Free trade zones and free ports in Hong Kong: Explained.

Posted in
Free trade zones and free ports in Hong Kong: Explained

Free trade zones and free ports in Hong Kong: Explained

Between low tax rates and strong banking, Hong Kong has a lot to offer to global businesses doing business in Asia. But one of the biggest draws is its free trade policy.

Hong Kong has a vital role in global trade and was ranked the world’s eighth-largest trading entity in merchandise trade. This special administrative region has one of the busiest and most efficient international ports, and thanks to its policy on free trade, it has encouraged and supported international trade between countries globally, connecting over 600 destinations.

In this guide, we will provide an overview of Hong Kong’s free trade zones and free ports in more detail.

Freedom to trade in Hong Kong

All goods imported and exported from free trade zones and free ports in Hong Kong are exempted from customs control and do not have any barriers on trade. There is also no limit on foreign investment which attracts foreign investors from around the world to invest in Hong Kong.

Products can be imported and exported from Hong Kong without paying tariffs and involve only simple documentation. Hong Kong does not impose tariff quotas, value-added tax (VAT), goods and service tax (GST), or customs fees on imports and exports as a free port.

However, excise duty is imposed on four types of commodities: hydrocarbon oil, liquors, methyl alcohol, and tobacco, regardless of whether they are locally manufactured or imported. You can find out more about import and export tax here.

Goods imported or exported to Hong Kong do not usually require licenses, but businesses may need licenses to meet obligations of trading partners, public health or safety and security reasons.

Hong Kong has become a popular trading centre for Asia and a gateway to China. It also serves as an entrepôt for trade between Europe and mainland China, meaning that it imports goods and services from one country and exports them to other countries around the world.

Free trade agreements in Hong Kong

At the time of this writing, Hong Kong has eight Free Trade Agreements (FTAs) in place with mainland China, New Zealand, the Member States of the European Free Trade Association (EFTA), Chile, Macao, the Association of Southeast Asian Nations (ASEAN), Georgia and Australia.

The FTAs can be applied to both small and large businesses to reduce or eliminate tariffs and barriers to trade and investment between two or more countries. The FTA also encourages foreign direct investment, which will provide new business opportunities for foreign entrepreneurs.

Free trade also introduces the theory of comparative advantage, which suggests that countries that have an advantage in areas of production of a specific good or service will export the goods or services they have an advantage in at a lower cost. When a country specialises in an area of production, it can benefit from the economies of scale. This refers to when there is an increased level of production, leading to lower costs per unit and lower prices for consumers.

Hong Kong is also a member of the World Trade Organisation (WTO) and has joined since it was established in 1995, promoting smooth and free trade to stimulate economic growth, employment and economic integration for developing countries.

In addition to being a member of the WTO, Hong Kong also allied with the following organisations to show its support for free trade:

  • Asia-Pacific Economic Cooperation (APEC)
  • World Customs Organisation
  • United Nations Economic and Social Commission for Asia and the Pacific
  • Trade and Development Committee under the Organisation for Economic Co-operation and Development (OECD)
  • United Nations Conference on Trade and Development

Regional Comprehensive Economic Partnership

Hong Kong has recently submitted an application to join the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trading bloc.

The RCEP currently has 15 members, which include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Australia, Japan, New Zealand, China, South Korea and Vietnam. The RCEP members are important trading members of Hong Kong, and Hong Kong’s trade volume with the RCEP members reached a total of USD 962.6 billion in 2021, making up 70% of Hong Kong’s total trade volume.

Joining the RCEP will maximise Hong Kong’s free trade policy with the RCEP members and strengthen Hong Kong’s participation in regional economic cooperation. It will also provide new trading opportunities with Japan and South Korea, as Hong Kong has yet to conclude an FTA with the two countries.

However, even if Hong Kong does not join the RCEP, Hong Kong already has signed eight FTAs and promotes a free trade policy.

Conclusion

In summary, trading within the free trade zones and free port in Hong Kong is exempted from tariffs, trade quotas and customs inspections, making it very attractive for foreign businesses and investments.

Hong Kong is pushing to be a part of the RCEP and has recently applied to join the bloc. Being a member of the RCEP will allow Hong Kong to access the full benefits of free trade between its members. Apart from joining the RCEP, Hong Kong is also a founding member of the WTO, has signed several FTAs with important trading partners and is an ally with several trade organisations.

If you have any further questions regarding free trade zones and free ports in Hong Kong or the expansion of your business to the city, do not hesitate to contact Acclime. 

Share this article

Need business support in Hong Kong?

Get a free 30-minute consultation on operating and growing your business in Hong Kong.


© Acclime Hong Kong | Privacy policy