Hong Kong SAR, China: Investing

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

According to the 2022 World Investment Report released by UNCTAD, Hong Kong received USD 134.71 billion of FDI in 2020, over 82.7% more than in 2019 (USD 73.71 billion), driven mainly by an increase in intracompany loans and reinvested earnings. This amount topped USD 140.69 billion in 2021. While representing a small share of FDI, the rebound in cross-border M&A sales to USD 11 billion (from USD 1 billion in 2019) also contributed to this increase, thanks to many cases of Chinese MNEs consolidating affiliates in Hong Kong. Given the economy's sizeable intra-company flows and its close ties with China, which contributes 28% of its FDI stock, the rise in FDI in Hong Kong reflects corporate restructuring, particularly by Chinese multinationals, rather than new investment. It ranks 6th in terms of FDI inflows in 2021. It was also the seventh largest countryin the world in terms of FDI outflows, registering USD 87.45 billion in 2021. The stock of FDI reached USD 1 851 billion in 2020 and over 2 022 billion in 2021. Hong Kong is a hub for foreign MNEs' regional headquarters, inflows were mostly invested in services sector operations (including regional headquarters and finance functions that facilitate indirect FDI flows). The main investing countries are China, the British Virgin Islands, the United Kingdom, Bermuda and Japan. The vast majority (around three-quarters) of investments are intended for financial activities: holding, real estate, finance, insurance, banking, etc.

Hong Kong is attractive due to several strong factors: its strategic position (it is a gateway to the Chinese market), its status as a free port; its simple tax system that provides many incentives, good infrastructure and judicial security. Hong Kong has one of the world’s best regulatory systems for paying taxes.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Hong Kong and Asia-Pacific in 2022 and 2023.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	134,710	140,186	117,725
FDI Stock (million USD)	1,851,464	1,957,365	2,090,558
Number of Greenfield Investments*	88	101	113
Value of Greenfield Investments (million USD)	2,286	3,850	2,917

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND SECTOR

Main Investing Countries	2019, in %
British Virgin Islands	33.9
Mainland China	28.1
Cayman Islands	9.5
United Kingdom	8.2
Bermuda	5.9
United States	2.4
Singapore	2.2
Japan	1.5

Main Invested Sectors	2019, in %
Investment and holding, real estate, professional and business services	65.7
Banking	12.9
Import/export, wholesale, and retail trades	10.7
Financing (except banking, investment and holding companies)	3.0
Construction	2.3
Insurance	1.6
Transportation, storage, postal and courier services	1.1

Source: Hong Kong Statistics Office, Latest data available.

Form of Company Preferred By Foreign Investors: Limited companies, limited partnerships or sole proprietorships.
Form of Establishment Preferred By Foreign Investors: Subsidiary
Main Foreign Companies: According to official figures, 4,031 overseas companies had regional operations registered in Hong Kong in 2019.
For a list of foreign companies established in Hong Kong, consult the dedicated page on the InvestHK website.
Sources of Statistics: Census and Statistics Department

What to consider if you invest in Hong Kong SAR, China

Strong Points

Hong Kong is an international leader in terms of international trade, a services centre with high added value and the bridgehead to one of the largest production bases in the world, China. Hong Kong has a sound economy and a stable and efficient financial and banking system. Key strong points for FDI in Hong Kong include:

Favourable tax measures
The transparency of local institutions
Freedom of information
Availability of qualified human resources
Its advantageous geographical location in Asia

Weak Points

Disadvantages for FDI in Hong-Kong include:

High cost of property and work space (offices, shops, etc.)
High cost of salaries, compared to other Asian countries such as Mainland China and India
The excessive importance of the financial sector in national economy

Government Measures to Motivate or Restrict FDI

Hong Kong is a free territory for investments, which are in fact encouraged by the government with a favourable taxation policy and light legislation. Foreign companies can be set up freely, register their brands and the director of the company doesn't have to be a citizen nor a resident of Hong Kong. The government has also put in place numerous initiatives to support business innovation.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Hong Kong SAR, China: To see the list of investment treaties signed by Hong Kong, consult UNCTAD's International Investment Agreements Navigator.
International Controversies Registered By UNCTAD: Refer to UNCTAD's Investment Dispute Settlement Navigator.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for Settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: China is signatory of the MIGA convention .

Country Comparison For the Protection of Investors	Hong Kong SAR, China	East Asia & Pacific	United States	Germany
Index of Transaction Transparency*	10.0	5.9	7.0	5.0
Index of Manager’s Responsibility**	8.0	5.2	9.0	5.0
Index of Shareholders’ Power***	9.0	6.7	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

Procedures Relative to Foreign Investment

Freedom of Establishment: Hong Kong does not discriminate in law or practice between investments by foreign and local companies, so that foreign firms and individuals enjoy the same conditions as locals.
Acquisition of Holdings: There is no ownership restriction for foreigner, who can hold up to 100% of equity and have the right to engage in all forms of remunerative activity. Furthermore, company directors are not required to be citizens of, or resident in, Hong Kong.
Obligation to Declare: A registration certificate should be requested to the Companies Registry, which generally issues the Business Registration Certificate and the Certificate of Registration within two weeks from submission.
Competent Organisation For the Declaration: Companies Registry
Inland Revenue Department (IRD)
Requests For Specific Authorisations: Only some sectors have limitations for foreign investors, like broadcasting (where there are residency requirements for the directors and foreign ownership is limited to maximum 49% of equity) and legal services (with foreign firms having to satisfy certain requirements in order to be able to practice).

Office Real Estate and Land Ownership

Possible Temporary Solutions: Consult InstantOffices, CoWorker, Hong Kong Offices.
The Possibility of Buying Land and Industrial and Commercial Buildings: The government of Hong Kong owns all land, which is administered by granting long-term leases but without transferring title.
Risk of Expropriation: Private properties in Hong Kong can be expropriated only if it is in the public interest and only for well-defined reasons, after negotiations and with a prompt, adequate, and effective compensation.

Investment Aid

Forms of Aid: The government of Hong Kong encourages foreign investments through a series of measures, including: a deduction on interest paid to overseas-associated corporations; an 8.25% concessionary tax rate derived by a qualifying corporate treasury centre; no withholding taxes on dividends and royalties; capital gains are not taxed; profits can be freely converted and remitted; free advice and services to support companies offered by InvestHK; tax deductions for domestic expenditure on R&D; financial incentives to foreign universities who cooperate with local universities and establish joint research projects; the launching of the Re-industrialisation Funding Scheme (RFS), aimed at subsidising manufacturers who set up new smart production lines in Hong Kong; reduced tax rates for aircraft leasing companies; etc.
Privileged Domains: FDI aids take the form of tax breaks, government financed and subsidized research and development programs, bureaucratic assistance, etc.
Privileged Geographical Zones: Incentives are available for aircraft leasing companies, fintech companies, manufacturers, etc.
For detailed information, consult the official platform InvestHK.
Free-trade zones: Hong Kong is a free port.
Public aid and funding organisations: Several entities and organizations can provide financing, like the Innovation and Technology Fund (ITF), the Research Endowment Fund (REF), the Re-industrialisation Funding Scheme (RFS), etc.
For more information, consult the official portal InvestHK.

Investment Opportunities

The Key Sectors of the National Economy: The service sector has a very significant role in the economy of Hong Kong (89% of GDP).
Business services, retail, information and communication technologies, electronics and biotechnology, tourism and transportation are sectors that, in addition to being already highly established, have strong potential.
High Potential Sectors: In order to pursue economic development towards greater diversification, the government has set priorities for development: medicine (assistance to the disabled and the elderly), education, environmental technologies, tourism and innovative services are thus sectors with strong development potential.
Privatization Programmes: Private companies already operate all major utilities in Hong Kong under an agreement framework with the local government, except for water.
Tenders, Projects and Public Procurement: HK Government, Trace E-Gov
Tenders Info, Tenders in Hong Kong
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: There are only two electricity suppliers: Hongkong Electric and China Light and Power; while Towngas is the country’s only gas supplier.

Finding Assistance For Further Information

Investment Aid Agency: InvestHK (Director-General of Investment Promotion, The Government of Hong Kong Special Administrative Region)
Other Useful Resources: An Introduction to Doing Business in Hong Kong 2021 (China Briefing)
GovHK (one-stop portal of the Hong Kong Special Administrative Region Government)
Doing Business Guides: World Bank's Doing Business - Hong Kong

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