doing business in hong kong 2007

8/2/2019 Doing Business in Hong Kong 2007

1/25

Doing Business

in Hong Kong

2007


2/25

Contents

1. Introduction......................................................................................... 1

2. BusinessEnvironment ....................................................................... 2

3. ForeignInvestment............................................................................. 5

4. SettingUpABusiness........................................................................ 6

5. Labour ................................................................................................ 10

6. Taxation.............................................................................................. 12

7. Accounting&Reporting.................................................................. 20

8. UHYFirmsinHongKong............................................................... 22

9. UHYFirmsWorldwide.................................................................... 23


3/25

1. Introduction

TaiKongCPALimited(TK)wasestablishedin1984whenTaiHayYuen,

KongTakWingandRobertKongmergedtheirpracticestobecomeTai,

Kong&Co.TaiKongisamemberofUrbachHackerYoung(UHY)

International,aworldwideorganisationofaccountingandconsultancy

firms.Weprovideclientswithcomprehensiveandpersonalservices

relatingtoauditing,taxation,accountingandgeneralfinancialand

managementadvice,bothinHongKongandabroad.

This

booklet

has

been

prepared

for

the

use

of

clients,

partners

and

staff

of

TK and UHY International member firms. It is written primarily for

foreignbusiness people who are considering establishing abusiness in

HongKong.ThisguidecontainsmanyofthekeyissuesintheHongKong

businessenvironmentanditisnotintendedtoprovidecomprehensiveand

detailedinformationnecessaryforaninvestmentdecision.

Pleasecontactusifyourequiremorepreciseinformationondoing

businessinHongKong.

Welookforwardtowelcomingnewclientstotheexcitingbusiness

possibilitiesthat

Hong

Kong

and

China

have

to

offer.

Enquiriesmaybemadetoanyoneofourdirectorsandprincipals:

RobertKong

Tel:+(852)28922800

Fax:+(852)28348777

Email:[email protected]

Website:www.tkcpa.com.hk

TaiKongCPALimited(TK)isamemberofUHY,aninternationalassociationof

independentaccountingandconsultancyfirms,whoseorganisingbodyisUrbach

Hacker Young InternationalLimited, aUKcompany.EachmemberofUHY isa

separate and independent firm. Services described herein are providedby Tai

KongCPALimited(TK)andnotbyUrbachHackerYoungInternationalLimited

or any other member of UHY. Neither Urbach Hacker Young International

LimitednoranymemberofUHYhasanyliabilityforservicesprovidedbyother

members.

1


4/25

2. Business envir onment

Inlessthan200years,HongKonghasgrownfromasmallfishingvillage

to an entrept for international trade and counts as one of the most

importantfinancial,tradeandcommercialcentresintheworld.Thereare

manyreasonsforthisevolution:

An open economy with a free trade policy, free enterprise andminimumgovernmentintervention.

Strategically located in the Asian Pacific region, close to mainlandChina.

Welldevelopedcommunicationsnetwork. English remains the official language, in addition to Chinese and

otherAsianandEuropeanlanguages.

Internationalcentrefortrade,commerceandfinance. Stable and fully convertible Hong Kong dollar (linked to the US

dollar)

without

exchange

control

as

imposed

in

many

other

Asian

countries.

Freeportandseparatecustomsterritorystatus. Simpleandlowtaxregime. Highqualityofbanking,insuranceandprofessionalservices. Excellent network of road, superhighways, rail, sea and air links

withChina.

Welldeveloped transportation network with one of the largestcontainerportsintheworldandaninternationalairport.

Legalsystembasedoncommonlaw. Hardworkingandefficientworkforce. 100%foreignownershipandcontrolpermitted.

2


5/25

Basic rights and freedoms, including freedom of speech, press andassociation safeguarded, as are the right to private ownership of

property.

Freeentryintotheterritoryformostforeignindividuals.UsefulinformationcanbefoundonHongKongatthefollowingwebsites:

HongKongGovernment www.info.gov.hk/business

HongKongTradeDevelopmentCouncil www.tdc.org.hk/main

HongKongTouristAssociation www.hkta.org

1997andbeyond

Foremost in themindof many doingbusiness in this region,are thekey

issuesconcerningChinaafterHongKongrevertedtoChinascontrolon1

July1997.Theregionspoliticalandeconomicstabilityaresafeguardedby

the SinoBritishJoint Declaration which is registered with the UN as an

international treaty. Under the terms of the 1984 SinoBritish Joint

Declaration,HongKongwillretainitsfreeenterprisesystemforatleast50

yearsafterthatdate.In1990,ChinapromulgatedtheBasicLaw,themini

constitution for Hong Kong Special Administrative Region (HKSAR),

ensuringtheimplementationofonecountry,twosystems.

The Joint Declaration provides Hong Kong with a high degree of

autonomy,whichallowsittoadministeritselfandpassitsownlegislation.

This enables Hong Kong to control its economic, financial and trade

policies, and to participate in international organisations and trade

agreements.DuetotheJointDeclaration,themanyfactorscontributingto

HongKongseconomicsuccessremainintact.

SuperhighwaytoChina

HongKongsitsonthesoutherngatewaytothePeoplesRepublicofChina

andhasdevelopedintothemainbaseforChineseoperations.

As much as twothirds of the total external investment in China goes

through Hong Kong. The financial ties between Hong Kong and the

neighbouring southern Chinese province of Guangdong are especially

strong.AsmanyasthreemillionpeopleinGuangdongprovincealoneare

employed either directly (throughjointventure operations) or indirectly

(in

the

form

of

outward

processing

arrangements)

by

Hong

Kong

3


6/25

companies.ThreeofChinasfourSpecialEconomicZones(SEZs)areinthe

adjacent Guangdong province, while thebest known of these, Shenzhen,

actuallyliesimmediatelyacrosstheborder.

Chinanowandinthefuture

Today, China is one of the worlds fastestgrowing economies and is the

third largest economy in the world. Some analysts estimate that in the

early 21st century it will be the largest. The rapid growth and

industrialisation in the south, and along the eastern and northern

coastline,isbeginning,albeitgradually,tospreadoutintothehinterland.

The move towards an unfettered market economy hasbrought with it

requirement

for

modern

technology

and

equipment,

for

upto

date

management and financial systems and for the latest consumer goods.

Thesecannotbemetwithout inputfromoverseasatthisstageofChinas

development.WithheraccessiontotheWTOin2001andtheacceleration

oftheopeningupherdomesticmarket,China,withapopulationofover

1.3billion, presents many new opportunities for overseas investors and

businesses.

Clients considering settingup and doingbusiness inHongKong (and in

ChinaorotherterritoriesinSouthEastAsia,throughHongKong)should

consult professional advisers on issues relating to their business orinvestment plans. The rest of this guide sets out a brief summary of

common areas of interest including government regulations on different

forms of doing business in Hong Kong, accounting and reporting

requirementsandtaxation.

4


7/25

3. Foreign I nvestment

Exchangecontrols

Therearenoexchangecontrolsonanyformofforeigninvestment.

Giventhehighlyexternallyorientednatureoftheeconomy,alinked

exchangeratesystemwasintroducedinlate1998underwhichtheUS

dollarexchangeratewasfixedatHK$7.8toUSD1.

Restrictionsonforeigninvestment

Withtheexceptionofbroadcastmedia,therearenorestrictionsonforeigninvestment. According the Index of Economic Freedom, Hong Kongseconomyscored89.3%,makingitthefreesteconomyintheworld.

Investmentincentives

The Hong Kong Special Administrative Region (HKSAR) governmenttakesanactivebutlowinterferencepolicy.Inadditiontotheabove,italsoadoptssimpletaxsystemwithlowtaxrates.

Importingandexporting

There is no tradebarrier and no discrimination against foreign investorsbut freedom of capital movement. According to the World InvestmentReport 2002 publishedby the United Nations Conference on Trade andDevelopment, HKSAR is thebestperforming host economy for foreigndirectinvestmentinAsia.In2006thenetinflowofFDIwasHK$5.7billion.

Exciseduties

Motor vehicles are subject to First Registration Tax. The HKSARgovernment also imposes excise duties on alcoholicbeverages, tobacco

products,

hydrocarbon

oils,

perfumes,

cosmetics

and

soft

drinks.

Otherwisetradeisdutyfree.

Documentationrequirements

Under the Import and Export (Registration) Regulations, a person whoimports or exports articles, other than an exempted article, should lodgewith theCommissionerofCustomsandExciseanaccurateandcompleteimport/export declaration within 14 days after the import/export of thearticle.

5


8/25

4. Sett ing up a business

BusinessmaybecarriedoutinHongKonginavarietyofforms:

SoleProprietorship Partnership BranchofaForeignCompany LimitedCompany.Differentregulationsgovernthevariousformsoforganisationsas

describedbelow.

BusinessRegistration

To start business in Hong Kong, it is necessary to obtain a business

registrationcertificate from theBusinessRegistrationOfficeof theInland

RevenueDepartment.Thisappliestoallformsoforganisation.Theannual

registrationfeepayablein2007isHK$2,600.

Partnerships

ThelawrelatingtopartnershipsiscontainedinthePartnershipOrdinance

andtheLimitedPartnershipOrdinance.Apartnershipmusthaveatleast

two partners but no more than 20 partners. However, the maximum

number restriction does not apply to partnerships formedby solicitors,

accountantsorstockbrokers.

In an unlimited or ordinary partnership, all the partners arejointly and

severallyliablewithoutlimitfortheobligationsofpartnership.However,

limited partnerships maybe formed in which at least one partner has

unlimitedliability

while

the

others

have

the

protection

of

limited

liability

but have limited rights to profits and to the capital distribution on

dissolution. They will also have no control on the management of the

partnership.

Themaincost involved insettingupwillbethelegalfeefordrawingup

the partnership agreement, which defines the constitution of the

partnership. Alternatively, an oral agreement between the partners

concerned can serve the same purpose. Any terms that are notexpressly

statedordecidedwillbegovernedbythePartnershipOrdinance.

6


9/25

There are no requirements for a Hong Kong partnership to prepareauditedaccounts. However,auditedaccountswillberequiredifoneofthepartnersisacompanyincorporatedinHongKongsincethatpartnerhasto

prepareauditedaccountseveryyear.

There are no foreign exchange restrictions on the outward remittance oftheprofits.Anindividualorcompanycanfreelyremititsshareofprofitstoothercountries.

BranchofaForeignCompany

A branch of a foreign company operating in Hong Kong must beregistered under the Companies Ordinance and has to deliver to theRegistrarofCompaniesthefollowingdocumentsandinformation:

Acertifiedcopyofthecharter,statuteormemorandumandarticlesontheformationandconstitutionofthecompany.IfthesedocumentsarenotinEnglish,acertifiedtransactionofthemhastobeattached.

Alistofthedirectorsandsecretary. AddressoftheprincipalplaceofbusinessinHongKong. Addressoftheprincipalplaceofbusinessandregisteredofficeofthe

companyin

its

place

of

incorporation.

Thenameandaddressofat leastonepersonresident inHongKongauthorisedtoaccepttheserviceofprocessandnoticesonbehalfofthecompany,andthememorandumofappointmentorpowerofattorney.

Acertifiedcopyofthelatestaccountsoftheforeigncompany,unlessthe foreign company is the equivalent of a Hong Kong privatecompanyandisnotrequiredbythelawofitsowncountrytopublishits accounts, and a certified copy of the companys certificate ofincorporation together with a certified translation thereof if the

certificateisnotinEnglish.

AnannualreturncontaininginformationaboutdirectorsandshareholdersmustbefiledtotheCompaniesRegistrybyabranchofaforeigncompanyeveryyear.Thebranchisfreetoremititsprofitstotheforeigncompany.

LimitedCompanies

Limited companies are regulated in Hong Kong under the CompaniesOrdinance,whichisbasedonthecompanylawintheUnitedKingdom.

7


10/25

Publiclimitedcompanies(plc)mayoffertheirsharesforsaletothepublic.Privatelimitedcompanies(ltd)arethosewhich:

Restricttherightoftransferoftheirshares Limitthenumberofmembersto50and Maynotoffersharesforsaletothepublic.To incorporate in Hong Kong, a limited company must register its name

at, and submit its memorandum and articles of association to, the

Companies Registry. The memorandum states the companys name,

registered office, authorised share capital and members liability. The

articles define the powers and other internal regulations for the

managementandproceduresofthecompany.Registrationmaytakeupto

twoweeks.Aquickerway to incorporate inHongKong istopurchaseareadyformed shelf company, which has not yet startedbusinessbuthas

alreadybeen registeredwith the Companies Registry and hasacquired a

CertificateofIncorporation.

AcompanymusthavearegisteredofficeinHongKongandmaintainsuch

recordsasregistersofmembers,directorsandsecretariesandchargesand

minutesbooks of meetings. Certain accounting andbusiness records are

requiredtobekeptinHongKong.

Minimum capitalrequirementsarenot imposedoncompanies except forlicensed banks, insurance and deposittaking companies, and

securities/commoditiesdealers.

Acompanymusthaveat leasttwodirectorsandonecompanysecretary,

whether individualorcorporation,butacorporationcannotbeadirector

and company secretary of a listed company. It is not necessary for

directors and shareholders to be resident in the territory but many

overseas companies appoint local directors and local nominee

shareholders to preserve anonymity. However, the company secretary,

whethercorporationorindividual,mustberesidentinHongKong.

The cost of formation, including professional fees for incorporating a

company,issetoutinamemorandumoffeesandcharges.Forcompanies

with authorised capital over HK$10,000, an additional capital fee at the

rateof0.1%ispayable.

Anannualreturncontaininginformationaboutdirectorsandshareholders

mustbefiledwiththeCompaniesRegistrybyacompanyincorporatedin

HongKongeveryyear.

8


11/25

A Hong Kong company can freely remit taxfree dividends out of the

retainedprofitstoanoverseasinvestor.

9


12/25

5. Labour

Entryvisasandworkpermits

WhilenationalsofHongKongsmajortradingpartnersdonotneedvisas

for shortterm stays in Hong Kong, valid passports or other travel

documentsarerequiredforallothervisitorstoHongKong.

PersonswishingtostayinHongKongmustshowevidencethattheyhave

beenofferedemploymentinHongKong,andmustbeinpossessionofan

Employment Visa. Applications canbe made at the Chinese Diplomatic

and

Consular

Mission

in

their

place

of

residence,

or

to

the

Hong

Kong

Immigration Department direct by post / through a local sponsor. In

addition,anyonestayinginHongKongformorethan180daysisrequired

tohaveaHongKongIdentityCard.

Indetermininganapplicationforanentryvisa/permittoenterHongKong

for employment or investment, the Immigration Department takes into

consideration whether there isagenuinevacancy foranemployee in the

SAR;theskills,knowledgeandexperienceneededforthejob;whetherthe

termsandconditionsofemploymentarecomparabletothoseinthelocal

market;the

applicants

suitable

qualifications

and

experiences

relating

to

thejob;andwhetherthevacancycanbefilledlocally.

The Employment Ordinance is the main piece of legislation governing

conditionsofemploymentinHKSAR.Itcoversacomprehensiverangeof

employment protection and benefits for employees.According to the

Index of Economic Freedom, the Hong Kong labour market is highly

flexible.

The Employment Ordinance requires that the terms and conditions of

employment are conferred upon each employee by the employerregardless of whether the contract of employment is in writing or not.

Employers are also required to maintain employment record regarding

wages,holidaysandleaverecords,etc.

LabourrelationsinHongKongarestable,comparedwithothernationsin

SouthEastAsia. Industrial harmony isreflectedby thesmallnumberof

workingdayslostduetoindustrialconflicts,whichisamongthelowestin

the world. In the case of labour disputes, the Labour Department offers

conciliation service to the parties concerned to facilitate an amicable

settlement.

10
http://www.labour.gov.hk/http://www.labour.gov.hk/http://www.labour.gov.hk/http://www.labour.gov.hk/


13/25

The Employment Ordinance governs the employment of children (a

personundertheageof15years)inalleconomicsectors;andregulatesthe

hoursofworkandthegeneralconditionsofemploymentofyoungpeople

(apersonoforovertheageof15yearsbutundertheageof18years) in

industrialundertakings.There isnootherlegalrestrictiononthenumber

ofhoursofwork.Themedianhoursofworkingis48hoursforbothmale

andfemaleworkers.Theunemploymentratein2007is6.8%.

Wages rates differ among various economic sectors, depending upon the

levelof skills and experiencerequired. Thegovernmenthasnot imposed

anylegalminimumwage.

Socialsecurity

and

pensions

TheEmployees CompensationOrdinancerequirestheemployertohavea

validinsurancepolicytakenouttocoverhisliabilitiesforinjuriesatwork

inrespectofeveryemployee.

ImplementedbytheHKSAR,theMandatoryProvidentFund(MPF)came

intoeffecton1December2000.Mandatorycontributionsarecalculatedat

the rate of 5% of an employees relevant income, with the employer

matching the employees contribution. Except for exempt persons and

persons employed for fewer than 60 days, employees and the self

employed,agedbetween18and65,arerequiredtojoinMPFschemes.At

the end of 2006, almost all employers and employees hadjoined MPF

schemesandalmost75%ofselfemployedpeoplehadjoinedaswell.

IfmonthlyincomeisbelowHK$5,000,employeesarenotlegallyobligedto

contributetoMPFschemes,buttheymaychoosetodoso.Foremployees

earningthemaximumlevelofmonthlyincome(overHK$20,000amonth),

mandatorycontributionsarecappedatHK$1,000.

11
http://../Doing%20Business%20final%20versions%20-%20Word/2006/1&langNo=1http://../Doing%20Business%20final%20versions%20-%20Word/2006/1&langNo=1http://../Doing%20Business%20final%20versions%20-%20Word/2006/1&langNo=1http://../Doing%20Business%20final%20versions%20-%20Word/2006/1&langNo=1


14/25

6. Taxation

ThelawgoverningtheimpositionoftaxinHongKongiscontainedinthe

InlandRevenueOrdinance(IRO)anditssubsidiarylegislation,theInland

RevenueRules(IRR).

The tax system in Hong Kong is administeredby the Inland Revenue

Department (IRD) under the direction of the Commissioner of Inland

Revenue. Some assistance in interpreting the IRO is given in published

interpretation notes. The department will also give advance rulings on

specifictransactionsonrequest.

Thereisnotaxationoncapitalgains,dividendsoroffshoreincome.

Insteadofoneallencompassingincometax,HongKonghasthreeseparate

anddistinctdirecttaxesonincome:

Profitstax(corporationtax) Salariestax(incometax) Propertytax(realestatetax)Hong

Kong

tax

is

territorial

in

nature

so

that

only

income

which

has

a

sourceinHongKongistaxable.Variousrulesareadoptedbythecourtsto

determinesourcesofincomeandallcircumstancesofthetransactionsare

considered. In certain specific cases, other income maybe deemed tobe

fromaHongKongsource.Bycorollary,incomethatisnotincludedinone

oftheabovecategories,ordoesnotariseinorderivefromHongKong,is

notsubjecttotax.

Becauseoftheterritorialnatureoftaxation,exceptinverylimitedcases,no

distinction is made in Hong Kong between resident and noresident

companiesandpersonsbecausetaxisdeterminedaccordingtothesourceofincome,notresidency,domicileornationality.

Individuals who ordinarily reside in Hong Kong can apply in writing to

electforPersonalAssessmenttocomputetaxliabilityofthethreetaxesina

single assessment. Under personal assessment, incomesoriginallysubject

to profits tax, salaries tax and property tax are aggregated and from this

totalinterestpaymentsonmoneyborrowedforthepurposeofproducing

property income, approved charitable donations, elderly residential care

expenses, home loan interest, business losses incurred in the year of

assessment, lossesbrought forward from previous years under personal

12


15/25

assessmentandpersonalallowancesmaybededucted.Taxatprogressive

rateswillbeimposedonthebalance. Marriedcouplesnotlivingapartare

assessedjointlyunderpersonalassessment.

A description of the three direct taxes and other indirect taxes is given

below:

Profitstax

1. Corporations and unincorporated entities carrying on a trade,profession orbusiness in Hong Kong are assessable to tax on all

profits arising in, or derived from, Hong Kong from such trade,

professionorbusiness.

2. Computationoftaxableprofits.

Assessableprofits

Assessable profits are profits arising in or derived from Hong Kong

whether directly or through an agent. This is arrived atby adjusting the

profits calculated under the generally accepted accounting principles to

complywiththeIRO.

Excludedincome

a) Profitfromthesaleofcapitalassets;b) IncomenotarisinginorderivedfromHongKong;

c) Dividends;

d) Income already charged elsewhere to profits tax, eg. From

partnerships;

e) Certaintypesofinterestincome;f) Interest income derived from local financial institutions effective

from22June1998;and

g) Distributions and payments under a stockborrowing and lendingarrangement.

Deductibleexpenses

Deductions are allowed for revenue expenditure incurred in producing

assessableprofitsinthebasisperiodwhichinclude:

a) Loaninterestandrelatedexpendituresingeneral;b) Rent;c) Badanddoubtfuldebts;d) Charitable contribution up to the limit of 25% of assessable profits

afterdepreciationallowancesbutbeforecharitabledonations;

e) Certainforeigntaxes;

13


16/25

f) Repairstopremises,plantandmachinery;g) Replacementsofimplements,utensilsorarticles;h) Registrationandpurchaseoftrademarks,patentsordesigns;i) Contributions to retirement schemebut limited to 15% of the total

emolumentsfortherelevantperiodinrespectofanyoneemployee;j) Scientificresearchexpenses(seecapitalexpenditurebelow);k) Buildingrefurbishmentexpenditure(seecapitalexpenditurebelow);l) Prescribedfixedassets(seecapitalexpenditurebelow);andm) Technicaleducationexpenses.Nondeductibleexpenses

a) Domestic or private expenses and any expenses not for producingassessableprofits

b) Capitalexpenditureincludingcapitallossesandwithdrawalsarenotdeductiblefortaxpurposes.Howevercapitalallowancesaregrantedtothefollowingtypesofassets:

Depreciationallowances

IndustrialbuildingandstructureAninitialallowanceof20%isgiveninrespectofcapital

expenditureincurredintheconstructionofanindustrialbuilding

orstructureoccupiedforthepurposesofcertaintradeandan

additionalallowanceof4%oftheexpenditureisgivenannually

untilthetotalexpenditureiswrittenoff.

CommercialbuildingsandstructuresAbuildingorstructurenotincludedabovebutheldforthe

purposesofcarryingonatrade,professionorbusiness,otherthan

astradingstock,canqualifyforarebuildingallowanceatan

annualrateof4%ofthecapitalexpenditureincurredinthe

construction.

PrescribedfixedassetsCapitalexpenditureonplantandmachineryusedspecificallyanddirectlyforanymanufacturingprocessandtheacquisitioncostofcomputersystemincludingbothhardwareandsoftwareare100%deductible.

PlantandmachineryotherthanprescribedfixedassetsAninitialallowanceof60%ofthecostandanannualallowancecomputedonthereducingvaluearegranted.Theannualraterangesfrom10%to30%accordingtotheprescribedrules.Assets

14


17/25

fallingunderthesameratearepooledtogetherforthecomputation.

Ondisposal,

the

proceeds

received,

but

restricted

to

the

original

cost,willbedeductedfromthereducingvalueofthepool.Inotherwords,theexcessoftheproceedsovertheoriginalcostisnottaxable.

ExpenditureonscientificresearchCapitalexpenditureonscientificresearchincludingmarket,

businessormanagementresearch,otherthanexpenditureonlandorbuildingsoronalterations,additionsorextensionsto

buildings,is100%deductible.

Ondisposal,theproceedsofsale,totheextentoftheamountofthededuction,willalsobetreatedandtaxedasatradingreceiptarisinginorderivedinHongKong.

ExpenditureonbuildingrefurbishmentCapitalexpenditureontherenovationorrefurbishmentofabuilding

orstructureotherthanadomesticbuildingorstructuremayclaim

theexpenditureasanoutgoingorexpenseinequalinstalmentsover

fiveyearsofassessment,totheextentthatitisincurredinthe

production

of

profits

chargeable

to

tax.

c) Costofimprovementd) Taxespayableunder the IROexceptsalaries taxpaidonbehalfof

anemployee

e) Provision, but not actual contribution, in respect of a knownliabilityunderanunapprovedretirementscheme

f) Any remuneration or interest on capital or loans payable tomembers

or

their

spouses

of

apartnership

or

sole

proprietor,

and

g) Contributions to a retirement scheme in excess of 15% ofemoluments.

3. Thereisnocapitalgainstax.

4. There is no dividend withholding tax. Dividends received arenotchargeabletotaxanddividendspaidarenotdeductible.

5. Taxlossesfromcarryingonatrade,professionorbusinessmaybecarried forward indefinitely. However, the Inland Revenue

15


18/25

Department may disallow the losses if there is a change inshareholdingandthesoleordominantpurposeofthechangeistoenablethenewshareholderstoutilisethetaxlosses.

6. TherearecertainreceiptsdeemedbytheIROtobederivedinHongKong.TheseincluderoyaltiesreceivedfortheuseinHongKongofa patent, trademark, knowhow, copyright or film. These deemedreceiptsifpaidtononresidentsaresubjecttowithholdingtax.Theassessableprofitisdeemedtobe10%ofthepaymentexceptinthecasewhen thesum isderivedfromanassociate,then100%ofthepaymentwillbeassessable.

7. A person may apply to the Commissioner of the InlandRevenue,subject topaymentof feesandcertainregulations, foranadvance

ruling on how any provision of the IRO applies to him or the

arrangementspecifiedintheapplication.

8. There are specific provisions in the IRO to cover special types ofbusinessasfollows:

Lifeinsurance Otherinsurance Shipping(includeaircraft)

Clubs/tradeassociations

PartnershipSalariestax

1. All income of individuals arising in or derived from Hong Kong,from any office, employment or pension, including income derived

from services rendered in Hong Kong, is subject to salaries tax.

Income tax rates vary from 2% up to 17.5%, although the standard

rateis16%.

2. An expatriate employee employed by a local employer has nosalariestaxliabilityonlyifhevisitsHongKongfornotmorethan60

days in a tax year. Where an expatriate employed by a foreign

employerrendersservicesinHongKongduringvisitsexceeding60

days in a relevant year of assessment, only that part of his income

attributable to services rendered in Hong Kong during his visits is

subjecttosalariestax.

3. Income includes thevalueofaccommodationprovidedrentfreebyan

employer

or

the

excess

of

the

value

over

the

rent

actually

paid

by

16


19/25

the employee to his employer for the accommodation, subject to a

maximumof10%oftheemployeestotalincomefromtheemployer.

Deductions allowable from income include personal, wife, child,

dependant parent / grandparent / brother / sister, disabled

dependantparent/spouse/child/grandparent/brother/sisterand

singleparentallowance,selfeducationexpenses,elderlydependant

ininstitutionalcareallowanceandhomemortgageinterest.

Propertytax

Propertytaxischargedontheowneroflandand/orbuildingsituatedin

HongKongandiscomputedonthenetassessablevalueatastandardrate

of16%oftherentalincomefromanypropertyinHongKong.

Provisionaltax

On top of the tax on assessable income, a taxpayer is required to pay a

provisional profits tax, based on the actual assessable income for the

preceding year of assessment.When the actual assessable income for the

yearofassessmentisascertained,afinalassessmentisissuedandcreditis

given for the provisional tax paid. Any excess/deficit of provisional tax

paid over the final liability is offset against/added to the provisional tax

payable for the following year of assessment. When any balance of

provisional tax is available it is refunded to the taxpayer. There are

provisionstoenablecollectionofprofitstaxandprovisionaltaxtobeheld

overinappropriatecircumstances.

Taxtreaties

WiththeexceptionofanarrangementreachedwiththeMainlandofChina

in 1998on the avoidance of double taxation on income, a limited double

taxation treaty with the US relating to shipping income and limited

Commonwealth income tax relief, there is no foreign tax relief as Hong

Kong does not enter into any other double taxation treaties with other

countries.

Antiavoidancemeasures

If a transaction is entered into for the sole or dominant purpose of

enablingataxbenefittobeconferred,theIRDhasthepowertoassesstax

liabilitiesasifthetransactionhadnottakenplace,orotherwisecounteract

thetaxbenefit.

Indirecttaxes

17


20/25

1. Salesorturnovertax

Atpresent,thereisnosalestaxorvalueaddedtaxinHongKong.

2. Stampduty

Stampdutyischargeableonthefollowingtransactions:

Transfer of shares at an effective rate of 0.1% on the higher ofsaleproceedsormarketvalue

Leasesandassignmentofleases Assignment of immovable property is charged at rates which

varywiththeamountorvalueoftheconsiderationasfollows:

Amount or value of the consideration

Exceeds DoesnotexceedRate

. $2,000,000 $100

$2,000,000 $2,351,760$100+10%ofexcessover

$2,000,000

$2,351,760 $3,000,000 1.5%

$3,000,000 $3,290,320$45,000+10%ofexcessover

$3,000,000

$3,290,320 $4,000,000 2.25%

$4,000,000 $4,428,570$90,000+10%ofexcessover

$4,000,000

$4,428,570 $6,000,000 3%

$6,000,000 $6,720,000$180,000+10%ofexcessover

$6,000,000

$6,720,000 . 3.75%

EstatedutyEstatedutyischargedonthevalueofanindividualsrealandpersonal

propertypassingondeathatgraduatedratesfrom5%to15%.Thefirst

HK$7.5millionoftheestateisexempted.Theprincipalmatrimonialhome

ofthedeceasedwillalsobeexemptifthedeceasedhasasurvivingspouse.

Rates

18


21/25

Ratesareassessedontheannualrentalvalueoftheproperty,whichis

calculatedbytheRatingandValuationDepartment.

Importsandexciseduties

Alcoholicbeverages,tobacco,certainhydrocarbonsandmethylalcoholare

subjecttodutyiftheyareimportedintoHongKongforlocalconsumption.

Privatemotorvehiclesaresubjecttoafirstregistrationtaxof35% 105%

basedoncost.

Hotelaccommodationtax

Hotelaccommodationtaxischargedonhotelandguestroom

accommodationatarateof3%.

Bettingduty

Duty is chargeable on bets made on authorised totalisators or pari

mutuels,cashsweepsandlotteriesconductedbytheHongKongLotteries

Boardfrom30%to50%.

Taxondeemingassessableprofits

Taxischargeableat30%ondeemingassessableprofitsforcertain

paymentsmadeoraccruedtononresidentpersons,suchasroyaltiesand

licencefees.

19


22/25

7. Account ing & report ing

EverycompanyincorporatedinHongKongmustholdageneralmeeting

in every calendar year; the periodbetween two annual general meetings

maynotexceed15months.Acompanymayhold itsfirstannualgeneral

meeting within 18 months from the date of incorporation. In an annual

generalmeeting,thedirectorsofthecompanymustpresentabalancesheet

and an income statement, together with a directors report and an

auditors report, where they will be approved, directors elected and

auditorsappointed.

Privatecompanies

having

share

capital

must

file

an

annual

return

with

the

RegistrarofCompanieswithin42daysfromtheanniversaryofitsdateof

incorporation. The annualreturncontainsdetailsconcerning,mainly, the

sharecapitalofthecompany;itsdirectors;itssecretaryandshareholders;

itsindebtednessintheformofmortgagesandcharges;allbusinessnames

under which the company carries on business; and the address of its

registeredoffice.

Companies other than private companies with share capital must file an

annual return with the Registrar of Companies within 42 days after the

annualgeneral

meeting.

The

annual

return

of

public

companies

must

also

include a certified copy of the accounts, together with the relevant

auditorsanddirectorsreports.Privatecompaniesarenotrequiredtofile

annualfinancialstatementswiththeRegistrarofCompanies.

A company need not file an annual return if no changes have occurred

since the last return,but a statement signedbyboth a director and the

secretarythatnochangeshaveoccurredmustbefiled.

Every person carried on a trade, profession orbusiness in Hong Kong

must keep sufficient records of his income and expenditure either inEnglish or Chinese to ensure his assessable profits can be readily

ascertainedundertheInlandRevenueOrdinance.

A company incorporated in Hong Kong is requiredby the Companies

Ordinance to prepare every year a profit and loss account andabalance

sheet,accompaniedbyadirectorsreport.Thecompanymustalsoappoint

auditors who are Certified Public Accountants registered with the Hong

Kong Society of Accountants. The auditors are required to report to the

shareholdersannuallyontheprofitandlossaccountandthebalancesheet

submittedby thedirectorsat theannualgeneralmeetingofshareholders

20


23/25

andtostatewhethertheyshowatrueandfairview,andwhethertheyare

properly prepared in accordance with the Companies Ordinance. There

are, however, no statutory accounting standards in Hong Kong. The

Statements of Standard Accounting Practices (SSAP) issuedby the Hong

Kong Society of Accountants mainly follow International Accounting

Standards.

The directors report contains such information as directors names,

principalactivities,significantchangesinfixedassetsandreserves,issueof

sharesanddebenturesduringtheyear,directorsinterestsincontractsand

directors right to acquire shares in the company, recommended

dividends,resultsfortheyearandthecompanysstateofaffairs.

Companies, other than public companies, are not required to file theiraudited accounts with the Registrar of Companies. However, auditedaccountsmustbefiledwiththeInlandRevenueDepartmenteveryyearaspartofanannualprofitstaxreturn.

AbranchofaforeigncompanyinHongKongmustfilewiththeRegistrarof Companies a copy of the parent companys audited accounts, andconsolidatedaccounts,ifappropriate,everyyear.

21


24/25

8. UHY fi rm s in Hong Kong

TaiKongCPALimited

21/F,ChinachemTower

3437ConnaughtRoad

Central Hong Kong

Phone:+85228922800

Fax:+85228348777

Website:www.tkcpa.com.hk


Liaisondirector:

Robert,TakWingKong


22


25/25

9. UHY w orldw ide

UHYoffices

FordetailsofUHYofficesworldwidepleasevisitwww.uhy.com

UHYexecutiveoffice

StAlphageHouse

2

Fore

Street

London

EC2Y5DH

UnitedKingdom

JamesVrac

UHYExecutiveDirector

phone: +44 2072164612

email: [email protected]

ClaireFisher

UHYManager

phone: +44 2072164622


AdamBambrough

UHYAdministrativeAssistant

phone: +442072164684


Fax: +442076283069

doing business in hong kong 2007

Documents