One article explains thoroughly: Why are Web3 companies crowded in Hong Kong?

Source: Lawyer Liu Honglin

Hong Kong has always been an international financial center, commercial center and shipping center due to its location, history, and advantages of one country, two systems.It plays an important role in the global financial markets.Hong Kong has a complete financial system, complete financial infrastructure, a huge financial market size, and a solid legal system and transparent and independent judicial organs, which has opened up a solid business environment and a profitable environment for the development of the financial industry.Institutional framework.

Based on the advantages of traditional finance, with the Hong Kong government’s efforts in Web3 and its layout in Web3 companies in the past two years, it has become more attractive.

01The advantages of Web3 companies in Hong Kong

(I) Traditional advantages

Location advantage.Hong Kong is an important gateway to the inland region of our country.As a world-renowned international shipping center, Hong Kong has a unique geographical location.Hong Kong is located at the southern end of the East Asian continent and central Asia, connecting the Pacific Ocean and the Indian Ocean, and is a transportation hub in Southeast Asia.At the same time, Hong Kong is backed by my country’s vast inland region and faces the international market, allowing companies in Hong Kong to take into account the Chinese inland market, Southeast Asian market and European and American markets.Hong Kong’s superior geographical location provides Web3 companies with a portal to enter the Asian market.

Institutional advantages.Hong Kong returned to the motherland on July 1, 1997. On the same day, the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China was implemented.Under the protection of the “two systems”, Hong Kong has followed the past free economic policies.The Hong Kong dollar is linked to the US dollar, the financial market is open, the entry and exit is relatively free and simple, it is completely in line with the international commercial market, and it has strong autonomy in policy formulation. It can be used as an independent tariff zone to sign economic and trade agreements separately, becoming an important platform for business exchanges between the mainland and foreign countries..

Capital market advantages.Hong Kong provides a range of conditions that are beneficial to enterprises, especially in terms of international capital and foreign exchange controls.Hong Kong’s international capital market is very mature and can provide diversified financing channels.There is no foreign exchange control in Hong Kong, which means that funds can be freely in and out, providing great flexibility for enterprises to dispatch funds globally.This is a huge advantage for Web3 companies seeking capital expansion, providing them with a good financing environment.

Legal advantages.Hong Kong also has a solid legal system and a transparent and independent judicial organ, which has opened up a solid business environment and a profit-friendly institutional framework for the development of Web3 companies, and has also pointed out the direction for the compliant operation of Web3 companies.

(II) Tax system advantages

Hong Kong’s lower tax rates and concise tax structure are also one of the reasons why many companies are flocking to it.Hong Kong adopts the principle of regional taxation and pays taxes only on income/profits originating from Hong Kong, while income/profits originating from outside Hong Kong generally do not need to be taxed in Hong Kong.

As for Web3 companies, there are two main taxes involved in their business development, one is profit tax and the other is salary tax.

Profits tax.The nature of the gains tax is similar to that of the corporate income tax in mainland China. Companies operating in Hong Kong are required to pay the gains tax for the year of assessment for their assessable profits arising from Hong Kong or from Hong Kong during the relevant year.Hong Kong’s profit tax rate is low, and only a tax rate of 8.25% is levied on the first profit of HK$2 million, while the excess is levied at 16.5%, which is a significant tax advantage for enterprises with higher profits.The dividends collected by shareholders of Hong Kong companies from companies that need to pay profit tax are exempt from tax, while natural person shareholders in mainland China need to pay 20% personal income tax on dividends from the company.

Salary tax.Similar to the need for individuals in mainland China to pay salary income tax, taxpayers need to pay salary tax on income generated in or from Hong Kong that they have engaged in profitable positions or are employed in Hong Kong during the tax year..Since 2018, the salary tax will be levied at a progressive tax rate of five marginal tax levels of 2%-17%, or the taxes payable will be calculated at a standard tax rate of 15%.

In addition, if a Web3 company registered in Hong Kong wants to transfer equity, it also needs to pay stamp duty.The stamp duty for equity transfer is calculated using adjudication levy, which is generally 0.1% of the equity price or company value.The taxable entity of stamp duty is the transferor and transferee of the company’s equity.

(III) Talent Advantage

The Hong Kong government has launched the Hong Kong Science and Technology Talent Entry Program.The core of the program is to import overseas and mainland scientific and technological talents to companies that meet the qualifications, and attract them to Hong Kong to engage in R&D.Companies that meet the qualifications can apply for a quota first, and companies that obtain the quota can apply for a work visa or entry permit for scientific and technological talents who meet the requirements within the validity period of the 24-month quota.Those applying for the entry program for science and technology talents should be engaged in advanced communication technology, artificial intelligence, biotechnology, network security, data analysis, digital entertainment, financial technology, green technology, integrated circuit design, Internet of Things, materials science, microelectronics,Research and development work of quantum technology or robotic technology.The Hong Kong Science and Technology Talent Entry Program provides Web3 companies with a high-quality source of talent.

(IV) The government encourages Web3 attitude

On October 31, 2022, the Hong Kong government issued the “Policy Declaration on the Development of Virtual Assets in Hong Kong.”The declaration demonstrates the Hong Kong government’s openness and integration attitude towards innovations in virtual asset business around the world.The government said it will cooperate with financial regulators to create a convenient and sustainable development environment for virtual assets and reduce the resistance and risks of the innovation and development of virtual assets.

On December 7, 2022, the Legislative Council of Hong Kong passed the Anti-Money Laundering and Terrorist Funding (Amendment) Ordinance 2022, which stipulates that the virtual asset service provider licensing system (VASP system) will be issued from June 1, 2023.It will be officially implemented from the beginning of the day.In addition, the regulations also clarify the application, prohibition content, regulatory objectives, sanctions plans, and transition period arrangements for virtual asset service provider licenses.

On January 31, 2023, the Hong Kong Monetary Authority issued the “Conclusion of Discussion Documents on Crypto Assets and Stable Coins”.This document roughly illustrates the regulatory model, regulated subject, regulatory principles, implementation time, etc. of stablecoins.

On February 28, 2024, the Hong Kong government issued a public consultation document on the Legislative Recommendations on Regulating OTC Trading of Virtual Assets, consulting legislative recommendations on the establishment of a licensing system for virtual asset over-the-counter trading (OTC) providers.

On April 15, 2024, the Hong Kong Securities and Futures Inspection Commission (hereinafter referred to as the “SFC”) approved the issuance of Bitcoin and Ethereum spot ETFs by Jiashi International, Bose Fund (International) and Huaxia Fund (Hong Kong), totaling sixOnly, it is planned to be listed and traded on April 30, 2024.On April 30, 2024, the Hong Kong Stock Exchange launched six Bitcoin and Ethereum ETFs on time.At the close of the day, the total trading volume of the six crypto asset spot ETFs issued in Hong Kong was approximately HK$87.58 million (US$12 million).

The Hong Kong Securities and Exchange Commission is one of the few regulatory agencies in major jurisdictions to introduce a comprehensive regulatory system for virtual asset-related activities.The regulatory concept of the Hong Kong Securities and Exchange Commission is based on the primary principle of “same business, same risks, same rules”.

The licensed or registered intermediaries related to virtual assets under the regulation of the Hong Kong Securities Regulatory Commission include: operators of virtual asset trading platforms, virtual asset fund managers, intermediaries who trade or provide opinions on virtual assets, and distribution of virtual asset-related products.intermediary.

The Hong Kong government has been committed to building it into an innovation hub in the fields of blockchain and digital assets.The Hong Kong SAR government established the “Cyberport Web3 Base” in January 2023 and allocated HK$50 million in the fiscal budget to accelerate the development of the Web3 ecosystem.Cyberport is an innovative digital community managed by Hong Kong Cyberport Management Co., Ltd., wholly owned by the Hong Kong Special Administrative Region Government.At the same time, the Hong Kong government has provided rich financial support and subsidies through the Cyberport Accelerator Support Program, Cyberport Creative WeChat Fund (CCMF), Cyberport Investment and Entrepreneurship Fund and other programs.Such financial incentives are a huge attraction for startups.

In summary, factors such as Hong Kong’s geographical location, policy support, fiscal and tax policies, capital market and talent pool together constitute a strong reason for Web3 companies to register in Hong Kong.These factors not only promote the development of Web3 companies, but also bring vitality to Hong Kong’s technological innovation ecosystem.

02Take stock of Hong Kong registered Web3 companies

Here are some successful cases of Web3 companies registered and developed in Hong Kong, each showing unique strength and innovation in the fields of blockchain technology and digital asset services.

03Hong Kong company registration process and fees

In terms of registered capital, the registration threshold for Hong Kong companies is low, and there is no minimum registered capital requirement, nor does it require actual capital verification of registered capital, which reduces the initial cost of the company.In terms of company name and business scope, Hong Kong also provides greater freedom and almost no restrictions, which helps companies flexibly adjust according to their own development needs.As an internationally renowned business center, Hong Kong registered companies can enhance their international image and increase the trust of partners, which is conducive to the establishment and promotion of corporate brands.

In terms of company management, the directors of Hong Kong companies may be natural persons and legal person groups. Hong Kong laws and regulations do not restrict the nationality of the company’s directors, nor do they require directors to hold a specific number of shares.However, the company director must be at least 18 years of age.

There are many types of companies to set up in Hong Kong, including sole proprietorships, partnerships, and limited liability companies.Among them, limited liability companies include private limited companies, public limited companies, guarantee companies, branches, subsidiaries or representative offices.

Under the one-stop company registration and business registration services provided by the Hong Kong government, any person may submit materials to the Hong Kong Company Registration Office to form a local company, or a non-Hong Kong company.

(I) Local Company

According to the public information on the official website of the Hong Kong Company Registration Office, the materials required to establish a local company in Hong Kong include:

1. Corporate Incorporation Form

2. Text of the company’s articles of association

3. Notice to the Business Registration Department

4. State whether to choose a three-year registration certificate

(II) Non-Hong Kong companies

Under the Companies Ordinance of Hong Kong, a non-Hong Kong company means a company formed as a corporation outside Hong Kong and complies with the following description (a) establishing a place of business in Hong Kong on or after the effective date of Part 16; or (b) Before the effective date, a business location has been established in Hong Kong and will continue to have a business location in Hong Kong on the effective date.

According to the public information on the official website of the Hong Kong Company Registration Office, the materials required to establish a non-Hong Kong company in Hong Kong include:

1. Registration application form for registering a non-Hong Kong company

2. Notice to the Business Registration Department

3. Describe whether the company has been registered under the Commercial Registration Ordinance (Chapter 310): (a) If registered, state its commercial registration number (b) If registered, state whether a three-year registration is selectedCertification and statement: Business name (if different from the corporate name) Business description and business nature, opening date

(III) Official charging standards (applicable to local companies and non-Hong Kong companies)

04Summarize

Hong Kong has unique geographical location and market advantages and has always been the most important international financial center in Asia.In the development of the Web3 industry, Hong Kong government and financial regulators have adopted an open and compatible attitude, encouraging Web3 companies to use financial technology to develop their own businesses in an inclusive and innovative market environment based on detailed regulatory rules..All these have created a good environment for the operation and development of Web3 companies.Therefore, with the aforementioned basis, it is not surprising that Web3 companies are crowded in Hong Kong.