - such as sole proprietorships and partnerships.
- The Ltd requires a minimum of one shareholder (with a maximum of 50) and one director - both of whom need not reside in Hong Kong, and who can be of any nationality;
- While the director must be a physical person / individual, the shareholder can be either a physical person or a company (100% local or foreign shareholding is allowed);
- The shares of Ltd can be freely and easily transferred, subject to a stamp duty fee;
- Appointing a local Company Secretary is mandatory, and a licensed firm such as Hawksford can be appointed for this purpose;
- Although there is no minimum share capital requirement, it is necessary to have at least one ordinary share issued (any currency denomination is allowed).
As mentioned above, the Hong Kong taxation system is extremely light and simple to navigate. Corporate tax is set at 8.25% for the first HK$2 million of assessable profits, with a standard rate of 16.5% on the remainder. Only profits that arise in, or are derived from, Hong Kong are subject to tax in Hong Kong. There is no capital gains tax, withholding tax on dividends, or GST/VAT.
2. Take Advantage of Virtual Business Accounts
Now that your company has been incorporated, the biggest challenge you will face is the question of how to pay and be paid like a business. Traditionally, opening a business banking account is a complex process - it takes several months, requires large deposits and minimum balances. As a result, many newly established businesses are unsuccessful. So, it is no surprise that virtual accounts are on the rise - with their popularity going beyond the ease of getting set up.
For example, eCommerce businesses often incorporate in Hong Kong due to the favourable laws and regulations, and proximity to suppliers in China. However, their customers are often located in Europe or North America. This introduces operational costs caused by cross-border payments, which can amount to 3-5% to repatriate foreign profits by traditional means.
By leveraging virtual accounts, this can be easily reduced to less than 1%, while speeding up the time to receive your payments.
The technology behind the largest virtual account network in the world - operated by Currenxie - offers businesses a new way to get paid locally and abroad. With Currenxie, you can access a Hong Kong-based multi-currency account that supports incoming and outgoing payments around the world. However, you can also access accounts in different jurisdictions, for example, a USD account located in the USA. The advantage of this is that if most of your customers are in the USA, you can be paid into a local account in USD, which is both quicker and helps you avoid currency conversion fees and international wire transfers.
For a business seeking international expansion, this means that access to one business account platform now means access to a whole worldwide network of accounts - all with one simple and fast application.
3. Open Your Business Account
Opening an online account is a seamless process. If you have incorporated your company using Hawksford, your professional team will have all the relevant paperwork ready to go. This includes Business Registration, Proof of Identity and Proof of Address - essential documentation required by all Financial Institutions (FIs), as they need to comply with international KYC (Know Your Customer) and AML (Anti Money Laundering) regulations.
FIs must be able to verify the authenticity of the businesses they serve, and the people behind them - known as the Ultimate Beneficial Owner(s). They must also be able to verify that any money flowing into the account(s) held by the business is from legitimate sources.
This is why it is always beneficial to have essential information about your business - such as a business plan, your product or services sold, and who your customers are - on-hand, as it will help speed up your application process.
Here are a few of the advantages of utilising a modern digital business account provider like Currenxie:
- You do not need to travel to meet face-to-face as everything is conducted online - even your identity can be verified by video call.
- Currenxie offers an online portal where you can fill out your application and upload your documents, so you do not need to print or post anything.
- By leveraging technology and automation, Currenxie can process applications in days instead of months.
4. Research eCommerce Models and Trends
After setting up your eCommerce company, before getting set up on marketplaces, it’s imperative to research the various platforms available to you, the solutions they offer, shipping options, and their potential pitfalls.
Many eCommerce businesses run their stores through advanced and comprehensive systems such as Shopify, BigCommerce or 3dcart. These platforms have numerous benefits, including integrated payment gateways, inventory management and sophisticated reporting tools which are useful for accounting purposes. Traditionally, every sale would need to be matched with the corresponding payment manually, but modern shop systems record every purchase and payment automatically. Hence, high-volume online businesses can save a lot of money by providing these reports to their professional accountants for the preparation of financial statements.
Online businesses operators commonly run their own warehouses and ship each order to their customers separately. This practice comes with several challenges, including higher workloads, operational burdens and the need for sufficient funds. An alternate eCommerce approach is drop shipping which makes the supplier responsible for shipping to the end customer.
This solution allows the eCommerce company to fully focus on their website, marketing, and sales. Major advantages include a reduced workload, operational flexibility, and lower fixed costs. However, a common issue is that products would generally be shipped from the suppliers’ location directly to the customer - which is likely more time-consuming and may bother the receiver with customs-related issues. Furthermore, there is no way to properly check the quality of the products which means the profit margin might be lower once a certain volume is reached.
Platforms such as Amazon and eBay are great sales channels for eCommerce businesses. Like modern shop systems, these platforms have integrated advanced reporting tools. Additionally, marketing and other platform-related expenses are also recorded which gives management a good overview of the exact total revenue, revenue per item, as well as the costs involved.
Alternatively, Amazon FBA (Fulfilled by Amazon) allows eCommerce companies to outsource warehousing and logistics to Amazon so that they can solely focus on their businesses. However, this comes with added costs so every business should weigh up the respective pros and cons of using this solution.
5. Get Set Up on the Marketplace of Your Choice
Once you’ve established your target audience and decided on your distribution strategy, you then need to select the marketplace you’re targeting. Will Amazon or Shopify best serve your needs, or Alibaba and Taobao if you’re targeting the Chinese market?
Now you’ve prepared the basics, you will need to apply to become a seller on the marketplaces in your business plan. When applying, it’s likely they will ask about your company and for your business registration number. They will also need your business account number to know where to send your funds, and to verify your account. Luckily, you will already have both of these.