5 Reasons Your Internet Business Should be Based in Hong Kong -- Even if You Are in the USA

Subscribe to this blog’s RSS feed here. I also like to tweet a lot.

I often say “location independent” isn’t location arbitrary. Your location matters. If you’ve got a little freedom to move around, you should use it to benefit your business.

Ian and I have been interested in offshore corporations for just over a year now. Before that time, our discussions on business structure revolved around LLC vs C-corp and California vs. Delaware. We heard about offshore corporations, but we thought they were the domain of the rich and powerful– the jetset and ballin’.

That’s changing. The barrier to entry is lower than ever. The information is out there. It’s feasible for most internet business owners to get set up in Hong Kong, Singapore, the British Virgin Islands, or elsewhere. If you run your business from your laptop, you can enjoy the same benefits that the rich, powerful, and jetset have for decades.

I’m learning about all this as I go. That’s why I’m writing about it. Please don’t take my word for it. In fact, I’m hoping for your feedback. There are many people in our forum who know way more than myself. Those are the folks who schooled me.

I owe a huge thanks to DCers Mike and Chris for flying from China to the first Tropical MBA summit in Puerto Galera. They were able to spend hours with me walking me through the details. That helped me to turn complicated information into action. I owe those guys more than a beer. They saved me 1000’s of dollars and made the whole summit worth it for me financially. Even if they hadn’t shared their business experience, those guys are tons of fun so it still would have been worth it :D (Also HT required for many DCers, but most importantly to Chris for writing up his experiences, and to Matt for being an insanely generous super-guru).

I suspect that for many internet business owners, the prospect of having a Hong Kong corporation seems distant, irrelevant, and maybe just off the radar.

Here are the 5 benefits I didn’t know about Hong Kong corporations before last year.

1) Getting a Hong Kong Corporation is Relatively Cheap and Easy.

When you are growing a business you are strapped for cash. The task of setting up offshore companies can be daunting and distracting. Setting up in Hong Kong, though, is cheaper and easier than you probably think. If you start your own company and work through a firm like Jumpstart, you can get your company started in a few weeks for about $600 USD.

You’ll also need an address and phone number– that’s about $30 USD a month for us. There are tons of companies in Hong Kong that provide that service.

The biggest expense? You’ll need to fly to HK to open a bank account. As far as I know, you can only open one in person at the bank. It only takes 20 minutes. You need to have a minimum balance in business accounts at most banks (we use HSBC), but it’s small. There are also places you can stay in central HK for $50 bucks a night on AirBnB. It’s a great place to visit anyway. Win, win! You could get all of this done for less than 2K (including travel) if you are coming from a western country.

2) Hong Kong Corporate Tax Rate is 0% For Transactions Outside of Hong Kong.

For all transactions completed outside of Hong Kong, the tax rate is zero. That’s sweet. Keep in mind for Americans this doesn’t mean you don’t pay taxes. Americans must pay taxes on all income they earn from corporations, even if they are overseas. You need to keep track of how much money you earn from that corporation and ensure you pay personal income taxes on it. It’s complicated, but that’s the basic gist. Either way you’ll save on sales taxes and corporate taxes at minimum.

3) You Can Write Off More Expenses Against a Hong Kong Corporation.

I find the US tax code stingy in what one can write off against corporations. I feel I spend most of my time working towards the success of my enterprises. Because of this, it drives me crazy that the IRS doesn’t let me write off my commute as a business expense. How about that beer I bought a client? No. What about the apartment I stay in? I rented it because it’s close to the office! No.

Here is the straight shot– if you are set up in Hong Kong you can write off a great number of expenses against your corporation that the IRS considers “personal.” This move alone could save you thousands annually.

4) Hong Kong is a World Recognized Leader in Banking and Business.

Not so pumped up about the track record of your American bank? I don’t blame you. Hong Kong’s economy is built on the idea of safe, secure, and easy banking for businesses. It’s a great first step to diversifying your assets outside of American borders.

Working with Hong Kong also won’t put you on any IRS blacklists. Also, you can easily keep and transfer your cash into multiple currencies. Hong Kong banks are highly international and adept and handling currencies from all around the world. In fact, when a customer pays me in Euros, my HK bank holds it in Euros until I tell them to transfer currencies.

Further, you’ll be able to sign up for merchant banking accounts with ease. You can have your HK Paypal account up and running 2-3 days after you walk out of HSBC’s head office in Hong Kong. Try that in the Philippines!

Finally, your customers will generally see your official company name upon checkout. In certain industries it’s a big issue. People won’t want to check out through “Tropical MBA China Co.” Hong Kong has a brand that Westerners trust more than any other in Asia.

5) A First Step Towards Globalization.

As the costs of ‘globalizing’ your business go down, taking the first step out of the door, in this case a relatively low cost one, can be a huge competitive advantage. In the first niche I entered, we crushed it because we manufactured in China. We won in our second niche because while our competition was getting Joomla themes designed by contractors in California, we had a whole team building and optimizing websites in Southeast Asia.

In my experience so far, Hong Kong feels like a better place to bank and do business than the US, and that alone is worth something. You are also only 2 hours away from the largest manufacturing base in the world, plus a short plane ride from all my favorite Southeast Asian destinations.

I see doing business in Hong Kong as our first step in making a more financially efficient company.

From what I’ve seen so far– and on this point I’m most interested in your feedback– if you run an internet business, and aren’t seeking huge investment in the US, and you have the 2K to fly off to HK and stay there a few days, you should be set up in Hong Kong.

If you are planning to set up in Hong Kong, and want to have in-depth and specific feedback on your plans, or want to compare Hong Kong with other popular offshore destinations like Singpaore, and British Virgin Islands among others, these are exactly kind of things we discuss in our forum. It’s the cheapest place in the world to get this kind of information (I’ve looked everywhere, if you know of some great place let me know) and it’s chock-o-block full of people who have done it before.

Thoughts?

Cheers,
Dan

PS, read about my friend Chris’ experience here: Setting Up a Hong Kong Company
PPS, if you like this post you can hear directly from me by putting your email address in to the form below.