Doing Business in Hong Kong


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Business Guide for Doing Business in Hong Kong

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Doing Business in Hong Kong

  1. 1. HONG  KONG  COMPANY  INCORPORATION  –  WHITE  PAPER      Hong  Kong  has  evolved  into  one  of  the  important  business  centers  in  the  region.  Located  on  the   South   East   Coast   of   China   it   became   part   of   China   on   1   July,   1997.   It   is   a   Special  Administrative   Region   (SAR)   within   the   People’s   Republic   of   China   with   its   own   legislature  and  courts.  Despite  the  presence  of  business  centers  such  as  Shanghai,  Hong  Kong  continues  to   gain   popularity   as   an   offshore   jurisdiction   and   commercial   hub   because   of   the   economic  and   political   stability   and   simple   and   straightforward   tax   regime   and   legislative   system.   A  Hong   Kong   offshore   company   is   a   very   popular   vehicle   for   conducting   offshore   banking  activities,  international  trade,  investment  activities,  and  for  asset  protection.    Some  of  the  key  benefits  of  Hong  Kong  as  an  offshore  jurisdiction  include:    Favorable  Tax  regime:  Hong  Kong  follows  a  territorial  policy  of  taxation,  the  companies  are  taxed   only   on   the   income   that   is   derived   from   Hong   Kong   and   profits   earned   beyond   the  shores  of  Hong  Kong  are  exempted  from  tax.  Moreover  there  is  no  VAT,  or  capital  gains  tax  or  tax   on   dividends   -­‐   this   makes   it   a   highly   desirable   jurisdiction.   Thus,   a   Hong   Kong   offshore  company   that   generates   income   from   abroad   practically   pays   zero   tax.   Overseas   profits   are  exempt  from  taxation  in  Hong  Kong  even  if  it  is  brought  back  to  the  jurisdiction.    Even  for  revenue  generated  from  Hong  Kong  the  tax  applicable  on  taxable  profit  is  just  16.5%,  one  of  the  lowest  in  the  region.  After  deductions  and  exemption  the  effective  tax  rate  will  be  much  lower  than  the  headline  tax  rate.    Positive  Image:  Hong  Kong  companies  are  not  perceived  as  offshore  tax  haven  as  Hong  Kong  is  not  regarded  as  a  tax  shelter.  In  an  article  published  in  May  2009,  the  Director  of  the  OECD’s  Centre   for   Tax   Policy   and   Administration   commended   Hong   Kong’s   efforts   to   comply   with   the  international  standards  on  tax  transparency  and  exchange  of  information  while  pointing  out  that   Hong   Kong   is   not   a   tax   haven   according   to   the   OECD   criteria.   Subsequently,   in   its  September   2009   report,   the   OECD   vindicated   again   that   Hong   Kong   is   not   a   tax   haven   and  
  2. 2. recognised   Hong   Kong’s   commitments   to   the   OECD   standards.   Therefore   a   Hong   Kong  Offshore  company  commands  a  respectable  image.    Strategic   Location:   Hong   Kong   is   considered   as   the   gateway   to   China,   the   world’s   biggest  market  and  facilitates  easy  access  to  mainland  China  and  all  the  key  markets  of  Asia,  most  of  the  Asian  cities  are  within  four  hours  flying  radius.    Free   economy:   Hong   Kong   is   regarded   as   the   world’s   most   free   economy   with   the   lack   of  restrictions   and   government   interventions   in   trade.   The   economic   policy   allows   free   inflow  and   outflow   of   capital   and   there   is   no   exchange   control.   The   jurisdiction   allows   100%   foreign  ownership   of   companies.   It   has   been   ranked   as   the   freest   in   the   world   by   the   Index   of  Economic  Freedom  for  15  consecutive  years.    Political   Stability:   Hong   Kong   a   former   British   Dependent   Territory   became   a   Special  Administrative  Region  of  People’s  Republic  of  China  in  July  1997.  Since  then  Hong  Kong  has  retained  its  autonomous  status  and  under  the  “one  country  two  systems”  concept,  the  Chinese  government   does   not   interfere   with   the   governance   of   Hong   Kong   which   has   flourished   by  leaps  and  bounds  with  a  significant  share  of  the  world’s  largest  banks,  corporations  and  high  net   worth   individuals.   World   Investment   Report   2009   released   by   the   United   Nations  Conference  on  Trade  and  Development  (UNCTAD)  reaffirmed  Hong  Kong  as  one  of  the  world’s  and   Asia’s   most   attractive   destinations   for   FDI.   Despite   the   tough   economic   situation   Hong  Kong   attracted   US$63   billion   inward   investment   in   2008   and   continues   to   be   Asia’s   second  largest  and  is  the  world’s  seventh  largest  FDI  recipient.  This  reflects  the  investment  climate  and  investor’s  confidence  which  are  a  direct  outcome  of  political  stability.    Strong   Economy:   With   a   population   of   7   million   and   foreign   exchange   reserves   of   over  US$140   billion   the   economy   of   Hong   Kong   is   resilient   and   vibrant.   The   Hong   Kong   Stock  Exchange  is  Asia’s  second  largest  stock  exchange  in  terms  of  market  capitalization,  behind  the  Tokyo   Stock   Exchange.   As   of   31   December   2007,   the   Hong   Kong   Stock   Exchange   had   1,241  listed  companies  with  a  combined  market  capitalization  of  $2.7  trillion.    
  3. 3. Absence   of   Nationality   or   Residency   Limitation:   As   an   international   business   center   the  jurisdiction  does  not  have  any  stipulation  regarding  the  nationality  or  the  residency  of  share  holders  and  directors.  A  minimum  of  one  director  and  shareholder  is  required  and  there  is  no  cap  on  the  maximum  numbers  and  a  foreigner  who  is  not  residing  in  Hong  Kong  can  act  as  the  director.   The   director   and   shareholder   can   be   the   same   person.   However   the   company  secretary  must  be  a  resident  individual  or  a  resident  company.    Minimum   Share   Capital:   The   minimum   paid   up   capital   is   HK   $1   and   recommended   share  capital  is  HK$10,000.  Bearer  shares  are  not  allowed.    Filing  of  Returns:  If  a  company  does  not  do  any  business  in  Hong  Kong,  which  is  usually  the  case   with   offshore   companies,   there   is   generally   no   requirement   to   file   financial   statements  and   no   audit   is   required.   It   is   only   necessary   to   file   an   annual   Declaration   of   “No   business  activity   in   Hong   Kong.”   However   if   the   offshore   company   has   an   office   in   Hong   Kong   or   has  employees   in   Hong   Kong   then   it   is   required   to   file   audited   financial   accounts.   Moreover   the  government   reserves   the   right   to   request   for   filing   annual   statements   at   a   short   notice   any  time  therefore  it  is  recommended  to  maintain  the  books  up-­‐to-­‐date.    Provision   for   Anonymity:   The   names   and   details   of   the   Directors   and   Shareholders   are  disclosed  in  public  records  however  the  nominee  provision  could  be  used  in  order  to  maintain  anonymity.    Regulatory   Compliance:   The   other   regulatory   compliance   are   simple   and   is   similar   to   any  resident   companies   such   as   maintenance   of   proper   records,   renewal   of   licenses,   notifying   any  changes  in  the  registered  details  etc.    Investment   Environment:   Apart   from   certain   narrow   areas   (for   example,   broadcasting),  foreign  investment  is  not  subject  to  special  regulatory  regimes  or  requirements.      Funds   from   profit   or   capital   accounts   can   be   freely   repatriated   and   remitted   overseas,   and  there  is  no  foreign  exchange  control.  
  4. 4.  The  general  tax  environment  in  Hong  Kong  is  favourable  to  investors  and  in  addition  there  are  a  number  of  exemptions  from  tax  or  allowances  designed  to  stimulate  particular  industries  or  businesses.    The  most  common  forms  of  business  vehicle  used  by  foreign  companies  are:   ● Representative  offices.   ● Branches  of  parent  companies.   ● Locally  incorporated  subsidiaries  of  parent  companies.   ● Partnerships.   ● Joint  ventures.   ● Trusts.         Registration   formalities.   The   incorporation   of   a   private   company   in   Hong   Kong   is   registered  on  the  filing  of  the  memorandum  of  association  and  articles  of  association.  After   the   constitutional   documents   are   filed   with   (and   a   statement   of   compliance   and   the   prescribed  capital  fee  are  submitted  to)  the  Registrar  of  Companies  (Registrar),  he  issues  a   certificate   of   incorporation   certifying   the   name   and   the   date   of   incorporation   of   the   company.  This  process  takes  about  six  working  days.  Every  person  establishing  a  place  of   business  in  Hong  Kong  must  also  register  with  the  Business  Registration  Office.     Share   capital.   Apart   from   certain   companies   that   are   regulated   (for   example,   banking,   securities  and  insurance),  there  is  no  required  minimum  or  maximum  authorised  capital.     Non-­‐cash  consideration.  Shares  can  be  allotted  for  cash,  services  or  other  consideration   such  as  the  transfer  of  property.  The  issued  share  capital  may  be  issued  at  par  value,  partly   paid-­‐up  or  paid  at  a  premium.  If  a  companys  articles  of  association  permit,  shares  can  also   be  issued  as  redeemable  shares.     Rights   attaching   to   shares.   The   rights   attaching   to   shares   are   normally   set   out   in   the   companys   memorandum   and   articles   of   association   and   subject   to   the   provisions   of   the  
  5. 5. Companies  Ordinance.    Foreign   shareholders.   There   is   no   requirement   that   a   shareholder   be   resident   in   Hong  Kong  except  in  certain  narrow  circumstances.    Management  structure.  A  private  company  must  have  at  least  one  director  while  a  public  company   must   have   at   least   two.   Listed   companies   have   more   detailed   obligations  concerning   the   composition   of   their   boards   of   directors.   There   are   no   restrictions   on  foreign  managers.    Directors  liability.  If  a  director  does  not  comply  with  his  duties  he  may  be  liable  to  civil  or   criminal   proceedings   and   may   be   disqualified   from   acting   as   a   director.   Certain   non-­‐statutory  guidelines  on  directors  duties  have  been  issued  by  the  Companies  Registry.    Parent   company   liability.   The   parent   company   is   not   liable   for   the   debts   of   its  subsidiary;  its  legal  liability  is  limited  to  the  amount  of  any  unpaid  issued  share  capital.    Reporting  requirements.  A  profit  and  loss  account  and  a  balance  sheet  for  the  company  must  be  audited  by  Hong  Kong  registered  auditors  and  laid  before  the  shareholders  at  a  general   meeting   within   18   months   of   incorporation   and   then   at   least   once   in   every  calendar  year.  Generally,  Hong  Kong  private  companies  with  share  capital  are  not  required  to  file  their  accounts  with  the  Registrar  of  Companies.    In  addition,  an  annual  return  must  be  filed  with  the  Registrar  of  Companies  at  least  once  a  year   (unless   there   has   been   no   change   in   the   filed   particulars   since   the   date   of   the   last  annual   return,   in   which   case   a   certificate   confirming   this   fact   can   be   filed   instead   of   an  annual  return).    A   company   must   also   notify   the   Registrar   of   certain   changes   concerning   the   company   (for  example,   any   change   in   the   directors   or   secretary   or   in   the   filed   particulars   of   any   existing  directors  or  secretary).    Visas  and  work  permits:  Foreign  employees  must  obtain  a  Hong  Kong  employment  visa  
  6. 6. to  work  in  Hong  Kong.  To  qualify  for  this  visa,  a  person  must  possess  skills,  knowledge  or   experience   relevant   to   the   job   that   is   unavailable   locally.   This   test   can   generally   be   satisfied  in  the  case  of  an  intra-­‐company  or  intragroup  transfer.  The  applicant  also  needs   to   nominate   a   sponsor,   which   must   be   a   Hong   Kong   company   or   a   foreign   company   registered  in  Hong  Kong.  The  sponsor  is  usually  the  employer  company.   It  normally  takes  six  weeks  for  the  application  to  be  processed.  The  government  charges   nominal  fee  for  the  visa  if  the  application  is  approved.     Imports   and   exports:   Hong   Kong   does   not   impose   export   tax.   Imports   of   the   following   items  are  taxed  (the  rate  of  taxation  varies  depending  on  the  specific  good  concerned):   ● Liquor   with   an   alcoholic   strength   of   more   than   30%   by   volume   measured   at   a   temperature  of  20  degrees  Celsius.   ● Tobacco.   ● Hydrocarbon  oil.   ● Methyl  alcohol  and  any  mixture  containing  methyl  alcohol.   ● Motor  vehicles.   Double  Tax  Agreements:  Hong  Kong  has:   ● Comprehensive   double   tax   treaties   with   Belgium,   Luxembourg,   the   Peoples   Republic   of  China  (PRC),  Thailand  and  Vietnam,  and  double  tax  treaties  have  been  signed  with   Austria,   Brunei,   Hungary,   Indonesia,   Ireland,   Kuwait,   Liechtenstein,   The   Netherlands   and  the  UK  but  are  not  yet  in  effect.   ● Double   tax   arrangements   concerning   airline   and   shipping   income   with   Denmark,   Germany,  The  Netherlands,  Norway,  Singapore,  Sri  Lanka  and  the  UK.   ● Double  tax  arrangements  concerning  airline  income  with  Bangladesh,  Canada,  Croatia,   Ethiopia,  Finland,  Iceland,  Israel,  Jordan,  Kenya,  Korea,  Kuwait,  Mauritius,  Mexico,  New   Zealand,   the   Russian   Federation,   Sweden   and   Switzerland.   Double   tax   arrangements   concerning   airline   income   have   been   signed   with   Estonia,   Fiji,   Laos,   Maldives   and   Macau,  but  are  not  yet  in  effect.     ● Double  tax  arrangements  concerning  shipping  income  with  the  US.    
  7. 7.  ________________________________________  Intuit  Management  Consultancy  www.intuitconsultancy.comDubai:  +971  4  351  8381  UK:  +  44  78  2765  5809  India:  +91  9840708181  The  information  in  this  document  is  of  a  general  nature  and  is  not  intended  to  address  the  circumstances  of  any  particular  individual  or  entity.  There  can  be  no  guarantee  that  the  information  in  this  document  is  accurate  as  of  the  date  it  is  received,or  that  it  will  continue  to  be  accuratein  the  future.  No  individual  or  entity  should  act  on  the  contents  herein  without  appropriate  professional  advice  and  only  after  a  complete  examination  of  their  particular  circumstances.