Hong Kong Companies Their benefits for international investments, asset protection and market entry to China Presentation at the TaxPro 2013 Conference February 12, 2013 Kiev, Ukraine By Henning Schwarzkopf, M.C.L. CHEURAM Consulting Group Ltd. www.cheuram.com
CHEURAM Consulting Group Ltd. Based in Hong Kong Partners (with legal background) from China, Europe and America (USA) Offices in Hong Kong, Beijing, Hamburg, Monaco and San Francisco One of the managing directors is a lawyer in Beijing: All services of a Mainland China (PRC) law firm Focus: Company formation and administration of Hong Kong companies Legal & tax structures using Hong Kong Market entry into China for foreign companies China Inbound Chinese business activities in Europe and the U.S. China Outbound Domestic Chinese law (focus: commercial & corporate law)
Hong Kong a good location for business and investments
Hong Kong Sovereignty was returned to China on July 1, 1997. According to the Sino British Joint Declaration of 1984 (between the United Kingdom and the PRC) Hong Kong became a Special Administrative Region SAR. Continuation of the existing capitalist economy and the social and legal systems for another 50 years (until 2047). Hong Kong will remain independent in all sectors of business, fiscal and social policy with the exception of foreign and defense polices. Hong Kong is one of the most important trade, financial and service centers in Southeast Asia and a hub for trade with China. According to a study by the "Census and Statistics Departments" of the Special Administrative Region and conducted in 2012, there are 1,367 international companies having their regional headquarters and 2,516 having their regional offices in Hong Kong. There are 3,367 companies with a local presence and supporting the fact that Hong Kong is Asia s economic center.
Hong Kong s Advantages An International Business Center Hong Kong is Asia's financial center Profound experience in international trade Reliable and stable legal system Free Flow of Capital and Goods Free trade, free markets, free media No restrictions for investments by foreign companies No currency restrictions Efficiency in Product Sourcing, Distribution and Sales Hong Kong is Asia's leading exhibition venue Easy access to the production facilities in the Pearl River Delta Assistance for a successful market entry into China International Business Environment Strong and established institutions Pro-business environment Cosmopolitan spirit
Last, but not least there are additional reason in Hong Kong s favor: Hong Kong has been elected as the "most liberal economy worldwide" for 19 years in a row. There are no trade barriers, investment restrictions or currency controls. Hong Kong is a free port, i.e. most products can be imported and exported free of any duty or tax (except alcohol, tobacco and fuel). Hong Kong's government is very business friendly. Foreigners can set up, own and manage their companies. There are no restrictions on capital and profit transfers. The tax system is simple and tax rates are low compared to other countries. Only profits generated in Hong Kong are subject to a low rate of 16.5%. Profits generated outside the SAR are tax free. Special relationship with Mainland China The Mainland and Hong Kong Closer Economic Partnership Arrangement, or Closer Economic Partnership Arrangement (CEPA) for short, is an economic agreement between the Hong Kong and the PRC, signed on 29 June 2003. CEPA is a free trade agreement pursuant to which qualifying products, companies and residents of Hong Kong enjoy preferential access to the mainland Chinese market.
Legal System in Hong Kong The law of Hong Kong is based on the rule of law and the independence of the judiciary. Under the principle of one country, two systems the legal framework of Hong Kong is based on the English common law supplemented by local legislation. The legal system in Hong Kong is therefore similar to the common law systems used in England and Wales and other Commonwealth countries. The separation of the Hong Kong legal system to the PRC is guaranteed constitutionally until at least 2047. The Hong Kong judiciary has had a long reputation for its fairness and was recently rated as the best judicial system in Asia by a North Carolina think tank.
Tax System in Hong Kong Tax Jurisdiction Taxes in Hong Kong are levied on the territorial principle. In other words, taxes are only levied on income derived from or arising in Hong Kong and not on income sourced outside Hong Kong. Single-Tier Tax System Hong Kong follows a single-tier tax system i.e. there is no dividend tax. Capital Gains Tax There is no capital gains tax in Hong Kong. Capital loss expenses are correspondingly not allowed as deductions. Corporate Tax Hong Kong has an attractive corporate tax regime highlighted by low tax rates. The corporate tax rate is a flat 16.5% on assessable profits.
Personal Tax Individuals are taxed at progressive rates on their net chargeable income starting at 2% and is capped at 17%; or 15% of net income, whichever is lower. Withholding Tax There are no withholding taxes levied on dividends and interest. VAT Tax There is no VAT or sales tax imposed in Hong Kong. Double Tax Treaties Hong Kong has established a DTA network (37 treaties) that minimizes exposure of Hong Kong residents (incl. companies) and residents of the DTA partner to double taxation. Accounting Standards Hong Kong has adapted a Financial Reporting Standards (FRS) framework that has been modelled on International Financial Reporting Standards (IFRS).
Tax Year The tax year in Hong Kong is 1 April 31 March. Property Tax Property tax is charged on the owners of land and/or buildings in Hong Kong and is computed at the standard rate of 15% on the net assessable value of the property (i.e. property s rental income). Estate Duty Also known as death tax or inheritance tax in some countries, estate duty has been abolished since February 10, 2006. Stamp Duty Stamp duty is chargeable on certain documents (relating to stock & shares and immovable property). Fixed duties vary from HKD 3.00 to HKD 100 whereas ad valorem duties range from 0.1% to 4.25%
Customs and Excise Duty Hong Kong is a free port. There is no tariff on general imports. However, there is duty on liquors, tobacco, hydrocarbon oil and methyl alcohol. For tobacco, hydrocarbon oil and methyl alcohol, duties are charged at specific rates per unit quantity. For liquors, duty is assessed at different percentages of their values on the basis of three different categories defined broadly according to alcoholic strength. There is no tax or excise duty on exports from Hong Kong. Hotel Accommodation Tax (HAT) This tax is imposed on the proprietors who provide hotel and guest house accommodation. Effective from 1 July 2008, the Government waived the charge of HAT. The rate of tax is reduced to 0% (the tax rate was at 3% for the period up to 30 June 2008) on all accommodation charges paid by the guests. Comprehensive Double Taxation Agreements Austria, Belgium, Czech Republic, France, Hungary, Ireland, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Netherlands, Portugal, Spain, Switzerland, United Kingdom
Hong Kong Companies The most widely used company type: Private Limited Company or "Limited" or "Ltd.". Set up by a domestic or foreign person or company and registered with the Companies Registrar without the shareholder(s) having to be present in Hong Kong. A company is owned by the shareholder(s), who is/are entitled to the profits of the company. The shareholder(s) must nominate at least one director, who represents the company. He/she does not have to be a resident of Hong Kong. Shareholder(s) and director(s) can be identical. The company requires a Secretary and a Registered Office. Both must have an address in Hong Kong.
Administration of a Hong Kong Company The administration of a Hong Kong company is easy. The law allows Hong Kong companies to locate their office anywhere in the world. Only the registered office must be in Hong Kong. Once a year, the company must file an Annual Return confirming the current shareholders and directors. In addition, an annual financial statement, the Annual Accounts, must be submitted. We assist our clients in preparing these documents and offer an effective reminder service. Duties of the Director A director represents the company and is responsible for all its business matters. Director s Duties vis-à-vis the Companies Registrar for filing the Annual Report and the Annual Return and notification of any changes of the Company (e.g. additional shareholders) Directors are responsible for the proper filing..
Duties of the Secretary Persons as well as companies may act as a Company Secretary. The Secretary is responsible for the records of the company and their safe keeping. He/she/it is the official company contact for government offices. Registered Office Hong Kong laws require every company to have a registered office in the SAR. It is the company s official legal residence in Hong Kong for receiving mail and the location where the books and records are kept. The list of the Directors, the Secretary and the shareholders must be kept at the Registered Office. Such lists are called "statutory books" The Company Capital The minimum capital of a Hong Kong private limited company is HK$1.00. It may be increased according to the requirements. In general, companies have a capital of HKD 10,000.
Benefits of using Hong Kong Companies Hong Kong is an established international business and financial center Excellent infrasture of in the financial, legal and service industry Safe legal environment Pro-commerce tax system Types of use for Hong Kong Companies Vehicle for investments outside of Hong Kong Asse protection Trading with China
Hong Kong Companies for International Investments Hong Kong is internationally recognized and not considered a tax haven. Existing and growing number of tax treaties with countries in Europe, Asia and the Americas. No tax on dividends and interest income from foreign subsidiaries. No tax on disposal of foreign subsidiary. No disclosure of ultimate beneficial owner of the Hong Kong company (if nominees are used) Hong Kong Companies for Asset Protection No disclosure of ultimate beneficial owner, if nominees are used. Corporate directors (owned by nominee or trust) are permissable. No personal liablity of shareholders and directors. Hong Kong is a reputable jurisdiction.
Market Entry or Trading with China with a HK Company Selling directly from HK company to worldwide clients without involving headquarters Freight on board (FOB) Asia prices can be offered HK as an offshore RMB center RMB supported by China s central government RMB trade settlement for all good and services in the PRC. No need to go through the government approval process. Goods can be priced in RMB Improve supplier relationships Increase control Improve turn-around time Widen client/customer base by eliminating foreign currency issues Enjoy competitive advantage
Summary Hong Kong is an ideal location to set up a company for international investments, asset protection and trade with China. Widely recognized business environment with high-standard service infrasture Excellent legal and low-tax system Many structuring options, due to double tax treaties with recognized nations Safe and well-developed company law allowing great amount of flexibility and secrecy. Bank secrecy laws strictly enforced. Perfect base for China activities and trade.
Thank you very much for your attention We shall be pleased to assist you in setting up your Hong Kong company and answer your questions info@cheuram.com