Tech Startups in Hong Kong: Structuring It Right, What Support Exists, What to Avoid

At a glance

Funding amounts, eligibility and application windows are published annually by each body and revised from time to time — check the official site before applying.

The three things to get right on day one

This is the heart of the article, and the part tech startups most often underestimate. Decisions made on incorporation day all come back up two years later, at the funding round.

1. Share structure: do not issue a single share

Plenty of founders issue 1 share, or 100, for convenience at setup. The problems come later:

• To give an early employee 5%, how do you divide 1 share?
• An investor wants 15% and the existing share count does not divide cleanly
• You want an option pool — where does it come from?

A common approach is to issue a larger number from the start (10,000 shares, for example), leaving room to divide. Share capital need not be paid up, so issuing more shares does not itself increase the setup cost. See setting the share capital structure.

Worth noting: transferring shares later attracts stamp duty, calculated on the consideration or the net asset value. See stamp duty on share transfers.

2. Intellectual property: it should sit with the company

The founders wrote the code and designed the product — and if the IP was never formally assigned to the company, the company owns nothing on paper.

That surfaces at two moments: due diligence at a funding round, and founders falling out. The first means being asked to paper it retrospectively; the second may mean you cannot.

The fix is not complicated: founders and early contractors should all have written IP assignment or employment terms vesting the output in the company. This step warrants a solicitor — we do not give legal advice.

If you have co-founders, agree in advance what happens if you separate. See what happens when business partners split.

3. R&D expenditure: to deduct it, you have to be able to show it

Qualifying R&D expenditure attracts a super-deduction under the Inland Revenue Ordinance — 300% on the first HK$2,000,000, 200% on the balance.

But the super-deduction is not automatic. In practice the most common reason it fails is that the numbers cannot be extracted: engineers’ time was never split out, the outsourcing contract did not specify the R&D scope, and everything ended up inside “salaries” and “consulting fees”.

To use it, record it separately from day one. It cannot be reconstructed after the year end. On the bookkeeping side see monthly or annual bookkeeping, and for the general principles of deductibility see what expenses are deductible.

What does Hong Kong actually offer a tech startup?

1. A simple tax system. Two-tiered for a company: the first HK$2,000,000 at 8.25%, the balance at 16.5%; no VAT, no sales tax, no capital gains tax and no dividend tax. The full rules are in the profits tax guide.

2. Fully open to foreign ownership. 100% permitted, directors and shareholders of any nationality with no residence requirement, and the whole formation can be done remotely. See foreigners registering a Hong Kong company.

3. Money moves freely. No exchange controls — which is very practical for a startup taking overseas investment and paying for overseas tools and cloud services.

4. A springboard into the Greater Bay Area. Institutionally separate, geographically and practically close to the mainland market.

5. Funding and a listing route. A mature venture and private equity ecosystem, and HKEX’s Chapter 18C regime provides a listing route for specialist technology companies that are not yet profitable.

6. Infrastructure. Network coverage, international submarine cables and data centre density are all among the region’s strongest.

For a comparison with Singapore, see Hong Kong or Singapore.

Government and park support: who does what

Important: the funding amounts, eligibility criteria and application windows below are revised from time to time. This section explains each body’s role and the stage it suits; the actual terms are on the official sites.

Cyberport

Focused on fintech, smart living, digital entertainment and e-commerce.

• Creative Micro Fund — for the idea stage; smaller amounts but a lower bar, suited to validating a concept
• Incubation Programme — funding, office space and shared facilities, suited to a working prototype
• Macro Fund — co-investment alongside other investors in portfolio companies

Hong Kong Science Park (HKSTP)

Focused on biomedical technology, electronics, green technology, ICT, materials and precision engineering.

• Ideation — guidance and resources at the concept stage
• Incubation — longer-term support including space and technical assistance
• Acceleration — for companies ready to scale
• Venture fund — direct investment in park companies

The difference between the two is mostly the field: software, fintech and content lean towards Cyberport; hardware, biomedical, materials and anything needing a lab lean towards the Science Park.

InvestHK

A government body, and the service is free: market information, policy guidance, introductions to government departments and local partners, with a programme specifically for startups.

You can contact them before the company even exists — there is no reason not to use something free.

Other common funding routes

• Technology Voucher Programme (TVP) — funds SMEs adopting technology services
• Innovation and Technology Fund (ITF) — supports R&D projects
• The R&D super-deduction — the tax-side deduction described above

Four things tech startups run into

1. Mixing personal and company money. Paying for cloud services on a personal card early on, taking the first payment into a personal account — due diligence goes through it transaction by transaction, and the auditor cannot verify it. See separating business and personal finances.

2. Setting the company up and then not maintaining it. From registration onwards there is an annual return, an audit and a tax return, regardless of revenue. A startup with no product and no income owes all three. What happens if it is left: leaving a company unattended.

3. Assuming overseas income is automatically exempt. SaaS customers being overseas does not mean the profit is sourced outside Hong Kong — the test is what you did to earn it and where, and it has to be substantiated. See claiming the offshore exemption.

4. Doing the books only at the year end. For a company that reports to investors regularly this is the worst option — nothing to look at mid-year, and no management accounts to produce at a funding round. The difference between the two sets: management accounts versus statutory accounts.

Common questions

Does a pre-revenue startup need an audit?

Yes. A Hong Kong limited company is audited and files every year whether or not it traded or made a profit.

Should founders pay themselves a salary, or wait until there is money?

Paying a salary creates MPF and employer reporting obligations, but director’s remuneration is deductible. The trade-off is in salary or dividend for an owner.

When should proper bookkeeping start?

Day one. Classifying R&D expenditure, surviving investor due diligence, substantiating an offshore claim — all three rest on early records, and none can be recreated.

Which year end should I choose?

It decides how much time you get each year to close the books and file, and it maps directly to your block extension code. See choosing a year end.

Apply to an incubation programme first, or incorporate first?

Most programmes require an incorporated company or a defined team, and the specific conditions vary. Incorporating is fast and cheap (government fees USD 501, as little as 1 business day), so it is not usually the bottleneck. See the complete incorporation guide.

Get the structure right on day one

The thing a startup least wants to be doing two years in is papering documents that should have been signed three years ago.

We handle incorporation, company secretary work and bookkeeping, and can set the share and bookkeeping structure around your funding plans; the statutory audit is performed by a practising CPA, and IP and shareholders’ agreements warrant a solicitor.

Get started, or talk to us first.

This article is general information and does not constitute legal, tax or accounting advice. Tax rules are governed by the Inland Revenue Ordinance (Cap. 112) and the IRD’s latest published guidance; the amounts, eligibility and application windows of the funding and incubation programmes are as published by Cyberport, HKSTP, InvestHK and the Innovation and Technology Commission; listing rules are as published by HKEX.