Doing business in Hong Kong

Transcription

1 Doing business in Hong Kong

2 Doing business in Hong Kong Contents Page Foreword 1 Country profile 2 Regulatory environment 6 Finance 8 Imports 10 Business entities 11 Labour 14 Financial reporting and audit 17 Tax 18 Helpful information 24 Contact details 26

3 Doing business in Hong Kong 1 Foreword This guide has been prepared for the assistance of those interested in doing business in Hong Kong. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When doing business in Hong Kong, it will often be necessary to refer to the local laws and regulations and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of 30 April Grant Thornton Jingdu Tianhua Grant Thornton Jingdu Tianhua is a member firm of Grant Thornton International in Hong Kong. We are an integrated part of Grant Thornton China, forming a network of 10 offices with access to 70 partners and over 1,500 professionals. These offices are strategically aligned and serving clients seamlessly across the mainland China and Hong Kong markets. We pride ourselves on having a partner-led and responsive service for all our clients. We offer a full range of assurance, tax and advisory services to a range of public companies, state owned enterprises, private companies and foreign investment enterprises. We combine world-class methodologies and systems with local knowledge and market experience. Grant Thornton International Grant Thornton International is one of the world s leading organisations of independently owned and managed accounting and consulting firms. These firms provide assurance, tax and advisory services to privately held businesses and public interest entities. More than 2,500 partners provide clients with distinctive, high quality and personalised service in over 100 countries. For more information visit: Grant Thornton International is not a worldwide partnership. Member firms of the international organisation are independently owned and operated. Services are delivered nationally by the member and practising correspondent firms of Grant Thornton International, a network of independent firms throughout the world. Grant Thornton International is a non-practising, international umbrella organisation and does not deliver services in its own name.

4 Doing business in Hong Kong 2 Country profile Summary With a central location in East Asia and with a rapidly growing mainland China as its hinterland, the Hong Kong Special Administrative Region (HKSAR) is an international business, trade and financial hub. Building on its traditional free market economic policy, Hong Kong has developed into a modern, vibrant and cosmopolitan services economy, underpinning the role of the city as a global business platform. Geography At the south-eastern tip of China, Hong Kong covers Hong Kong Island, Lantau Island, the Kowloon Peninsula and the New Territories, including 262 outlying islands. Between Hong Kong Island and the Kowloon Peninsula lies Victoria Harbour, one of the world's most renowned deepwater harbours. total area: 1,104 square kilometres land developed: less than 25% country parks and nature reserves: 40% Population Hong Kong's population was approximately 7.00 million in People of Chinese descent comprise the vast majority of the population, with foreign nationals comprising 5%. population density: 6,480 people per square kilometre crude birth rate: 11.7 per 1,000 percentage of population Chinese descent: 95% other significant national groups Indonesia (147,883 total) Philippines (140,708 total) Thailand (28,049 total).

5 Doing business in Hong Kong 3 Political and legal system Hong Kong is a Special Administrative Region of the People's Republic of China. Following British rule from 1842 to 1997, China assumed sovereignty under the one country, two systems principle. The Hong Kong Special Administrative Region's constitutional document, the Basic Law, ensures that the current political situation will remain in effect for 50 years. The rights and freedoms of people in Hong Kong are based on the impartial rule of law and an independent judiciary. Head of Government: Chief Executive Cabinet: Executive Council Legislature: Legislative Council, 60 seats Highest Court: Court of Final Appeal Language Chinese and English are the official languages of Hong Kong. English is widely used in the Government of HKSAR (Government) and by the legal, professional and business sectors. Trilingual professionals who speak English, Cantonese and Putonghua play a vital role in the numerous enterprises trading in Hong Kong or doing business with mainland China and Taiwan. Cantonese speakers: 88.7% of population Putonghua speakers: 1.1% of population other Chinese dialect speakers: 5.8% of population English speakers: 3.1% of population other language speakers: 1.3% of population Business hours Monday Friday Saturday 9:00 am 5:00pm 9:00 am 1:00pm Office hours may vary depending on the nature of the business. Since July 2006, the Government has phased in a 5-day working week in government departments and is also promoting this within the business environment. Time zone Standard time zone: UTC/GMT +8 hours. No daylight saving time. Public holidays Hong Kong provides two types of public holidays: statutory and general holidays. Statutory holidays are mandated under the Employment Ordinance and must be provided to all employees. General holidays include every Sunday, all statutory holidays and an additional 5 holidays. working week: Monday to Saturday statutory holidays: 12 general holidays: 17 (including the 12 statutory holidays)

6 Doing business in Hong Kong 4 Economy Hong Kong's economy is characterised by free trade, low taxation and minimum government intervention. It is the world's 11th largest trading economy, with mainland China as its most significant trading partner. Hong Kong is also a major service economy, with particularly strong links to mainland China and the rest of the Asia Pacific region. currency: Hong Kong dollar GDP: HK$1,606.2 billion (2009) GDP per capita: HK$229,329 (2009) real GDP growth: -2.7% (2009) labour force: 3.70 million (2009) the world's freest economy the world's most services-oriented economy (services sectors accounting for more than 90% of GDP) the world's second highest per capita holding of foreign exchange reserves the world's eighth largest foreign exchange reserves holding the second largest source of foreign direct investment (FDI) in Asia the second largest recipient of FDI in Asia Economic growth The Hong Kong economy staged a broad-based expansion in 2010, having successfully overcome the severe challenges from the global recession of Both the external and domestic sectors fared strongly in the year. For 2010 as a whole, the economy grew robustly by 6.8%, more than offsetting the 2.7% contraction in Employment Levels Statistics on Labour Force, Unemployment and Underemployment 11/2010-1/2011 Labour force ('000) Employed persons ('000) Unemployed persons ('000) Underemployed persons ('000) 67 Labour Force Participation Rates (%) 60.2 Seasonally adjusted unemployment rate (%) 3.8 Underemployment rate (%) 1.8 Source: Government of the Hong Kong Special Administrative Region, Census and Statistics Department The labour market saw widespread and notable improvements during Total employment rose to an all-time high in late 2010, surpassing the previous peak in early Job vacancies likewise surged. With improving labour demand, the seasonally adjusted unemployment rate came down progressively to 4.0% in the fourth quarter of Wages and earnings rose back in tandem.

7 Doing business in Hong Kong 5 Living standards Each year, the United Nations Development Program issues a Human Development Report. This includes a Human Development Index (HDI), which is a comparative measure of life expectancy, literacy, education and standards of living for countries worldwide. Between 1980 and 2010, Hong Kong, China (SAR)'s HDI rose by 0.7% annually, giving the country a rank of 21 out of 169 countries with comparable data. Hong Kong is ranked 6 within Asia & Oceania. Cost of living According to Mercer s World Cost of Living 2010 report, which surveyed 214 cities globally, Hong Kong ranks as the 8th most expensive city, jointly with Zurich, Switzerland. Sources of information Unless otherwise specified, the above data was taken from official figures from the Government of the Hong Kong Special Administrative Region. For more information, visit:

8 Doing business in Hong Kong 6 Regulatory environment Summary As an international financial centre with sophisticated communications and infrastructure, a low rate of taxation and an open economic policy, the Government helps create a favourable environment to attract foreign investment. Restrictions on foreign ownership The Government welcomes and encourages foreign investment, so there is no restriction on foreign ownership in Hong Kong. Government approvals and registration Specific government licences, permits, certificates and approvals required to start business operations in Hong Kong. For example, the securities industry is regulated under the Securities and Futures Commission (SFC) and the Hong Kong Exchange and Clearing Limited (HKEx). Competition rules/consumer protection The Competition bill was tabled to the Legislative Council in July The bill is subject to the Legislative Council s approval. Consumer protection controls do exist but with little associated trade practices legislation. There is protection of commercial and industrial rights through patents and trademarks law. Import and export controls Licensing requirements on import and export controls exist. This is to fulfil international obligations and to monitor the flow of these goods through Hong Kong. A Certificate of Origin system exists to enable the origin of goods exported by Hong Kong to be established in order to meet the requirements of various importing authorities. Price controls As world s freest economy for many years, Hong Kong has no price controls. Use of land Regulations governing use of land exist. Exchange control No exchange control implemented. The Hong Kong dollar is pegged to the US dollar at a rate of approximately 7.8 to 1.

9 Doing business in Hong Kong 7 Government incentives In order to attract more foreign investment to Hong Kong, the Hong Kong SAR Government maintains a low and simple tax system, which is the third lowest in the world. The Government has established a free trade agreement with the Central People s Government of the PRC called the Closer Economic Partnership Arrangement (CEPA). It allows any local or foreign owned Hong Kong company to have priority access to the mainland China market and to export their products to the Mainland tariff free. The Government also assists enterprises with support like the Small and Medium Enterprises (SME) Loan Guarantee Scheme, Special Loan Guarantee Scheme and SME Export Marketing Fund, which allow enterprises secure trade finance, expand market and enhance overall competitiveness. These government supported loans are available to all enterprises investing in Hong Kong. Recently, the Hong Kong SAR Government committed to promoting six new growth industries (education services, medical services, testing and certification services, environmental industries, innovation and technology and cultural and creative industries). The government gives priority to the development of higher value-added services and industries, such as financial services and information technology. Also, it provides financial support to promote the development of creative, film, wine, and design industries.

10 Doing business in Hong Kong 8 Finance Summary As Asia s leading global financial centre, about 70 of the world s top 100 banks are present in Hong Kong. After returned to the sovereignty of China in 1997, Hong Kong became China s international financial centre and now is the leader in offshore Renminbi services, including banking and a bond market and is part of the pilot Renminbi Trade Settlement Scheme. Banking system There are three types of banks in Hong Kong, namely Licensed Banks, Restricted Licensed Banks, and Deposit-taking companies. Licensed Banks are commercial banks, which provide savings and current account services, lending and international trade financing services. Restricted Licensed Banks are principally engaged in merchant banking and capital market activities. They may accept deposits of any maturity in amounts exceeding HK$500,000 and interest rates are unrestricted. Services provided by Deposit-taking companies range from conventional lending and foreign exchange to funds management and investment advice. There is no central bank in Hong Kong. However, the Exchange Fund (within the Hong Kong Monetary Authority) acts as a lender of last resort, providing the backing for the issue of notes and coins and the bulk of foreign currency assets. It ensures stability of the Hong Kong currency and the banking system; in addition, to promote the efficiency, integrity, and development of the financial system. Capital markets The capital market in Hong Kong is HKEx, which was founded in 2000 after the merger between Hong Kong Futures Exchange, Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited. The Hong Kong stock market is part of Hong Kong Exchanges and Clearing. In 2010, about US$57.2 billion of total funds raised through IPOs, primarily due to increasing number of mainland Chinese enterprises that have raised capital and listed on the Hong Kong stock exchange, which made Hong Kong the world s biggest IPO centre for the second consecutive year. As of 31 Dec 2010, the Hong Kong Stock Exchange had 1,413 listed companies with a combined market capitalization of US$2.7 trillion, which makes it as the world's seventh largest stock exchange. In addition, Hong Kong is a leading player in the global capital market, as it is the largest

11 Doing business in Hong Kong 9 international capital raising centre for mainland Chinese enterprises, with over US$282 billion being raised through the Hong Kong stock market since Its stock market is the second largest stock exchange in Asia at the end of 2010, after the Tokyo Stock Exchange. Hong Kong s stock market operates in three different areas: securities, derivatives and stock settlement. There are two trading platforms used in the Hong Kong stock market. First is the Main Board which is established for companies that have a trading record of at least three consecutive years with a profit of at least HK$20 million in the most recent year and HK$30 million over the last two years and an expected market capitalisation of at least HK$100 million. The second platform used is the Growth Enterprise Market (GEM Board) which allows listings of high growth, high risk companies. Other sources of finance Except IPO, companies interested in raising funds can have other options through private equity firm and investment banks. Companies can raise capital through private equity firms, which provides either venture or buy-out opportunities for them. Venture capital funds invest in young companies which are developing a new product or technology; in addition, private equity managers can provide expertise to a company to help it advance toward a position suitable for an initial public offering. For buyout funds, venture capital funds invest in larger established companies in order to add value, by increasing efficiencies or consolidating resources by merging with companies or technologies. Other than the methods listed above, investment banks can also help companies raise funds in capital markets and give advice on mergers and acquisitions.

12 Doing business in Hong Kong 10 Imports Summary Hong Kong is a duty-free port and does not levy any Customs tariff on imports and exports. Only four types of dutiable commodities are subject to duty, namely Liquor, Tobacco, Hydrocarbon Oil and Methyl Alcohol. Import restrictions Anyone importing or exporting any prohibited or controlled items into or out of Hong Kong are required to apply for a valid licence or permit. Prohibited or controlled items include dangerous drugs, psychotropic substances, controlled chemicals, antibiotics, arms, ammunition, fireworks, strategic commodities, rough diamonds, animals, plants, endangered species, telecommunication equipment, game, meat and poultry. Anyone importing or exporting the above items into or out of Hong Kong without a valid licence or permit are liable to prosecution and penalties and these items will also be confiscated. Customs duties Dutiable commodities Liquor Liquor with alcoholic content below 30% Liquor with alcoholic content above 30% Wine Tobacco For each 1,000 cigarettes Cigars Chinese prepared tobacco All other manufactured tobacco not intended for cigarette manufacture Hydrocarbons Aircraft spirit Motor spirits (leaded petrol) Motor spirits (unleaded petrol) Light diesel oil (except for ultra low sulphur diesel and Euro V diesel) Ultra low sulphur diesel Euro V diesel Methyl alcohol Basic duty which increases if alcoholic strength exceeds 30% Duty rate 0% 100% 0% HK$1,706 HK$2,197/kg HK$419/kg HK$2,067/kg HK$6.51/litre HK$6.82/litre HK$6.06/litre HK$2.89/litre HK$2.89/litre HK$0/litre HK$840/hectolitre

13 Doing business in Hong Kong 11 Business entities Summary A wide range of business vehicles is available to foreign investors when doing business in Hong Kong. There is no requirement to have resident management, such as directors or resident shareholders in Hong Kong. All businesses in Hong Kong are required to register with the Inland Revenue Department to obtain a Business Registration Certificate. Structure of business organisations The options of setting up business vehicles in Hong Kong for both local and foreign investors include unincorporated businesses such as a partnership and sole proprietorship, and an incorporated company. In addition, foreign companies also have the choice of establishing a representative office or branch office in Hong Kong. The investor should choose the type of business organisation that best suits his or her needs. Professional advice should be sought to assess the financial and tax consequences. Corporations Types of corporations A company incorporated in Hong Kong may be either a private or a public company and can be limited by shares or by guarantee. Generally companies limited by guarantee are incorporated by non-profit organisations. The most common form of company incorporated in Hong Kong is a private limited company which: is limited to a maximum of 50 shareholders; has restrictions on the transfer of shares; is prohibited from invitation to the public for subscriptions of any shares or debentures; can be incorporated with one shareholder; and must have at least one director. In addition, every company incorporated in Hong Kong must have a company secretary, who must be a resident in Hong Kong. A company must also need to have a registered office address in Hong Kong for the purpose of serving legal notices and proceedings.

14 Doing business in Hong Kong 12 Establishing a corporation To incorporate a company, the applicant needs to submit the following to the Companies Registry: a certified signed copy of Memorandum of Association and Articles of Association and a Statement of Compliance with the Hong Kong Companies Ordinance, together with a completed incorporation form; and the prescribed fee. Capital stock and shareholders There is no prescribed minimum share capital and all shares must have a stated nominal value. Share capital may be divided into different classes of shares with different rights attached as set out in the Articles of Association. Management and officers A private limited company must have at least one director which can be either an individual or a corporation. The director, individual or corporation, can be of any nationality, domicile or residence. Filing requirements In addition to ad hoc filings, every company is required to file an annual return detailing the particulars of the company such as authorised and issued share capital, directors and shareholders, and registered charges etc to the Companies Registry. Sole proprietorships Establishing a sole proprietorship A sole proprietorship is not a separate legal entity and the only procedure required is to obtain a Business Registration Certificate with the Inland Revenue Department. Foreign company branches and representative offices Other than establishing a company, a foreign corporation can establish branch offices or representative offices in Hong Kong. Foreign company branch A branch office can be established by registering with the Inland Revenue Department for a Business Registration Certificate and also with the Companies Registry as a non Hong Kong company. A branch office is not a separate legal entity from the foreign corporation and hence is liable for the debts and obligations of the branch office. Foreign company representative office Different from the branch office, a foreign company representative office is prohibited from carrying on any business in Hong Kong. A Business Registration Certificate is required. Partnerships General partnerships A partnership is not a separate legal entity and all partners are jointly liable for all the debts and obligations of the partnership. In the absence of a specific partnership agreement, the Partnership Ordinance shall govern the rights and obligations of each partner.

15 Doing business in Hong Kong 13 Limited partnerships A less common form of partnership is limited partnership where the limited partnership must have at least one general partner who is liable to the debts and obligations of the partnership. The limited partnership also has at least one limited partner who is liable for the debts and obligations up to the amount of capital contributed. Establishing a partnership Same as sole proprietorship, the only procedural step in establishing a partnership is to obtain a Business Registration Certificate. In the case of limited partnership, in addition to a Business Registration Certificate, the limited partnership is also required to register with the Companies Registry.

16 Doing business in Hong Kong 14 Labour Summary The labour market in Hong Kong is relatively open and less regulated than most other western countries. Employment is principally governed under the Employment Ordinance (EO) which stipulates a comprehensive range of employment conditions, protection and benefits for employees under a continuous contract of employment. The terms and conditions of an employment contract can be freely negotiated and agreed between employers and employees as long as they are not less favourable than the basic provisions prescribed under the EO legislations. Job recruitments are generally made through advertisements in newspapers and magazines, or via employment agencies or employment websites, including a free network provided by the Labour Department. Wages and hours The new Minimum Wage Ordinance came into effect on 1 May 2011 enforcing an initial statutory minimum wage rate at $28 per hour. Wages is defined as all remuneration, earnings, allowances, tips and service charges payable to an employee in respect of work done or work to be done. There is no provision governing the maximum number of working hours in Hong Kong. Social security Neither employers, nor employees are required to make a contribution to any social security system. The government has funding to provide comprehensive social security assistance to those poor and needy in the community. Pensions The Mandatory Provident Fund (MPF) system was launched in December 2000 to protect retirement benefits of the Hong Kong workforce. The MPF rules require every employer to contribute 5% of an employee s relevant monthly income (capped at a maximum of HK$20,000) into a registered MPF scheme. Employees with relevant monthly income of HK$5,000 and above must make a matched contribution into the same scheme. The benefits derived from all such contributions are preserved in the scheme account until an employee reaches the statutory retirement age. Fringe benefits Holiday and pay Under the EO, every employee is entitled to at least one rest day for every 7 days work and 12 days of statutory holidays each year. White collar employees generally referred to government, bank and non-manual office staff are entitled to 5 extra days of public holidays in addition to the statutory holidays. For each 12 months service, an employee is entitled to paid annual leave of minimum between 7 to 14 days, depending on the length of service years.

17 Doing business in Hong Kong 15 Sick pay Employees under a continuous contract can accumulate paid sickness leave at a rate of 2 days per month up to a maximum of 120 days. Sickness allowance at 80% of monthly salary will be paid to employee who has taken sick leave of not less than 4 consecutive days with the necessary medical certificate. Profit sharing It is a common practice for employers to offer discretionary bonus to employees based on individual s performance and the annual results of the company. Large organisations tend to offer a percentage based share of profit as incentive to attract and retain talents for senior executives at management level. Workers' compensation The Employees Compensation Ordinance requires employers to maintain adequate insurance coverage for liabilities to pay compensation in the event of any work-related injuries or loss of life of their employees. Failure to do so may render the employer heavy fines and even up to imprisonment. Healthcare There is no statutory requirement to provide employees with health care benefits. But it is common for most large and medium size organisations in Hong Kong to take up group medical insurance to provide staff with clinical and hospitalisation benefits as a caring employer. Employment protection legislation Apart from the EO which governs the basic employee rights and benefits, employment terms and conditions, other legislations are in place to ensure employment protection and equal opportunities under the following ordinances: Sex Discrimination Ordinance Disability Discrimination Ordinance Family Status Discrimination Ordinance Race Discrimination Ordinance Employees have the right to file complaints to the Equal Opportunities Commission for any unfair and unreasonable treatments regarding their employment. For matters related to breach of contract, the Labour Department is often the best intermediary to help both employers and employees settle labour disputes without the need of litigation. Unions Employees enjoy the freedom to join and form trade unions and are protected against anti-union discrimination under the EO. The existing labour unions in Hong Kong are either established by trade or formed by a substantial number of employees within certain large organisations. The number of unions is rather small in comparison with most other countries. Personnel limitations - foreigners/nationals Though the law does not stipulate a fixed percentage of local employees in an organisation s payroll, all non-residents must obtain an employment visa through the Hong Kong Immigration Department or at the Chinese consulate nearest to their original place of residence before coming to

18 Doing business in Hong Kong 16 work. A local sponsor (usually the employer) is required to support the application with a valid reason and to assume responsibility for the applicant during the permitted period of employment and his/her repatriation at the expiry of such period. The General Employment Policy (GEP) adopted by the Immigration Department is to approve non-resident employment visa only to applicants who possess certain special skills, knowledge and valuable expertise that are not readily available in the local market. The application process from submission to the granting of employment visa normally takes between 4 to 6 weeks. Chinese residents from mainland China can also apply to work in Hong Kong under the Admission Scheme for Mainland Talents and Professionals. The eligibility and approval criteria are similar to those of the GEP.

19 Doing business in Hong Kong 17 Financial reporting and audit Corporations Each company incorporated in Hong Kong must keep books of accounts that are necessary to give a true and fair view of the state of affairs and its transactions. Filing/publication requirements Other than public companies, private limited companies are not required to file their audited financial statements with the Companies Registry. However, the Inland Revenue Department generally requires the submission of audited financial statements for all companies for tax filing purposes. Accounting standards Under the Hong Kong Companies Ordinance, there is no specific requirement on the accounting standards applied. However, the Inland Revenue Department generally only accepts financial statements prepared in accordance with Hong Kong Financial Reporting Standards, Hong Kong Financial Reporting Standard for Private Entities and Small and Medium-sized Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified Public Accountants, and International Financial Reporting Standards for tax submission purposes. Audit requirements Each company incorporated in Hong Kong must have its financial statements audited every year by a Hong Kong Certified Public Accountant. Foreign company branches and representative offices A foreign company branch needs to file a copy of the foreign company s annual accounts for public access to the Companies Registry, unless it is not required to do so in the place of its incorporation. A foreign representative office is not required to file any annual accounts.

20 Doing business in Hong Kong 18 Tax Summary Hong Kong is famous for its simple and low rate tax system. In fact, only income directly sourced in Hong Kong will be subject to Hong Kong tax. Offshore income is not subject to Hong Kong tax. There are three types of direct taxes in Hong Kong: Profits Tax charged on profits (excluding the profits arising from the sale of capital assets) arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong. Salaries Tax charged on income arising in or derived from Hong Kong from an office, employment or pension. Property Tax charged on rental income derived from properties located in Hong Kong. Other than the above, Hong Kong also imposes Stamp Duty on transfer of Hong Kong stock, Hong Kong bearer instruments, immovable property located in Hong Kong as well as lease of immoveable properties located in Hong Kong. Hong Kong does not impose any capital gain tax, turnover tax or value-added tax. Companies Business in Hong Kong can be conducted by using one of the following vehicles: corporations (i.e. limited companies), unincorporated business (i.e. partnerships, sole proprietorships), or branch of a foreign corporation. When filing Profits Tax returns, corporations should be supported by annual audited accounts, whereas there are no audit requirements for the accounts of partnerships, sole proprietorships and branches of foreign corporations. Liability to tax The Hong Kong Profits Tax system is territorial. In other words, only income arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong is chargeable to Profits Tax. Foreign-sourced income and profit arising from sale of capital assets are not chargeable to Profits Tax.

21 Doing business in Hong Kong 19 Tax rates The profits tax rates for the year of assessment 2011/12 are: Corporations (including branch offices of foreign corporations) 16.5% Unincorporated business (i.e. partnerships, sole proprietorships) 15% Tax base (differences between book and taxable profits) Generally, various adjustments are required to be made to the accounting profits in order to arrive at the taxable profits. These include, but are not limited to the following: non-taxable items such as dividends, various bank interest income, offshore income, capital gain, etc. tax depreciation allowances for industrial or commercial buildings as well as plant and machineries. non-deductible items including accounting depreciation, expenses that are related to non-taxable income (e.g. offshore income, capital gains, expenses which are domestic and private in nature etc). Groups In Hong Kong, there is no group relief for tax losses within a group of companies. Filing of tax returns The Hong Kong fiscal year runs from 1 April to 31 March of the following year. However, businesses in Hong Kong can choose their accounting year end and file their Profits Tax Returns accordingly. Profits Tax Returns are usually issued to corporations and partnerships in the beginning of April each year. Generally, such returns are required to be submitted within one month from the issue date. However, tax representatives can apply for extensions of time in filing the Profits Tax returns. The extended due date for filing the tax return and financial statements of a particular taxpayer depends on the accounting year-end date of that taxpayer: Accounting year-end date From 1 January to 31 March From 1 April to 30 November From 1 December to 31 December Due date for filing tax returns and financial statements 15 November of the same calendar year 2 May of the next calendar year 15 August of next calendar year Use of losses Agreed tax losses can be carried forward indefinitely and set off against any future assessable profits of the same entity, except in circumstances where there is a change in shareholding of a corporation and the sole or dominant purpose of the change is to utilise such tax losses.

22 Doing business in Hong Kong 20 Dividends Dividend income, whether from Hong Kong or overseas corporations, is not taxable. On the other hand, dividend made by a corporation is not deductible. No withholding tax is levied on dividend payments. Withholding taxes Withholding taxes are levied on royalties/ license fees paid to non-residents for the use of or right to use of any intellectual property, e.g. trademark, patent, in Hong Kong or outside Hong Kong if the Hong Kong payer claims a Profits Tax deduction for the payment. Unless the non-resident recipient is associated and the intellectual property was previously owned by a Hong Kong taxpayer (in which case the withholding tax amount is 16.5%), the Hong Kong payer is required to withhold 4.95% of such royalties/ license fees (i.e. deemed assessable profits of 30% x current Profits Tax rate of 16.5% for corporations). In addition, goods on consignment sold in Hong Kong by a resident agent on behalf of a nonresident principal are subject to withholding tax at 0.5% of the gross proceeds. No withholding tax is levied on dividend and interest payments paid to non-residents. Effect of treaties The aim of an avoidance of double tax agreement (DTA) is to clarify the taxing rights of each contracting party, avoid double taxation, adopts preferential tax rate in withholding taxes on cross border passive income and avoid fiscal evasion. As at 1 April 2011, Hong Kong has entered into 20 comprehensive DTAs with the following countries: In force Austria, Belgium, Brunei, Hungary, Ireland, Luxemburg, Mainland China, Thailand, Vietnam and United Kingdom To be in force France, Indonesia, Japan, Kuwait, Liechtenstein, the Netherlands, New Zealand, Portugal, Spain, Switzerland It is expected more comprehensive DTAs will be signed with other countries as Hong Kong is actively negotiating for such agreements. In addition to the comprehensive DTAs, Hong Kong has entered into various DTAs with foreign countries on airline and/or shipping income.

23 Doing business in Hong Kong 21 Foreign income Foreign-sourced income is not chargeable to Profits Tax even if it is remitted to Hong Kong. Individuals An individual is subject to Hong Kong Salaries Tax for any income arising in or derived from an office, employment or pension in Hong Kong. In determining whether an employment income is chargeable to Hong Kong Salaries Tax, one should first determine whether the income is derived from a Hong Kong employment or non-hong Kong employment through all relevant factors, which include but are not limited to the following: i ii Whether the employment contract was negotiated and enforced in Hong Kong; Whether the employer is a Hong Kong resident; and iii Whether the employee received the remuneration in Hong Kong. In the event that the employee is being considered as having Hong Kong employment, income derived from such employment would be fully taxable unless the individual performs services during visits to Hong Kong for not exceeding 60 days in a particular year of assessment. In case of a non-hong Kong source employment, the individual is generally eligible for a time apportionment claim in order to exclude his employment income derived from services performed outside Hong Kong from Hong Kong Salaries Tax. Tax rates Salaries Tax is chargeable on total employment income, less allowable deductions and personal allowance (net chargeable income) at the following progressive rates: First HK$40,000 Next HK$40,000 Next HK$40,000 On the remaining Tax rate for 2011/12 2% 7% 12% 17% The maximum tax payable is, however, limited to tax at the standard rate of 15% on net assessable income, after allowable deduction, but before personal allowance. Residence criteria Generally speaking, the concept of residence is not relevant in determining whether the income is chargeable to Hong Kong Salaries Tax. Taxation of non-residents Employment income derived by an individual who renders services during visits to Hong Kong for period not exceeding 60 days in a tax year is exempted from Salaries Tax. A 60 days visit counts the visitor s actual presence in Hong Kong, not just business days. Special rules for expatriates Where an individual renders employment services in Hong Kong for over 60 days under an non- Hong Kong source employment, the income arising in or derived is subject to Salaries Tax which is

24 Doing business in Hong Kong 22 normally computed on the basis of the number of days the individual spent in Hong Kong (i.e. on a time basis) during the tax year. In counting the number of days, the day of arrival and the day of departure is only counted as one day. Payment dates Salaries tax is normally paid in two instalments between January and April every year. Tax returns Individual Tax Returns are usually issued to individuals in the beginning of May each year and are required to be submitted within one month of the issue date. A further extension of one month is granted to individuals who are represented by a tax representative. Property taxes Property Tax is charged on rent received by owners of real estate located in Hong Kong at the standard rate of 15% on the net assessable value of such rental income. When a corporation generates rental income, such rental income will be subject to Profits Tax and therefore the corporation is eligible to apply for exemption from Property Tax. Tax returns Property Tax Returns are usually issued in the beginning of April each year and are required to be submitted within one month of the issue date. If no exemption is applied, the Property Tax paid can be used to offset the profits tax payable by the corporation for the tax year. Rental income derived by an individual as the sole owner of a property located in Hong Kong is required to be reported in the Individual Tax Return of the individual. Value Added Tax/Sales tax Hong Kong does not levy any value-added tax, sales tax or goods and services tax. Other taxes Other than the above, Hong Kong also imposes Stamp Duty on transfer of Hong Kong stock, Hong Kong bearer instruments, immovable property located in Hong Kong as well as lease of immoveable properties located in Hong Kong. Stamp duty Stamp duty is charged on transactions in respect of conveyance on sales or lease of immovable property located in Hong Kong, instruments for the transfer of Hong Kong stock and Hong Kong bearer instruments. As at 1 April 2011, the Stamp Duty rates are as follows: Conveyance on sales of immovable property Value Rates Under HK$2,000,000 HK$100 HK$2,000,000 HK$2,351,760 HK$ % of excess over HK$2,000,000 HK$2,351,760 HK$3,000, % HK$3,000,000 HK$3,290,320 HK$45, % of excess over HK$3,000,000

25 Doing business in Hong Kong 23 Value Rates Under HK$2,000,000 HK$100 HK$3,290,320 HK$4,000, % HK$4,000,000 HK$4,428,570 HK$90, % of excess over HK$4,000,000 HK$4,428,570 HK$6,000,000 3% HK$6,000,000 HK$6,720,000 HK$180, % of excess over HK$6,000,000 HK$6,720,000 HK$20,000, % HK$20,000,000 HK$21,739,120 HK$750, % excess over K$20,000,000 Over HK$21,739, % Lease of immovable property Lease period Lease term is uncertain Not more than 1 year More than 1 year but less than 3 years More than 3 years Instruments for the transfer of Hong Kong stock Stampable instruments Contract notes (bought note and sold note) Duty rate 0.25% of average yearly rent 0.25% of total rent payable 0.5% of average yearly rent 1% of average yearly rent Duty rate 0.2% on the consideration or market value whichever is higher A Special Stamp Duty (5% to 15% on property value) is also levied on transactions of residential properties in Hong Kong if the property is acquired by the vendor on or after 20 November 2010 and resold within 24 months after acquisition. Estate tax/inheritance tax There is no estate tax/ inheritance tax in Hong Kong. Capital gains tax There is no capital gain tax in Hong Kong.

26 Doing business in Hong Kong 24 Helpful information There are many organisations which help and support companies doing business in Hong Kong. These include: Hong Kong Export Credit Insurance Corporation (ECIC) encourages and supports export trade through the provision of insurance protection for Hong Kong exporters against non-payment risks arising from commercial and political events. Hong Kong General Chamber of Commerce (HKGCC) is the largest business organisation in Hong Kong, with around 4,000 members. It advises the SAR Government on matters affecting businesses and the economy, providing members with business information and opportunities, and facilitating networking through a variety of Chamber activities. Hong Kong Monetary Authority is the government authority in Hong Kong responsible for maintaining monetary and banking stability. Hong Kong Exchanges and Clearing Limited, or HKEx operates a securities market and a derivatives market in Hong Kong and the clearing houses for those markets. HKEx was listed in Hong Kong in 2000 and is now one of the world s largest exchange owners based on the market capitalisation of its shares. Hong Kong Securities and Futures Commission (SFC) is an independent non-governmental statutory body outside the civil service, responsible for regulating the securities and futures markets in Hong Kong. Hong Kong Trade Development Council aims to create opportunities for Hong Kong companies, by promoting trade in goods and services, while connecting the world's small and medium-sized enterprises through Hong Kong's business platform.

27 Doing business in Hong Kong 25 InvestHK is the department for Foreign Direct Investment, supporting overseas businesses to set up and expand in Hong Kong, providing free advice and customised services to help businesses succeed in Hong Kong. Mandatory Provident Fund Schemes Authority regulates and supervises the operations of provident fund schemes. The Trade and Industry Department is responsible for conducting Hong Kong's international trade relations, implementing trade policies and agreements, as well as providing general support services for industries and small and medium enterprises. Major international Chambers of Commerce including: The American Chamber of Commerce in Hong Kong The Australian Chamber of Commerce in Hong Kong The British Chamber of Commerce in Hong Kong The Canadian Chamber of Commerce in Hong Kong The French Chamber of Commerce & Industry in Hong Kong

28 Doing business in Hong Kong 26 Contact details Grant Thornton Jingdu Tianhua 20th Floor Sunning Plaza 10 Hysan Avenue Causeway Bay Hong Kong T F E hongkong@cn.gt.com

29 Grant Thornton Jingdu Tianhua is a member firm of Grant Thornton International Ltd (Grant Thornton International) in Hong Kong. References to Grant Thornton mean Grant Thornton International or its member firms. Grant Thornton is not a worldwide partnership. Services are delivered independently by the member firms.