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Doing Business HK Guide 2009 7 2
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Guide to overseas companies interested in setting up a business in Hong Kong
Transcript of Doing Business HK Guide 2009 7 2
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2 July 2009
Doing Business in Hong Kong
Guide
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
2:
Contents
Page
Introduction 3
Hong Kong Business Environment 4
Working in Hong Kong 5
Business Structure Guide 6
Limited Company Guide 8
Taxation Guide 9
CEPA Guide 13
Our Services 15
Contacts 16
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
3:
Introduction This guide is designed provide preliminary information which can be of assistance to organizations considering establishing a business in Hong Kong. Information contained in the guide includes market environment, strategic considerations as well as technical aspects such as alternate type of business entities and taxation implications. The information contained in this guide is intended for guidance and it is essential that advice be obtained from local professional sources before any business is undertaken. The information in this guide includes legislation in force as of May 2009.
T.C. Ng & Company CPA Limited
T.C. Ng & Co. CPA Limited is a HK based CPA firm founded in 1964. Since then, it has been providing quality auditing, taxation and business consulting services to a large cross-section of HK and multi-national businesses.
Our principle is a total commitment to professional excellence and we place our firm’s professional responsibilities to our clients above all other business considerations. We believe in investing time to develop true long-term partnerships and trusted relationships with every client.
For overseas organizations intending to start a business here to access the HK market or as a base for PRC market entry, we can provide a whole spectrum of services ranging from the strategy area such as market study and business partner identification, to pure technical support such as company formation, recruitment, finance and administration outsourcing, statutory audit and taxation advice.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
4:
Hong Kong Business Environment
Hong Kong is still top of the list for multi-nationals locating their Asia or Greater China regional head office due to its high degree of internationalization and business friendly environment. Mainland Chinese companies with ambitions to expand overseas are also increasing their presence here to take advantage of Hong Kong’s quality infrastructure.
What makes HK attractive as a head office location?
Clean and efficient government
Independent judiciary and trustworthy legal system
Free market and free flow of information
Good protection of intellectual property rights through patents & trademarks law
No exchange control and a stable and fully convertible currency
Simple tax structure and low tax rates
Sophisticated and mature financial service infrastructure
World class infrastructure, transport and communication facilities
Well educated and competent work force
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
5:
Working in Hong Kong
Visa Requirement
In general, any non HK resident seeking to enter into HK to work or establishing a business requires a visa for entry into HK and permission to remain in HK. Once obtained his/her permission to enter, any person is free to conduct business in HK but the taking up of employment is forbidden. In order to take up employment, a valid work visa has to be obtained from the Immigration Department.
Visa free access countries / permission to stay
Up to 6 months United Kingdom
Up to 3 months Andorra, Australia, Austria, Belgium, Bermuda, Brazil, Bulgaria, Canada, Cayman Island, Chile, Colombia, Czech Republic, Denmark, Commonwealth of Dominica, Ecuador, Egypt, Finland, France, Germany, Greece, Greenland, Hungary, Iceland, Republic of Ireland, Israel, Italy, Jamaica, Japan, Kenya, Republic of Korea, Luxembourg, Malaysia, Maldives, Mauritius, Mexico, Monaco, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Spain, Sweden, Switzerland, Turkey, Tuvalu, Uruguay, the U.S.A., Venezuela, Zambia.
Up to 30 days Bolivia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Indonesia, Kuwait, Morocco, , Paraguay, Peru, Saudi Arabia, South Africa, Thailand, United Arab Emirates.
Up to 14 days Algeria, Bosnia and Herzegovina, Croatia, India, Lesptho, Mongolia, Philippines.
No visa free access countries
Afghanistan, Albania, Angola, Armenia, Azerbaijan, Bangladesh, Belarus, Cambodia, Cameroon, Democratic Republic of Congo, Republic of Cote D’ivoire, Cuba, Eritrea, Ethiopia, Georgia, Ghana, Grenada, Iran, Khazakstan, Democratic People’s Republic of Korea, Kyrgyzstan, Laos, Lebanon, Liberia, Libya, Republic of Moldova, Republic of Montenegro, Myanmar, Nepal, Nicaragua, Nigeria, Pakistan, States of Palestine, Panama, Russian Federation, Republic of Serbia, Senegal, Sierra Leone, Solomon Islands, Somalia, Sri Lanka, Sudan, Syria, Tajikistan, Togo, Turkmenistan, Ukraine, Uzbekistan, Vietnam.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
6:
Business Structure Guide To conduct a business in HK, the most common types of business structure are:
Sole Proprietorship
Partnership
Company
Sole Proprietorship
The sole proprietor is the simplest and most flexible structure for new businesses. It consists of one individual carrying on business, who may engage employees but is personally responsible for all the business debts incurred and all the decisions made. The sole trader effectively takes all the risks and all the profit. The main advantage of sole proprietorship is flexibility – total control and full decision-making powers over policy, profits and capital investment. The legal formalities for a sole proprietor are:
i. Register the name of the business with the Business Registration Office
ii. Notify the Inland Revenue when the business begins operation and when an individual who is liable to salaries tax under the Inland Revenue Ordinance is employed
Most business regulations which govern business activities in Hong Kong will also apply to the sole proprietor, such as employment (Employment Ordinance; Employment Compensation Ordinance).
Partnership
A partnership is similar to sole proprietorship in the sense that it has no separate legal status. The partners are called a “firm” and partners are agents of the firm. All the partners in the firm are entitled to share in the profits equally unless they agreed otherwise.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
7:
Limited Company
A company is a separate legal person. The main advantages in using a company to conduct business include limited liability for shareholders; freedom to enter into business contracts in the company’s name and continuity of business. Disadvantages include the need for formal procedures; public disclosure and no withdrawal of capital. A limited company can take the following forms:
Limited company – limited by shares or guarantee
Unlimited company – with or without share capital
Private company
Public company
Points to consider when choosing a business structure:
1. What is the purpose of the business?
2. How long is the business expected to run?
3. Does the business involve many investors?
4. What are the sources of capital?
5. Who will share the profits?
6. Who will choose the employees?
7. Who will manage the day-to-day running of the business?
8. Who is to decide policy?
9. Do the owners want limited liability?
10. Who decides on the distribution of profits and re-investment into the business?
11. Can the founding parties freely transfer their interests to outsiders?
Foreign Company
A company incorporated outside HK may establish and register a branch in HK under Part XI of the Companies Ordinance to conduct a business.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
8:
Limited Company Guide
Setup and maintenance requirements for private and public companies:
1. Memorandum of Association signed by at least one subscriber
2. Number of subscribers:
Minimum number - private company: 1; public company: 1
Maximum number - private company: 50; public company: no limit
3. Minimum number of directors – private company: 1; public company: 2
4. Registered office maintained in HK
5. A company secretary must be appointed
6. An annual return must be filed
7. An annual general meeting (AGM) must be held each calendar year with the exception of the first AGM which must be held within 18 months of incorporation
8. Statutory book-keeping and record filing requirements under Companies Ordinance
9. Auditors qualified under the Professional Accountants Ordinance must be appointed to conduct annual audit of the company’s books and records
10. Annual audited accounts must be prepared in accordance with the requirements of the HKICPA
11. Audited accounts of a private company having a share capital are not filed with the Companies Registry, but has to be lodged with the Inland Revenue Department in support of the tax computation
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
9:
Taxation Guide
Introduction
HK levies three direct taxes on company profits and the income of individuals and partnerships under the Inland Revenue Ordinance.
2009/10
Property Tax Charged on rent received by owners of real estate located in HK
15%
Salaries Tax Charged on all income arising in or derived from HK from an office, employment or pension
15%
Profits Tax Charged on profits arising in or derived from HK from a trade, profession, or business carried on in HK
Corporations 16.5%
Unincorporated 15%
Hong Kong’s taxes apply only to income arising in or derived from Hong Kong. Provisional tax is payable in respect of all three taxes and is usually based on the assessable income of the previous year. Profit tax losses may be carried forward indefinitely subject to anti-avoidance provisions concerning the change of ownership of a company. There is no inheritance tax in HK following the abolition of Estate Duty in 2006. Capital Gains are not taxable unless they arise from the carrying on of a trade in which case they are treated as revenue items subject to Profits Tax.
Apart from the three main direct taxes, a number of indirect taxes are levied on goods and services. These include:
1. Property Rates
2. Tobacco Duty
3. Motor Vehicle First Registration Tax
4. Horse Racing & Football Betting Duties
If the source of profits is derived outside Hong Kong, no profit tax liability arises. However, the law governing this area is very specific and professional advice should be sought.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
10:
Taxation of companies
Companies carrying on business in HK are subject to profits tax on profits arising in or derived from HK.
A company will be carrying on business in HK if:
Its central management is located in HK or business activities are carried out in HK.
Its business activities are conducted through an agent in HK where the agent has, and exercises, a general authority to negotiate and conclude contracts on behalf of his principal or has a stock of merchandise which he regularly fill orders on his behalf.
If the source of a company’s profit is outside HK, no profit tax liability arises. The determination of source of profit is governed in detail under the Inland Revenue Ordinance. Income from dividends and capital gains is not taxable.
Depreciation Allowance
Depreciation allowances are available for expenditure on plant and machinery, industrial and commercial buildings.
2009/10 Rate
Industrial Buildings Initial Allowance 20% of capital expenditure on construction
Annual Allowance 4% of construction expenditure
Commercial Buildings Annual Allowance 4% of construction expenditure
Manufacturing machinery, computer hardware & software, environmentally friendly plant & machinery
100% of capital expenditure in year of acquisition
Other Plant & Machinery
Initial Allowance 60% of capital expenditure
Annual Allowance 10%, 20%, 30% on reducing value according to classification
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
11:
Taxation of Individuals
Individuals are taxed on their assessable income derived from an office, employment, pension and property from Salaries Tax and Property Tax.
The definition of income includes wages, salaries, leave pay, commission, bonuses, allowances and certain benefits in kind:
Housing, holiday journey benefits, stock options and education allowances
Benefits capable of being converted to money’s worth by the recipient
Amounts paid by the employer to discharge the personal liability of the employee
If an individual spends not more than 60 days in HK in a tax year, any income he/she derived from services rendered in HK is not liable to Salaries Tax.
Salaries Tax Rates
Salaries Tax imposed on employees in respect of income from employment and is payable based on the lower of:
1. The standard rate of 15% for 2009/10 of net assessable income after allowable deductions, or
2. Net assessable income after allowable deductions and personal allowances, charged at the following rates for 2009/10:
2009/10 HK$ Rate Tax HK$
First 40,000 2% 800
Second 40,000 7% 2,800
Third 40,000 12% 4,800
Balance 17%
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
12:
Personal Allowances
Personal allowances are available to taxpayers liable to salaries tax or individuals who elect for personal assessment.
2009/10 HK$
Personal Allowance Single 108,000
Married 216,000
Single Parent Allowance 108,000
Child Allowance 1st to 9
th child (each) 50,000
year of birth (each) 50,000
Dependent Parent Allowance Aged over 60 or above 30,000
Aged 55 to 59 15,000
Additional Dependent Parent Allowance Aged over 60 or above 30,000
Aged 55 to 59 15,000
Dependent Grandparent Allowance Aged over 60 or above 30,000
Aged 55 to 59 15,000
Additional Dependent Grandparent Allowance Aged over 60 or above 30,000
Aged 55 to 59 15,000
Disabled Dependent Allowance 60,000
Dependent Sibling Allowance 30,000
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
13:
CEPA Guide
Entrepreneurs considering a new business startup can benefit from CEPA “Closer Economic Partnership Agreement” between the Mainland and Hong Kong. CEPA opens up the mainland markets for Hong Kong goods and services.
Trade in Goods
Under CEPA, goods of Hong Kong origin can be imported into the Mainland with zero tariff, effective from 1st January 2006. The key requirements to qualify for an exporter are:
Each consignment of goods exported to the Mainland must be accompanied by a Certificate of Hong Kong Origin – CEPA “CO(CEPA)”
CO(CEPA) is issued by the Trade & Industry Department or one of five Government approved certification organizations
o Hong Kong General Chamber of Commerce
o Federation of Hong Kong Industries
o Chinese Manufacturing Association of Hong Kong
o Chinese General Chamber of Commerce
o Indian General Chamber of Commerce
To obtain CO(CEPA), the HK manufacturer must first apply for Factory Registration “FR” with the Trade & Industry Department to demonstrate that its factory possesses sufficient capacity to produce the goods for export.
The goods / products exported under CEPA must finally satisfy the CEPA Rules of Origin “CEPA ROO”. ROO is a set of rules setting out the criteria and standards for a product to claim itself of a particular country of origin. CEPA ROO is a more preferential set of ROO for HK manufacturers claiming zero tariff import into Mainland under CEPA. There are currently 1537 items of goods covered under CEPA ROO eligible for zero tariff preferential treatment.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
14:
Trade in Services
For entrepreneurs considering setting up a business to provide services on the Mainland, CEPA enables HK service suppliers to enjoy preferential treatment in entering into the Mainland market in various service areas.
There are two classes of Hong Kong service supplier:
Juridical Person (companies, partnerships and sole proprietorships) – any legal entity duly constituted or organized under the applicable laws of HK and which has engaged in substantive business operations in HK for three to five years.
Natural Person (individuals)
HK service suppliers classified as juridical persons need to apply for a Certificate of Hong Kong Service Supplier “HKSS” before it can apply to the relevant Mainland authorities for providing services in the PRC with preferential treatment under CEPA. Application of HKSS is done through the Trade & Industry Department. HK service suppliers classified as natural persons are not required to apply for a HKSS. The individual just need to provide to the relevant Mainland authorities’ identification of his or her Hong Kong permanent resident status. Copies of the identification documents should be attested by a China appointed attesting officer recognized by the Mainland.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
15:
Our Services Finance & Administration Outsourcing
Our F&A outsourcing service offering is aimed at businesses in commerce and industry. Service delivery is by a strong team of commercial finance experts employing a suite of proven financial management processes, internal controls and management reporting mechanisms. Our expertise encompasses all finance and administration related processes and extend to the management of business operations with ERP systems. Clients can choose to outsource part or all of their finance and/or business operation processes depending on what constitutes the most efficient and effective solution.
Statutory Audit
Annual statutory audit of financial statements is a legal requirement for every company incorporated in HK and our firm acts for many established HK based and multinational corporations. In addition to fulfilling our statutory responsibility to report independently on the financial statements, we seek to add value to our clients’ businesses by actions such as reviewing internal controls for weaknesses and paying attention to our clients business environment and alerting clients to potential business opportunities and issues.
Special Reviews
We can conduct ad-hoc due diligence reviews on behalf of clients for mergers and acquisitions. Our review process covers all aspects of the target company, including management structure, business process, risks, opportunities and commercial environment to give a true business picture.
Taxation
Our firm has built up a wealth of tax service experience from over 45 years of helping clients with their tax affairs. We can help with preparation of tax computations, completion and filing of tax returns, review of corporation / individual’s tax positions to ensure legitimate minimization of tax obligations. We also give advice to companies facing Inland Revenue audits and on tax investigation cases.
Company Secretarial Service
We provide a full suite of company secretarial services relating to company setup, share registration / transfers and annual statutory filings compliance.
Doing Business in Hong Kong Guide
Contact:
Andrew Ng, Director
Tel: (852) 25757383
www.tcng-cpa.com
16:
Contacts We have a team of experienced finance professional led by three directors each with in-depth expertise in consulting, auditing and taxation. Anyone considering establishing a business in HK can always benefit from a free consultation session with one of our directors or senior managers.
Andrew Ng CPA Practicing, FCA, BA
Director (T.C. Ng & Company CPA Limited) Director (TCN Consulting Services Limited)
Andrew has over 20 years’ experience in financial management, business process reengineering and IPOs, Andrew has assisted clients in statutory audits, making improvements to their finance function and business operation, achieving large bottom line improvements or assisting clients to go public.
Edwin Chiu CPA Practicing, FCCA, ACA
Director (T.C. Ng & Company CPA Limited)
Edwin joined the practice in 1980. During his years with the firm, he has developed extensive knowledge in serving clients in various industries, including HK listed companies, real estate development companies, manufacturing, trading, publishing, charitable foundations and other local enterprises. He is an independent nonexecutive director and Chairman of the Audit Committee of a Hong Kong listed company.
Eddie Man CPA Practicing, FCA, MSc
Director (T.C. Ng & Company CPA Limited)
Prior to joining the practice in 1992, Eddie worked in one of the 'Big Four' firms in England for four years after graduating with a Master Degree in Finance in University of Lancaster in England. He has over 16 years experience in the field of auditing, taxation and accounting services and has also been actively involved in tax investigation and review engagements.
