Special feature – Small is beautiful

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Macao, with its limited spaces and people, is it really a good place to create and develop start-ups? Experts say it’s

Macau Business | June 2022 | Special report | Start-up in Macau

While the director of the Center for Innovation and Entrepreneurship (UM), Jérôme Yen, affirmed Macau Business that “Macao is very conducive to entrepreneurship”, because according to him, “the geographical conditions of Macao are superior” and “companies registered in Macao can enjoy a good business environment”, [with] Macau’s Low Tax System [and] the low operating costs of companies registered in Macau” among other reasons (see the full interview in this special file), not everyone agrees with this idea.

According to a recent report by HKTDC Research, “Given Macau’s monolithic industrial structure and relatively small market, there is little room for entrepreneurship in the city.”

Wei Lixin, Vice President of the Macao Young Entrepreneurs Incubation Center (MYEIC), summed up “the three major challenges” faced by start-ups in Macau: “First, there is a shortage of workforce. Macau has a population of around 680,000 and an unemployment rate that has remained at the relatively low level of 1.8% before the pandemic. In August 2021, its overall unemployment rate was 2.8%, while that of residents was 3.7%. Despite this, statistics show that labor costs for Macau-based companies remain relatively high.

Second problem: the lack of talent. As Mr. Wei explains in the HKTDC Research report, “There are not enough experienced professionals in technology, medicine and finance. In the past, Macau’s economic growth relied heavily on the tourism, entertainment and gambling industries, so professional staff are scarce and often have to be recruited from outside.

Finally, “we suffer from capital constraints. Macau is a small market and businesses need to look to other markets to grow. For start-ups, this, coupled with the drastic contraction in the number of tourists during the pandemic, is a challenge”, concludes the vice-president of MYEIC.

Entrepreneur Marco Duarte Rizzolio makes another argument: “Macau’s area is only 32 km2, much of which is occupied by integrated hotels and casinos, hence the corresponding strong dependence of the local economy on -to the gaming, travel and hospitality industries. These constraints make the survival of start-ups more difficult. Businesses need to integrate into the local economic structure, but the talent they need is being absorbed by the big companies in these sectors. Entrepreneurs need to think globally to be successful.

Let’s go back to Jérôme Yen’s assertion…

Could the small size of the Macau market be an advantage for local start-ups, which would need less capital to capture market share while possibly attracting the attention of a Chinese investment partner?

Raymond Lao, former founding partner of Macau Envision Accelerator, thinks so: “Macau is so small that you won’t need as much capital to enter the market – less than in Hong Kong, Singapore or Beijing where you have to have hundreds of millions. just to get known. Here in Macau, a few percent of that and the whole city will know what you’re doing and if you’re doing it well.

Mr. Lao gave an example in an interview with our sister media Macau News Agency: “Let’s say that as a start-up here, you do [something] like the Aomi food delivery app, essentially a localized version of Chinese company DianPing. If Aomi was in China it wouldn’t really exist, the competition is so fierce and the industry is already so established. But Aomi is from Macau and that will give her a charm of security, which the Chinese giants cannot compete with.

“Macau is so small that you won’t need as much capital to break into the market – less than in Hong Kong, Singapore or Beijing” – Raymond Lao

Macau better than Hong Kong

While “in Hong Kong, banks have been quite inflexible with providing bank accounts to certain types of entrepreneurs, namely newly incorporated businesses/start-ups”, in Macau, “although the tendency is to copy neighboring SAR, the extremisms reached in Hong Kong are still not being felt,” according to experts from CW CPA, a consulting and auditing firm with offices in Hong Kong, Shenzhen, Guangzhou and Shanghai, as well as in several cities of Europe.

With this in mind, “but also for tax reasons”, Macao can “be an alternative for those who see their professional path blocked in Hong Kong”, advises the CW CPA team.

Another advantage for companies at the start of their “life” is that in Macau they are exempt from tax on all income up to a threshold of MOP 600,000, with a rate of 12% (lower in Hong Kong) applicable on all income. came back above that.

In summary, “Macao presents itself as a very valid alternative to Hong Kong in terms of setting up a new business. And, given the current banking restrictions in Hong Kong, incorporating a company in Hong Kong and applying for a bank account in Macau could be the answer.

Therefore, as the CW CPA advises in a text on its website, “start-ups can choose to take advantage of the tax advantages that Macau offers – namely the tax exemption for income up to MOP 600,000 – maturing until they are considered sufficiently stable. and offer adequate guarantees for authorization to open a bank account in Hong Kong.

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