FACT SHEET HONG KONG - OVERVIEW. Introduction. Hong Kong China Connection

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1 HONG KONG - OVERVIEW Introduction Hong Kong is a Special Administrative Region of the People s Republic of China. Under the One country Two systems philosophy, it has its own executive, legislative and independent judicial power. Under the current system, Hong Kong remains a free port with a free flow of capital and a freely convertible Hong Kong Dollar. Hong Kong is the leading centre for both finance and commerce and it is currently ranked as the World s third largest financial centre. It has an excellent infrastructure and a major international airport. The Hong Kong Dollar is the official currency. The current exchange rate is fixed to the United States Dollar at US$1 = HK$7.8 using a currency board mechanism or peg. Funds from profit or capital accounts can be freely repatriated and remitted overseas and there is no currency exchange control. Hong Kong China Connection With China moving forward in the modernisation of its economy, it is widely recognized that Hong Kong will continue to be an important gateway for conducting business in China. Given the geographical proximity and business synergies between Hong Kong and China, many foreign companies choose Hong Kong as their base and a serviced platform for investment in China. Hong Kong and Mainland China entered into the Closer Economic Partnership Arrangement in June 2003 and to date, 6 supplementary agreements (the Closer Economic Partnership Arrangement and the 6 supplemental agreements, collectively CEPA ) have been signed that further interlocked Hong Kong into the rapid developments in the Mainland. With CEPA, Hong Kong enjoys zero tariffs on most of Hong Kong domestic imports to the Mainland. CEPA also open up several service industries to Hong Kong companies, and provide long term opportunities for Hong Kong based companies to establish business or work on the Mainland.

2 BUSINESS VEHICLES The most common forms of business vehicles for foreign companies wishing to carry on business in Hong Kong are: - a company incorporated in Hong Kong; or - non-hong Kong company having a principal place of business in Hong Kong registered under Part XI of the Hong Kong Companies Ordinance (Chapter 32) as a branch of a foreign company. THE HONG KONG INCORPORATED COMPANY 1. Director A private company can have only one director who needs not be a local resident. Corporate directors are allowed for companies that are not subsidiaries of public listed companies. 2. Share Capital There is no minimum or maximum authorised capital. However, no founder member of the Memorandum of Association may take less than one share. The standard authorised capital of our shelf companies is HK$10,000. Capital fee for every or part of HK$1,000 of the nominal share capital is HK$1.00 (subject to a maximum fee of HK$30,000 per case). Shares must have a stated nominal value and no par value shares are not permitted. 3. Shareholder A shareholder can be an individual or corporation of any nationality, domicile or residence and anonymity can be achieved by the use of nominee shareholders. A private company can have only one member and the maximum shall not exceed fifty. 4. Secretary and Registered Office Every Hong Kong company must have one local resident secretary and a registered office in Hong Kong substantiated by a Business Registration Certificate. The business registration fee, currently HK$2,450, is payable within one month of the date of incorporation and then due annually on the anniversary date of incorporation. itrust can provide these services and the role of secretary includes annual compliance work such as holding of the annual general meeting and filing of returns such as annual return, employer s return and profits tax return for the company. 5. Auditor and Accounts Every Hong Kong company, except for dormant cases, must produce annual audited accounts and appoint an auditor. The company must keep proper accounting records as are necessary to give a true and fair view of the state of its affairs and explain its transactions. The accounts of a private company are

3 not published or filed on any public record in Hong Kong but there is a requirement to file accounts with the Hong Kong Inland Revenue Department. ESTABLISHMENT OF A BRANCH OFFICE IN HONG KONG BY A FOREIGN CORPORATION General A foreign corporation wishing to establish a Hong Kong branch office must register with the Register of Companies as a non-hong Kong company which has established a place of business in Hong Kong under the Companies Ordinance (a Non-Hong Kong Company ). Registration The registration must be done within one month of establishment of the place of business in Hong Kong. Registration is effected by submitting to the Registrar of Companies certified copies of the constitutional documents of the foreign corporation, a list of its directors and secretary, the particulars of a representative who is resident in Hong Kong and certain other prescribed particulars. 1. Accounts A foreign corporation will need to file a copy of its annual accounts on public records at the Companies Registry unless it is not required, under the laws of the place where it is incorporated, to publish its accounts or make them available for inspection on public record. 2. Annual filing requirements Apart from the regular filing requirements so as to update the particulars of the corporation on public record at the Companies Registry, a non-hong Kong company is required to file an annual return to show updated particulars of the corporation s directors and registered charges over its assets in Hong Kong, etc. REASONS FOR CHOOSING A HONG KONG INCORPORATED COMPANY OR A NON-HONG KONG COMPANY The business activities that can be carried on in Hong Kong are not dependent upon whether the company is locally incorporated or whether it is a Non-Hong Kong Company. The tax rate applied to profits is the same for a Hong Kong incorporated company or a Non-Hong Kong Company. Advantages of Setting up a Hong Kong incorporated company:

4 It limits the liability of the parent company in relation to operations carried on by the Hong Kong company. The time for incorporating a Hong Kong company is less than for registering a Non-Hong Kong company and shelf companies are available for immediate use. A Hong Kong company does not need to file its accounts on the public record while a Non-Hong Kong company will need to do so unless the condition for not having to file its accounts is fulfilled. Advantages of Establishing a Non-Hong Kong Company: Taxation There may be tax advantages under the home jurisdiction of the parent company, for example, in relation to treatment of any losses which the Non-Hong Kong company, may incur. No need to pay capital duty of 0.1 percent of the nominal value of the company s authorized share capital (capped at HK$30,000). No capital duty is payable for the registration of Non-Hong Kong Company in Hong Kong. A non-hong Kong Company is required to comply with only very limited provisions under the Companies Ordinance of Hong Kong and is not subject to restrictions on reduction of capital and share repurchase under Hong Kong law. No Hong Kong stamp duty is payable on the transfer of shares of a Non-Hong Kong Company branch operated by the foreign company while stamp duty is payable on any transfer of shares in a Hong Kong company. Taxation in Hong Kong is based on a territorial source principle. Hong Kong sourced profits tax is only charged on Hong Kong sourced income at a rate of taxation of 16.5% and any income derived from a Hong Kong company outside Hong Kong will generally not have double taxation implications. Companies can apply to the Inland Revenue Department for offshore income claim by way of advance ruling or tax return filing. Whether profits are subject to Hong Kong taxes is a matter of fact and we can refer a tax adviser to attain the same upon request. In general, a Non-Hong Kong Company is subject to the same tax consequences as companies incorporated in Hong Kong. There is no tax in Hong Kong on capital gains, dividends and interest earned. Profits tax returns are normally issued to corporations in April. The first Profits Tax Return will usually be issued about 18 months after the date of incorporation/registration or commencement of business.

5 Double Taxation Agreements Since Hong Kong taxes territorially solely on Hong Kong-sourced income, any income derived from a Hong Kong company outside Hong Kong will normally not have double taxation implications. List of Double Taxation Treaties: Hong Kong China: income from immovable property, business profits, shipping, air and land transport, interest, Royalties, dividends and income from employment Hong Kong Belgium: income from immovable property, business profits, dividends, interest and Royalties. Hong Kong Luxembourg: dividends, interest, Royalties and income from employment. Hong Kong Thailand: income from immovable property, shipping and air transport, business profits, dividends, interest, Royalties, corporate and individual income tax. Hong Kong Vietnam: dividends, interest and Royalties INCORPORATION/REGISTRATION PROCEDURES AND TIMING Instructions can be provided on our Company Order Checklist, which is available on request. itrust will need directors and beneficial shareholders full name, notarised passport copy and residential address proof, which can take the form of utility bill or bank statement issued within the last 3 months, authorised and paid up share capital and the proposed business of the company. Once the incorporation documents of a Hong Kong company are filed with the Companies Registry, it normally takes 4 working days to obtain the Certificate of Incorporation and another 1-2 working days to have the set-up documents prepared for directors and shareholders signature and for the registration of a non-hong Kong Company, it takes at least 14 working days for the Companies Registry to issue the Certificate of Registration.