Investing in Asia Pacific 2015: Hong Kong

Transcription

1 Investing in Asia Pacific 2015: Hong Kong Australia China Hong Kong India Indonesia Japan Korea Malaysia Maldives Singapore Taiwan Thailand Vietnam Audit Tax Advisory

2 All lasting business is built on friendship. Alfred A. Montapert

3 TABLE OF CONTENTS Introduction About Crowe Horwath International Establishing the business entity Tax information IPO quick facts Human resource requirements Withdrawal procedures

4 Investing in Asia Pacific with Crowe Horwath International

5 INTRODUCTION Welcome to the Crowe Horwath International Investing in Asia Pacific 2015: Hong Kong guidebook. This guide forms a part of the Investing in Asia Pacific 2015 series and provides a quick reference for those interested in investing in Hong Kong. While it is not exhaustive, this guide aims to answer some of the key questions that may arise. When specific issues arise in practice, it will often be necessary to consider the relevant laws and regulations and to obtain appropriate professional advice. The guidebook will cover five main topics as follows: Establishing the business entity Tax information IPO quick facts Human resource requirements Withdrawal procedures 5

6 Business is in itself a power. Garet Garrett

7 ABOUT CROWE HORWATH INTERNATIONAL Crowe Horwath International is ranked among the top 10 global accounting networks with more than 150 independent accounting and advisory services firms in over 100 countries around the world. Crowe Horwath International s member firms are committed to impeccable quality service, highly integrated service delivery processes and a common set of core values that guide decisions daily. Each firm is well-established as a leader in its national business community and is staffed by nationals, thereby providing a knowledge of local laws and customs which is important to clients undertaking new ventures or expanding into other countries. Crowe Horwath International member firms are known for their personal service to privately and publicly held businesses in all sectors and have built an international reputation in the areas of audit, tax and advisory services. 7

8 HONG KONG Establishing the business entity Contact Charbon Lo INTERNATIONAL LIAISON OFFICER crowehorwath.hk Formation Company A. Formation 1. Tailor-made company a. Company name of your choice, providing the name is not identical or very similar to any existing company. b. Incorporation process takes about six (6) working days to complete; or for e-incorporation, it takes about two (2) days to complete (i.e. Certificate of Incorporation and Business Registration Certificate are ready) after submission of formation documents. 2. Shelf company a. A ready-made company with Certificate of Incorporation and Business Registration Certificate. b. Subsequent change to the name of the shelf company, if you so wish. c. After submission of papers, change of name process takes about six (6) working days for issuing the Certificate of Change of Name and updating the Business Registration Certificate. B. Annual Requirements a. Every company must hold an annual general meeting each year. Audited accounts should be presented at the meeting. b. An annual return made up to the anniversary day of the company must be filed at the Companies Registry within 42 days thereof. Higher filing fee will be imposed on late filing. c. Notification to Companies Registry and/or Business Registration Office for any changes in the particulars within specific deadlines. d. Business Registration Certificate shall be renewed each year. Branch A. Registration 1. Branch of a Hong Kong private limited company a. Application for a Branch Business Registration Certificate, which takes about one (1) to two (2) working days. 2. Branch of overseas company (Non-Hong Kong company) a. Name search is required. If name of foreign company is identical with an existing company in Hong Kong, it is required to adopt a trade name to differentiate. b. Submission of relevant forms together with the certified copies of certain corporate documents of the foreign company to the Companies Registry and Notice to Business Registration Office for registration of a branch. c. Registration process takes about 16 working days to complete after submission of registration documents. B. Annual Requirements a. An annual return made up to the date of registration of the company and its group accounts (unless exempted) must be filed at the Companies Registry within 42 days thereof. Higher filing fee will be imposed on late filing. b. Notification to Companies Registry and/or Business Registration Office for any changes in the particulars within specific deadlines. c. Business Registration Certificate shall be renewed each year. Representative Office 8 A. Registration Application for a Business Registration Certificate (for liaison purpose only and the regional office is not allowed to carry on any business) takes about one (1) to two (2) working days.

9 B. Annual Requirements Business Registration Certificate shall be renewed every year. Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG 2. Work permits and visas Company There is a genuine job vacancy and applicants who have a good education background, normally a first degree in the relevant field and possess special skills, knowledge or experience of value which are not readily available in Hong Kong may apply to come to work under the General Employment Policy. The application process normally takes six (6) weeks. Branch Same as for company. Representative Office Same as for company. 3. Accounting standards and audit requirements Company IFRS-compliant. Branch Same as for company. Representative Office Same as for company. 4. Resident directors / promoters requirements Company A company must have a secretary. a. if an individual, ordinarily resides in Hong Kong; b if body corporate, have its registered office or a place of business in Hong Kong. Branch of overseas company An Authorized Representative who is a Hong Kong resident; or solicitor corporation; or corporate practice within the meaning of section 2 of the Professional Accountants Ordinance; or firm of solicitors or professional accountants (practicing) must be appointed. 5. Foreign ownership over tangible assets Company No restriction imposed. Branch Same as for company. Representative Office Same as for company. Tax information 1. Tax rates on corporate income 16.5% on assessable profits. 2. Other taxes Good and Services Tax (GST) No GST in Hong Kong. Value Added Tax (VAT) No VAT in Hong Kong. Other taxes Property tax, salaries tax, stamp duty, etc. 9

10 Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG 3. Branch income Branch of a non-resident company Branch accounts should be prepared to show its true profits for tax assessment, without which the tax authority will estimate its profits adopting one of the following basis: a. Hong Kong branch s profits = Worldwide profit of the whole company X Hong Kong Branch Turnover / Worldwide turnover of the whole company. b. by a fair percentage of the turnover of the branch in Hong Kong. Unaudited branch accounts are acceptable for tax reporting. 4. Income determination Taxpayers should follow the generally accepted accounting principles in Hong Kong, which are IFRS convergent, in their income determination unless not in conformity with the Inland Revenue Ordinance. Audited accounts are required. Overseas income is non-taxable if it is proved to the satisfaction of the Inland Revenue Department (IRD) that they were generated outside Hong Kong. Bank interest income is non-taxable if it is generated from non-pledged deposits in Hong Kong or from deposits placed outside Hong Kong. Dividend income and capital gains are non-taxable. 5. Deductions In general, expenses or outgoings incurred in the production of the assessable profits in Hong Kong are deductible. Domestic, private or capital expenditures are however not deductible. a. Depreciation Accounting depreciation is not an allowable tax deduction. The following allowances would apply instead: 1. Depreciation allowance for fixed assets (Initial Allowance (I.A.) at 60% on cost, Annual Allowance (A.A.) at 10%, 20%, or 30% on reducing balance). 2. Commercial building allowance (A.A. at 4% on qualifying expenditure excluding land cost) 3. Industrial building allowance (I.A. at 20% and A.A. at 4% on qualifying expenditure excluding land cost). 4. Building refurbishment expenditure and environmental protection installation of building (20% straight line basis per annum) % deduction of capital expenditure on the following items: i. Plant and machinery used in R&D. ii. Prescribed fixed assets (computer hardware and software and plant and machinery used for manufacturing purposes). iii. Purchase cost of specified environmental protection plant and machinery and environment friendly vehicles. b. Interest expenses Interest expenses are generally allowable for Profits Tax purposes if they are incurred in the production of assessable profits in Hong Kong and the interest is taxable in Hong Kong in the hands of recipient (subject to anti-avoidance rules). c. Payments to foreign affiliates The payments must be incurred in the production of assessable profits and are not capital in nature nor related to non-taxable or offshore income before they could be deductible. The payments must also be for genuine services performed and charged on an arm s length basis. Interest expenses to foreign affiliates are, in general, not tax deductible. d. Tax Loss Tax loss can be carried forward indefinitely under the anti-avoidance rules to set off future profits. However, change in ownership could affect the use of the tax loss. Tax loss cannot be carried back. e. Taxes paid Taxes with the nature similar to Hong Kong Profits Tax are not deductible as expenses. However, it is possible to obtain tax credit for the foreign taxes paid if the taxes concerned are paid to countries/areas that Hong Kong has double tax agreements. So far Hong Kong has concluded 32 double tax agreements. 6. Group taxation policies There is no group relief in Hong Kong. Tax reporting is on individual company basis Tax incentives Investment income derived by genuine offshore fund is tax exempted. Businesses with overseas manufacturing activities may be entitled to 50% profits tax reduction. Bank interest income, dividend, offshore income and capital gains are also tax exempted. Captive insurance undertaking offshore risks is entitled to 50% profit tax reduction.

11 8. Withholding tax Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG Dividends Interest Royalties Technical fee Branch profit There is no withholding tax on dividends. There is no withholding tax on interest. There is withholding tax (WHT) on royalty paid to non-residents. If the recipient is a foreign corporation, WHT is 4.95% or 16.5% (for payment to associates and the intangible assets have previously been used in Hong Kong). There is no withholding tax on technical fee. There is no withholding tax on branch profit. 9. Tax administration In general, Profits Tax returns and Employer s returns are issued annually and due for filing within one month from the date of issue unless extensions are granted by the IRD. Late filings may attract penalty of HK$ 10,000 and/or up to three times of tax payable. As an employer, it is also required to notify the IRD the commencement of employment of staff within three months of the commencement of employment and cessation of employment of its staff one month before such cessation. Late notification will attract penalty. Profits Tax is usually paid annually in one (1) or two (2) instalments. The IRD will levy a surcharge of 5% on the overdue tax payment followed by a further 10% if tax is overdue for six (6) months. 10. Taxable incomes for non-hong Kong resident companies and individuals Non-resident companies or individuals are liable to Hong Kong tax if they carry on a trade, profession or business in Hong Kong and derive Hong Kong sourced income. 11. Other pertinent information a. There is no thin capitalization rule. b. There is no foreign exchange control. c. Related party transactions are subject to transfer pricing rules following the OECD model. IPO quick facts 1. Bourses in the country a. The Stock Exchange of Hong Kong Limited - Main Board b. The Stock Exchange of Hong Kong Limited - Growth Enterprise Market (GEM) Board 2. Admission requirements The Stock Exchange of Hong Kong Limited - Main Board a. Company size Have a trading record of not less than 3 financial years and meet one of the following 3 financial criteria: i. Profit Test 1. Profit attributable to shareholders: At least HK$ 50 million in the last three (3) financial years (with profits of at least HK$ 20 million recorded in the most recent year, and aggregate profits of at least HK$ 30 million recorded in the two (2) years before that). 2. Market Cap: At least HK$200 million at the time of listing ii. Market Cap / Revenue Test 1. Market Cap: At least HK$ 4 billion at the time of listing. 2. Revenue: At least HK$ 500 million for the most recent audited financial year. iii. Market Cap / Revenue / Cashflow Test 1. Market Cap: At least HK$ 2 billion at the time of listing. 2. Revenue: At least HK$ 500 million for the most recent audited financial year. 3. Cashflow: Positive cashflow from operating activities of at least HK$ 100 million in aggregate for the three (3) preceding financial years. b. Trading record At least three (3) financial years. c. Public shareholding requirement At least 25% of the issuer s total issued share capital. Market capitalization of public float: at least HK$ 50 million. The equity securities in the hands of the public should be held among at least 300 holders. 11

12 Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG d. Qualitative requirements 1. Management continuity for at least the three (3) preceding financial years; and 2. Ownership continuity and control for at least the most recent audited financial year. Growth Enterprise Market (GEM) Board a. Company size Have trading record of at least two (2) financial years comprising: 1. A positive cashflow generated from operating activities in the ordinary and usual course of business of at least HK$ 200 million in aggregate for the two (2) financial years immediately preceding the issue of the listing document. 2. Market cap of at least HK$ 100 million at the time of listing. b. Trading record At least two (2) full financial years. c. Public shareholding requirement At least 25% of the issuer s total issued share capital. Market capitalization of public float: at least HK$ 30 million. The equity securities in the hands of the public should be held among at least 100 holders. d. Qualitative requirements 1. Substantially the same management throughout the full financial years; and 2. A continuity of ownership and control throughout the full financial year immediately preceding the issue of the listing document. e. Others A GEM issuer may transfer its listing to the Main Board under a streamlined procedure when the issuer meets the Main Board admission requirements. 3. Specific requirements for specific Industries An issuer or its group (other than an investment company) whose assets consist wholly or substantially of cash or short-dated securities will not normally be regarded as suitable for listing, except where the issuer or group solely or mainly engaged in the securities brokerage business. Additional requirements, modifications and exceptions to basic listing requirements will be applied for the following: Spin-off of assets or businesses for a separate listing. Collective investment schemes. Investment companies. Newly-formed "project" companies (infrastructure projects). Mineral companies. Secondary listings. Depositary receipts. 4. Requirements for the appointment of a resident / local director and board composition Every board of directors of a listed issuer must include at least three independent non-executive directors representing at least one-third of the board; and at least one of the independent nonexecutive directors must have appropriate professional qualifications or accounting or related financial management expertise. The secretary of the listed issuer must be a person who has attended no less than 15 hours of professional training in each financial year, and has the requisite professional qualifications, knowledge and experience, and day-to-day knowledge of that listed issuer s affairs to discharge the functions of a secretary. Every listed issuer shall appoint two authorised representatives who shall act at all times as the listed issuer s principal channel of communication with the Exchange. The two authorised representatives must be either two directors or a director and the listed issuer s secretary. Every listed issuer must establish an audit committee comprising non-executive directors only. The audit committee must comprise a minimum of three members, at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise as required under the listing rules. The majority of the audit committee members must be independent non-executive directors of the listed issuer. Every listed issuer must establish a remuneration committee chaired by an independent non-executive director and comprising a majority of independent non-executive directors of the listed issuer. 12

13 5. Restrictions for foreigners None. Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG 6. Methods of offer and restrictions Offer for Subscription, Offer for Sale, Placing, Introduction. 7. Timeline It varies from case to case but it usually takes around six (6) months to one (1) year to compile with all the documents required for the listing application. In the case where only one round of comment is raised and sponsor takes 5 business days to respond, an application can be brought to the Listing Committee in around 25 business days. 8. Approving authorities Listing committee of the Hong Kong Stock Exchange. 9. Language required for: a. Prospectus: English and Chinese b. Annual reports: English and Chinese c. Audit reports: English and Chinese 10. Requirements of reporting accountants to be appointed All accountants reports must normally be prepared by certified public accountants who are qualified under the Professional Accountants Ordinance for appointment as auditors of a company. There are 11 mainland accounting firms that have been approved by the Ministry of Finance (MOF) of China and the China Securities Regulatory Commission (CSRC) to act as reporting accountants and/or auditors for mainland incorporated companies listed in Hong Kong. Ruihua Certified Public Accountants is one of them. Human resource requirements 1. Special labour standards to take heed of Employee must be a HK Identity Card holder and/or hold a valid HK employment visa. 2. Social welfare: insurance, pension, etc All employees should be covered by Employee Compensation Insurance and are eligible to join the company s Mandatory Provident Fund Scheme. All employees should join the company s Mandatory Provident Fund at 60 days of employment. The Employer s Account can be used to off-set the employer s obligations of paying severance payments or long service payments, if applicable. 3. Requirements for retirement benefits An employee is eligible to Long Service Payment if he/she is employed not less than five (5) years under a continuous contract. The balance in the Mandatory Provident Fund Employer s Account can be used to off-set the employer s obligations of paying Long Service Payments, if applicable. 4. Legal annual leave and public holidays An employee is entitled to annual leave with pay after having been employed under a continuous contract for every 12 months. Annual leave entitlements for the 1st year of service are seven (7) days and increases progressively from seven (7) days to a maximum of 14 days according to the employee s length of service. Minimum entitlement is 12 days statutory holidays a year. Most companies provide 17 days public holidays a year. 5. Brief information on labour unions Labour unions exist in large private companies and public companies. It is not common in small and medium sized enterprises. 6. Country quirks The existing Statutory Minimum Wage rate is HK$30 per hour. Subject to the approval of the Legislative Council, the revised rate - HK$32.5 per hour will take effect from 1 May Better off employment and conditions has become a moral obligations to employers. 13

14 Crowe Horwath International Investing in Asia Pacific 2015 HONG KONG Withdrawal procedures 1. Company: legal procedures required for liquidation a. By Winding Up: Three (3) Types: Members Voluntary Winding up; Compulsory Winding up (by court) and Creditors Voluntary Winding up. The more simple way is Members Voluntary liquidation. 1. Members Voluntary Winding up The Company is solvent and a special resolution (i.e. 75% of total voting right) should be passed in a general meeting; Various notices of a liquidation must be published in the Government Gazette; a tax clearance should be obtained; a final meeting should be held after settling all assets and liabilities; at least one (1) year is required to process the said procedures. 2. Creditors Voluntary Winding Up Creditors winding up when company is insolvent. Creditors and members meetings should be held for commencement and finalization of liquidation; tax clearance should be obtained; various notices should be published in the Government Gazette, English and Chinese newspapers. Processing time depends on the complexity of the case. b. By De-registration: Company may apply for de-registration if: 1. The company has never commenced business or has ceased to carry on business for more than three (3) months immediately before the application; 2. the company has no outstanding liabilities; and 3. all the members agreed to the de-registration. 4. the company is not a party to any legal proceedings; 5. the company s assets do not consist of any immovable property situate in Hong Kong; and 6. if the company is a holding company, none of its subsidiary s assets consist of any immovable property situate in Hong Kong. Processing time is no more than nine (9) months under normal circumstance. A de-registered company may be reinstated within 20 years of the de-registration. 2. Company: tax requirements Company has to obtain a tax clearance from Inland Revenue Department before it close. 3. Branch: legal procedures required for closing branch a. Notifications to the Companies Registry and Business Registration Office, within seven (7) days and one (1) month respectively from the cessation date of business; and b. Need to maintain the Hong Kong authorized representative for one (1) year after cessation of business. 4. Branch: tax requirements The branch must also obtain tax clearance and file its final Profits Tax returns and Employer s returns and pay taxes before it could be closed. 5. Representative office: legal procedures required for closing office Notification to Business Registration Office within one (1) month from the date of cessation by submission of relevant statutory form. 14

15 Crowe Horwath International is a leading international network of separate and independent accounting and consulting firms that may be licensed to use Crowe Horwath or Horwath in connection with the provision of accounting, auditing, tax, consulting or other professional services to their clients. Crowe Horwath International itself is a nonpracticing entity and does not provide professional services in its own right. Neither Crowe Horwath International nor any member is liable or responsible for the professional services performed by any other member.