Giving Wings to Hong Kong Start-ups

[Last update 30 March 2021 –  Financial secretary Paul Chan announced to raise the subsidy amount from 4 million to 6 million HK dollar in the budget report of 2021/22.  Please note that this program is only eligible for Active onshore companies. Offshore companies are not eligible.]

 

Government Support for Start-ups  – BUD FUND 

Many start-ups begin their adventures in Hong Kong mainly because of two reasons.  First, entrepreneurs want to enjoy taxation benefit. Second, Hong Kong is one of the easiest gateways to enter into the China market. However, many start-ups are not aware that the Hong Kong Government actually provides a decent amount of subsidy for Hong Kong start-ups which targets market overseas. In this article, I will introduce one popular Government fund – BUD FUND.

The ceiling for BUD fund is 4 million HK dollar. It is designed for start-ups which wants to develop or restructure business operations. A maximum of 2 million can be used in Mainland China. The other 2 million can be used in countries which have signed Free Trade Agreements with Hong Kong. This programme is extremely useful for those who want to penetrate a new market.

Which countries have signed free trade agreements with Hong Kong? 

The Programme covers countries below:- Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, Australia, Chile, Iceland, Liechtenstein, Norway and Switzerland, Georgia, Macao and New Zealand. Funding ceiling for each project is HK$1 million. Cumulative funding ceiling for the above-mentioned countries is HK$2 million. Each project should be completed in a 24-month period.

Funding Principle

In order to ensure it is a genuine project, the government will cover at most 50% of each project. In other words, the applicant must bear 50% of the approved cost. Contribution of applicant must be made in cash. Applicant should also note that audit is required for each approved project and the Government will subsidize at most HK$10,000 per audit.

The Government also makes it clear that the cumulative funding is HK$4 million. You cannot use a related entity to re-apply for the BUD funding. For example, if you have more than one start-ups company, which you are the sole shareholder, the Government will treat both companies as one business entity. The maximum funding you can receive is only HK$4 million.

In the above paragraph, related entity means that you have at least 30% of interest of another company and both companies have the same business nature.

Who is eligible?

Your start-ups must be registered under the Business Registration Ordinance. It must be a non-listed company and your start-ups should have active and material operation in Hong Kong. In other words, offshore company are not eligible for this scheme.

Your business nature is not relevant for this application. Your company can be in the manufacturing sector. You can also be in the service sector. You also don’t need to have established operation in the FTA countries. Newcomers are welcome.

The only requirement is to prove that you have active operation in Hong Kong. Company owners should provide transaction records, contracts, HK employees retirement fund record, profit tax returns, HK office rental contract, etc. The more documents you provide, the easier it is for the government to confirm your eligibility.

Scope of the Programme & How to prepare the proposal

There are 3 major categories which the Government is willing to sponsor. They are (a) branding; (b) upgrading & restructuring; and (c) promoting sales. For example, the fund can be used to build or rebuild brand identity. It can be used to prepare a brand assessment, i.e. a sustainability report. You can use it to develop new products or upgrade the company’s management system. You can improve warehouse control, logistic arrangement, business automation, etc.

Start-ups owners must prepare a detailed budget report with clear breakdown for each expenditure. However, one should note that some items are subjected to specific restriction. Below are some examples.

1. If you decide to incorporate a brand new entity in FTA markets, the cost should not exceed 20% of the approved expenditure. That being said, this includes license application, rental expenses, and professional fee for the incorporation service.
2. If you want to hire an additional staff, amount of salary should be at most 50% of the project estimation. Please note that the newly hired position must be for the purpose of the project.
3. If you use the fund to procure or lease new equipment or machine, the cost should be at most 70% of the approved expense. Similarly, the new machine and equipment must be an essential part of the new project.
4. If you want to procure samples for development or demonstration purpose, the cost can only be up to 30% of the total cost.
5. If you spend the fund to advertise your brand, product or service, the cost can only be up to 50% of the project budget.
6. If the fund is used for business trip, budget of the flight tickets and hotel accommodation shall not exceed 20% of approved expense.
7. If you intend to make intellectual property registration, you should not spend more than 300,000 for the entire project.

Expenses which are not allowed

To give you a better understanding, I would also like to give you a few examples which the Government will prohibit (unallowable costs). First, salary of existing employees will not be approved. Second, current rental expense and office stationery will not be allowed. Advertisement fee such as deposit, bonus, slotting fee will also not be considered. Machinery and equipment for daily usage, i.e. computer, headsets, phone will not be covered. Hopefully these examples give you a basic concept in preparing your application.

Please note that the above information is not exhaustive, and it is for reference only. If you want to join our events and receive more information on a regular basis, you can join our membership programme. To become a member, all you have to do is to appoint us as your company secretary.  Contact us today at info@getstarted.hk and be part of our community.

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Disclaimer: This article is intended for reference only. The above information is provided to you on an “AS IS” basis without any express or implied warranty of any kind and is provided for a general, indicative purpose only. In particular, Get Started HK Limited does not make any express or implied warranty as to the accuracy, reliability, security, timeliness in relation to such contents. The Hong Kong Government has sole and full discretion in approving the application for the BUD fund. Should you have any questions, you can contact the HK government directly.