When GuestLogix Inc. decided to open an Asia Pacific headquarters three years ago, the Toronto company scouted locations across thousands of kilometres and several time zones.
For GuestLogix, which provides technology to process transactions made in-flight as well as on other forms of transportation, Hong Kong won the exercise hands-down.
Situated within five hours of half the world’s population, the island city of more than seven million has a highly educated, multilingual population, a strong work ethic, a sizable services sector and a low-tax regime. And it’s also a springboard to the Chinese market.
“It’s a hub, it’s a base of talent, there’s proximity to mainland China and it’s easy to get to all the other cities in Asia,” says Brett Proud, president and chief executive officer of GuestLogix, who co-founded the global payments company in 2002. “We have to be there.”
A steady stream of Canadian companies is finding much the same thing in the former British colony. Long a centre of commerce in the region, Hong Kong particularly beckons today.
“Going straight to the mainland is really difficult, you just get bowled right over,” Proud explains. Yet the case for GuestLogix in China is compelling, he says: The International Air Transport Association predicts that passenger air travel will increase by 34 per cent in the next two decades, with almost three-quarters of that growth in mainland China.
To meet that expected demand, the GuestLogix office in Hong Kong now has 18 staff responsible for sales and service – and the company is adding more.
More than 160 Canadian companies operate in the city, a third of which use it as their regional headquarters, according to the Hong Kong Economic and Trade Office in Canada. More than 250,000 Canadian passport holders reside in Hong Kong, and 200 research projects are being conducted between institutions in Canada and Hong Kong’s higher education sector.
Hong Kong is a “brilliant test market” for China, says Jan De Silva, dean of Ivey Asia, the Hong Kong campus of the University of Western Ontario’s Richard Ivey School of Business, which recently celebrated its 15th anniversary. It’s an international city, home to luxury brands, major banks and companies using Hong Kong as “their platform to go global,” De Silva says. “There’s a lot of great opportunities.”
Professional and financial services from lawyers to accountants are widely available in Hong Kong to assist companies, and taxes are “very favourable,” De Silva says. The maximum personal income tax rate is 15 per cent and the maximum corporate tax is 16.5 per cent, and there is no value-added tax.
Canada and Hong Kong signed a tax treaty in 2012 that went into effect this year, reducing tax barriers between the two markets, limiting withholding taxes for cross-border payments and eliminating double taxation for those who do business in both economies.
Elizabeth Thomson, a Canadian lawyer who first went to Hong Kong on a vacation in 1977 and “never left,” calls Hong Kong an alluring place, with its 24-hour business climate and optimistic nature.
“It’s an incredible mixture of Chinese and Western culture. It’s very much New York on speed. There’s never a dull moment in Hong Kong,” says Thomson, who previously owned a professional services company there and is now a governor of the Canadian Chamber of Commerce in Hong Kong. “It’s really astounding how quickly people come here and start a business and make things happen.”
One of the most important attributes of a Hong Kong location, Thomson says, is that companies can use it to repatriate the profits they make in China back to Canada. Foreign companies set up “little sister” agreements in which their China operation is owned by the one in Hong Kong, with its preferential tax rates and regulatory system.
Salaries in Hong Kong are substantial, Proud notes. Using a formula based on buying power, GuestLogix pays its Hong Kong staff about twice as much as those in Toronto.
One caveat is that with land at a premium on the island, “rents are just constantly going up,” De Silva says, especially with pressure to locate in Hong Kong from both the international community and mainland China businesses. One of the more serious challenges in terms of attracting people to work in Hong Kong is that most of its international schools are full and have long waiting lists, so people with families are often unable to move there.
In a 2013 survey by Brookfield Global Relocation Services, Hong Kong ranked ninth among the top 20 most difficult assignment destinations for international assignees and eighth among the top 20 most difficult placement destinations for program managers, with housing costs and school placements among the top concerns.
“You learn to give up a lot of personal space here,” De Silva notes. But despite its skyscrapers and bustle it can have a small-town feel, and there’s an excellent public transit system, she says.
Proud says that GuestLogix has learned a lot since it came to Hong Kong. Its employees must speak English, Cantonese and especially Mandarin, the official language on the mainland, for example. Canadians need visas to work on the mainland, he points out, though they are not difficult to acquire, and he stresses that the business culture in Hong Kong is very polite, despite its hectic pace. “If you yell at a Hong Kong employee, they don’t forget.”
Companies are also expected to give workers an extra month of salary at the end of the year, which is commonly called a “13th month payment,” as a sort of standard bonus.
To move profits out of mainland China, GuestLogix set up a subsidiary of its Hong Kong company there. Proud expects that GuestLogix will open in mainland China one day, which he feels will become more Westernized, although “for now Hong Kong is working,” and is critical to his company’s operations.
Hong Kong’s benefits
Why should Canadian companies do business in Hong Kong? Here are a few reasons:
- No foreign ownership restrictions.
- No tax on offshore income, capital gains, dividends, estates or sales.
- Rule of law and an independent, experienced judiciary.
- Free movement of capital, talent and goods.
- Within five hours of half the world’s population.
- Proven gateway to China’s high-growth markets.
- Adjacent to China’s fast-growing Pearl River Delta region.
- Multilingual work force – English is the language of business.
- More than 40 per cent of Hong Kong consists of protected country parks.
- A China-Hong Kong free-trade agreement allows local companies preferential access to the China market.
- Maximum profit tax rate is 16.5 per cent; maximum salary tax rate is 15 per cent.
- No goods and services tax.
Source: Hong Kong Economic and Trade Office in Canada