History of Hong Kong

Hong Kong is located in southern China and is one of the two Special Administrative Regions of the People’s Republic of China, the other being Macau. It has seven million inhabitants and is a former British colony which was returned to China in 1997. Hong Kong retains its own legal system, separate from the rest of China. China has stated that Hong Kong will retain its autonomous status until at least 2047.

Hong Kong as an Offshore Centre

As the primary financial centre in Asia, and the third largest in the world, Hong Kong offers its offshore companies 0% tax, confidentiality and the ability to open multi-currency accounts. From a legal perspective, there is a single piece of legislation which regulates all types of businesses. All Hong Kong companies must have their headquarters in the country and the most popular offshore vehicle is the Private Company, which offers limited liability. Hong Kong is a respected and popular destination for all types of business and international trade. It is also a popular choice for import/export businesses. Although, the minimum share capital for Hong Kong companies is 1 HKD, though it is more normal to form with at least 10,000 HKD. Although Hong Kong has a corporate tax rate of 17.5%, companies only pay tax on income from activity in Hong Kong. This means that offshore companies, having their activity outside Hong Kong, do not pay any tax.

Hong Kong Summary

Hong Kong is an attractive jurisdiction from any point of view, its key benefits include: the ease of doing business, the impossibility of investigation by local tax authorities, a strong tradition of banking secrecy, world-class economic stability and an excellent international reputation. Hong Kong offers an ideal base for service companies and international trade activities.

Types of Hong Kong Companies

The incorporation of a company in Hong Kong involves three simple steps and takes six days. There are no restrictions on who may form a company in Hong Kong and 100% foreign ownership is permitted.

Legal Entity	Normal Share Capital	Number of Shareholders, Members or Partners
Private Limited Company	Minimum capital of 1 HKD	Minimum of two shareholders, maximum of 50. Limited liability.
Public Limited Company	Minimum capital of 1000 HKD	Minimum of one shareholder, limited liability.
Sole Trader	Not Applicable	A sole trader is personally liable for all business debts. Liability extends to private wealth, no limited liability.
Company Limited by Guarantee	No minimum capital	At least two guarantor members, liability limited to the amount guaranteed which may be nominal.
Unlimited Company	Minimum capital of 1000 HKD	At least two shareholders, unlimited liability.
General Partnership	Not Applicable	Minimum of two partners, maximum of 20. Unlimited liability for debts and obligations, liability is joint and several.
Limited Partnership	Not Applicable	Minimum of two partners, maximum of 20. One general partner must assume unlimited liability but all limited partners enjoy limited liability.

The various tax rates

Companies based in Hong Kong are not taxed on their income from foreign operations; however, companies originating in Hong Kong may be taxed at a single rate of 16.5%.

Nevertheless, expenditure incurred by the company is tax deductible and long-term capital gains are not taxed. For individuals, there is no consumer tax, and taxes are progressive:

Individual income (HK$)	Tax rate
0 to 40 000	2%
40 000 to 80 000	7%
80 000 to 120 000	12%
120 000 and +	17%

 

Double taxation agreements are possible; however, France and Hong Kong do not have such an agreement. Income tax deducted at source is:

• Interest : 0%
• Dividends : 0%
• Royalties: 4.5% / 15% (for non-resident individuals) 4.95% / 16.5% (for non-resident companies)

 

Accounting essentials

Hong Kong accounting rules are drawn up by the (Financial Reporting Standards Committee) and the tax year begins on 1 January and ends on 1 April. Registered companies (Companies Ordinance) are therefore required to have well-kept, up-to-date accounts: balance sheet, profit and loss statement and appendices.

Accounts must be written in English or Chinese and kept in Hong Kong for at least 7 years. Accounting documents must be published annually and an auditor must carry out an annual audit of the company’s financial health.

Foreign companies must, in addition to the previously cited documents, keep a register of shareholders, register of directors, a register of general secretaries and a register of loans and mortgages.

Professional bodies are as follows: the Institute of Financial Planners of Hong Kong, the Society of Chinese Accountants and Auditors and the Association of Chartered Certified Accountants HK.

The Jurisdiction in detail

Hong Kong experienced a difficult period during the 2008 crisis, then entered a recession. However, the economy has bounced back very well and, since 2010, the region has grown enough to make European countries jealous, with 4.6% growth estimated for 2013. Hong Kong derives its wealth from its dynamic business sectors: textiles, home appliances, electronics, IT and telecommunications. Financial services are very dynamic, in a region where 90% of the country’s GDP comes from the tertiary sector, which employs 85 per cent of workers.

Tourism is also in a period of growth, becoming increasingly important to the economy. However, Hong Kong is very dependent on its neighbours because the region has no natural resources and has a minimal agricultural sector, forcing it to import massively.

At present, there are 900 000 companies registered in Hong Kong, which is a favoured location for trade with China and Asia in general.

Hong Kong has a capitalist economic model which is especially committed to free trade, because international trade is vital for its growth: the region is one of the top 15 global exporters. Its main trading partners are China, Japan and South East Asia. In recent years, Hong Kong’s imports have tended to rise faster than exports, threatening the balance of trade in the region.

Strengths for investment :

• the country is a great route for trading with China, the leading global producer, and excels in terms of services and export
• the Hong Kong economy is strong and vibrant
• the banking system is efficient and high-quality
• great freedom of enterprise and information
• the country has a good level of political transparency and a stable system of government, which has implemented tax benefits
• qualified and available workforce

Weak points :

• doubts have formed around the future management of Hong Kong when the country is integrated with China,
• the financial sector is ubiquitous.

The country enables activity to be freely based there, with a fiscal policy and legislation which place few constraints. Bilateral agreements have been signed with 15 countries.

Access to and functioning of the market

Hong Kong is a member of the World Trade Organization and APEC (Asia-Pacific Economic Cooperation). The country has also signed an FTA with New Zealand. Hong Kong also has free port status and its customs system is separate from that of China. The status of free port means that there are no customs duties except for:

• tobacco: tax calculated on volume,
• alcohol over 30% proof: taxed at 100% of the CIF value,
• beer: 30% of the CIF value,
• petroleum products: tax calculated on volume and value.

 

If there are no customs duties, the merchandise is still inspected and must receive customs approval. The importer must also complete the Customs and Excise Department form within 14 days following import. Export permits are also needed for:

• certain chemicals, according to the statute on the control of chemical products,
• pharmaceuticals,
• live animals,
• textiles not registered with the Textiles Traders Registration Scheme,
• plants,
• frozen rice, meat and poultry,
• radio equipment,
• alcoholic drinks,
• tobacco
• vehicles,
• petroleum products.

 

Retail accounts for US $ 31 billion in Hong Kong and it is divided into several segments. There are many small family businesses, supermarkets (Sincere, Wing, Jusco) that sell mass-market products and major shops that focus on high-quality products (Lane Crawford, Seibu, Sogo). A few discount shops sell perishable products. There are two types of consumers in Hong Kong: locals (6.5 million) and tourists who have a particular taste for luxury.

Transport in Hong Kong plays a very important role in the economy. The country is the largest airport in the world and the third-largest container port, making it one of the most important logistics hubs in Asia. 245 million tons of products pass through Hong Kong every year; the city is one of the best gateways to the Chinese market. Hong Kong ship owners control 6% of the global maritime fleet.

Hong Kong industry represents 9% of the country’s GDP, with textiles and electrical products being the dominant sectors. The field of electronics is in retreat, but the country’s interest in the high-tech sector is growing.

Labour legislation

In Hong Kong, the legal duration of the working week is between 40 and 48 hours, and there is no minimum wage. However, the average gross monthly salary is 11,000 HK$ (about $ 1,400). Employers pay no social contributions, employment contracts are regulated by the law and collective agreements. The two types of contracts are permanent or fixed-term. Hong Kong has no legal retirement age, although, on average, it is 62.

Social bodies in the world of work do not have much influence; an example is the Hong Kong Confederation of Trade Unions (HKCTU), which is an umbrella organisation for the trade unions.

Intellectual property

Type of rights	Text of Act	Validity of protection	Agreements signed
Patents	Patent ordinance 1997	20 years	-Patent Cooperation Treaty Strasbourg Agreement Concerning International Patent Classification
Brands	Trade Marks ordinance 1874	7 years, renewable for 14 years	- Trademark Law Treaty - Nice Agreement on the International Classification of Goods and Services -The Madrid Agreement concerning the International Registration of Marks
Design	Registered Designs Ordinance, chapter 522 of the laws of Hong Kong	5 years, renewable a maximum of 4 times
Reproduction rights	Copyright Ordinance of June 27, 1997, chapter 528 of the laws of Hong Kong	50 years	- Berne Convention for the Protection of Literary and Artistic Works - Convention for the Protection of Producers of Phonograms - Rome Convention for the Protection of Performers - WIPO Copyright Treaty - WIPO Performances and Phonograms Treaty

 

Political data

From a political point of view, the executive and legislative powers share the management of the country:

Executive power is held by the Chief Executive, appointed for a period of 5 years by 800 electors (parliamentarians, representatives of the professional world and designated individuals). Since 1 July 2012, Leung Chun-Ying has been at the head of the executive and a government composed of 12 Secretaries and 17 senior officials (Permanent Secretaries) is accountable to him. The three most influential Secretaries are the Chief Secretary, the Financial Secretary and the Secretary for Justice, who replace the Chief Executive, if the situation so requires, in that order of importance. The latter is also supported by the Executive Council (Exco), consulted on every important political decision.

Legislative power is held by the Legislative Council (60 members) elected under a special system: 30 members are chosen by universal suffrage, and the other 30 are appointed by functional constituencies of the professional sectors (education, finance, real estate, etc.). The Legislative Council’s role is to approve laws and possibly to propose new ones, approve the budget, taxes and public spending. It also appoints the judges of the Court of Appeal and the president of the High Court. The Legislative Council is elected for 4 years.

Hong Kong has no party system, since no legislation applies to political groups. Therefore there are several parties, which are mostly registered as companies :

• the ADPL: Association for Democracy and People’s Livelihood,
• Civic Party: environmental protection and promotion of minorities,
• DAB: pro-Chinese conservative party,
• the Democratic Party: democrat and pro-liberal,
• The Frontier: radical democrat party, for the total independence of Hong Kong.