It’s Not Sexy, But You Ought To Know It
Ever spent your afternoon daydreaming about having a startup? Visions of being free from the chains of your soul-destroying 9 to 5 (or 9 to 8, at least, for most Hong Kongers) probably come to mind – arriving at work on a scooter or bike ready to engage in brainstorming sessions with your team in a cool and funky workspace; spending your break with a drink in hand while relaxing on a bean bag or playing a game of foosball. Okay, so not every startup is like that, but you must admit, a lot of people have their version of this “sexy” idea of what it would be like if they had their own company.
Meanwhile, it is very easy to forget the “unsexy” – the essential and unavoidable administrative side of setting up and maintaining a company in Hong Kong. While it might be tempting to ignore this step, as it always goes, the better prepared you are now, the fewer problems you’ll have later.
Too often potential customers have approached us concerned about saving a few hundred dollars here and there. Don’t get me wrong, it is admirable to be prudent but if you have barely any cash to set up, how are you going to start running the company let alone maintain it?
So, before you quit everything and jump head first into setting up your startup here is some advice for dealing with the administrative side that you really, really, ought to know.
It would be wonderful if you could just incorporate your company and then not have to worry about the administration, but this is simply not the case. Every year, Hong Kong companies are required (at least) to:
- Renew their Business Registration Certificate (BRC)
- File an Annual Return (AR)
- Prepare accounts for auditing
- Do an audit
- File for tax
As you can imagine these all imply costs that add up, especially for startups on a tight budget (which if we’re honest most are). You will need a Company Secretary that is qualified to handle these requirements, which will inevitably add to the cost.
There are some you can easily manage yourself with no risk, such as the renewal of the BRC. You could technically deal with other requirements like the AR yourself and only incur minimal government fees, but you will expose yourself to potential complications if you don’t do them correctly.
But some you definitely cannot handle, for example, the audit must be carried out by a local Certified Public Accountant (CPA). FYI, they will usually include tax filing as part of the package.
So, how much should you expect maintenance costs to set you back? Realistically, assuming you engage the assistance of a provider you could spend at a very minimum HK$15,000 yearly, give or take. You can find a detailed list of minimum costs here.
On another note, sadly we have seen quite a few entrepreneur newbies incorporate their companies only to have to deregister them a year later. Of course, you should start your enterprise with a positive mindset, but you should also be practical. You should keep a minimum budget set aside if for whatever reason you need to deregister your company.
With that said, that is why our first top tip is for you to anticipate the maintenance costs of having a Hong Kong company. Before incorporating, make sure you will be able to sustain these basic expenses.
Time IS Money
While you can, in theory, update your company by yourself, due to the paperwork involved – if you do not have any previous experience – handling these matters will be time-consuming. A good deal of organization will also be required on your part to ensure you meet the various deadlines. You will also need to ensure that the correct forms are filled in properly and presented to the Inland Revenue Department (IRD) and Companies Registry (CR) when required, and maintain your accounting in a way that satisfies the standards required by the CPA, who will handle your audit and tax filing. Be aware that the better accounting you keep, the cheaper your auditing fees will be.
While you could deal with some of the procedures yourself, you may and will likely lose a lot of time and even money that you could spend on developing and growing your startup. Don’t expose yourself to unnecessary complications especially as having a business already brings a lot of real challenges and fluctuations on a regular basis. It is great to launch a startup; it is even better to do it properly.
You Are Not Alone (But Choose Wisely!)
Many service providers in Hong Kong can help you to handle all the above processes under one roof, but not all are created equal. Some service providers will try to attract you with cheap incorporation costs, only to slam you in the face later on with ridiculously expensive audit and tax filing costs. Others charge super low fees, but then this is very much reflected in the quality of their services.
Don’t choose a service provider based solely on their prices. Consider your needs and the size of your business, as well as whether the provider you are considering offers useful information and is responsive. Choose wisely and you will reap the benefits of saving time and money as your intelligent choice of a service provider can help you to avoid unnecessary errors and delays giving you peace of mind.
Besides choosing wisely, however, even if your service provider is the best in the world, remember they can’t make miracles happen. You also need to do your part – i.e., reply to emails promptly and precisely, inform of any changes you may make, respect deadlines, etc.
Furthermore, keep in mind that service providers don’t make the laws. They can only tell you what you are required to do (the good ones, of course). After that, it is 100% your responsibility whether you pay attention to these ‘annoying’ requirements or not.
At the end of the day, you should evaluate your situation as a startup before proceeding to incorporation. To incorporate isn’t hard but once you’ve started, you must make sure you can keep your company going. Just as importantly, don’t forget the purpose of your venture, dedicate time to your business, to the things you have expertise in, and invest wisely in getting help to handle unrelated time-consuming tasks from someone who has the knowledge to do so.
In other words, just as you would hire professional cleaners to clean your office rather than buying a vacuum to do it yourself, invest in“professional cleaning” for your company so you can focus on the more important task of making customers.
Vincent de Saint-Exupery is Founder of LCCS, the only cloud-based low-cost corporate services provider in Hong Kong.