Hong Kong Ideal Jurisdiction To Start Your Business In Asia and Worldwide YU Kwai Man (Ida) ACIS ACS Chan Po Fai (Buffet) CPA
Today Presenter - MCG BBA ACIS ACS YU KWAI MAN, Ida - Member of The Institute of Chartered Secretaries and Administrators (ICSA) - Member of The Hong Kong Institute of Chartered Secretaries (HKICS) - Company Secretarial Manager of Midland Consult (Hong Kong) limited - Experienced in working with different leading International professional firms, handling the KYC, company secretarial matters and ensuing statutory compliance for all clients companies in different jurisdictions. 2
Today Presenter - HKICPA BA CHAN PO FAI, Buffet - Member of The Hong Kong Institute of Certified Public Accountants - Accounting and Taxation expert of Midland Consult (Hong Kong) limited - Experienced in variety of professional duties and handled different types of business financial reporting - Played major role in over thousands audit engagements, tax planning and investigations, and involved in business valuations and consultations. 3
Today Agenda Part I Ida Yu 1. Discover why Hong Kong is the ideal place to do business in Asia and Worldwide 2. Hong Kong Advantage: Comparison with other jurisdictions 3. Preferred Entry Point: Gateway to China 4. Start Your Journey: Setting up your company in Hong Kong 5. Midland Hong Kong: Strong supports to help companies set up and expand Part II Buffet Chan 1. Highlights of Hong Kong Financial Reporting requirements 2. Brief Introduction of Hong Kong s Low and Simple Tax Regime 3. Tax Planning in Hong Kong for International Business 4. Cases Sharing: Success Stories handled by Midland Hong Kong 5. Question and Answer
Discover why Hong Kong is the Ideal Place to do business in Asia and Worldwide Hong Kong: The Facts Legal system: The Sino-British Joint Declaration signed in December 1984, and the Basic Law guarantees the continuance of the laws in force in Hong Kong, including English common law prior to the resumption of sovereignty in July 1997 Constitution: Basic Law, approved in March 1990 by China s National People s Congress, forms Hong Kong s mini-constitution 5
Discover why Hong Kong is the Ideal Place to do business in Asia and Worldwide Population: 7.1 million Located in the East Pearl River estuary of Mainland China Approximately 1,070 sq. Km. Unemployment rate was 3.2% Ranked 1 st in terms of economic freedom for 19 years 2013 Index of Economic Freedom 6
Discover why Hong Kong is the Ideal Place to do business in Asia and Worldwide 2 nd largest private equity centre in Asia 2 nd largest Stock Market in Asia and 6 th largest in world in terms of market capitalisation 2 nd largest International Banking Centre and 9 th largest in terms of the volume of external transactions in the world The world s top Financial Center for 2 nd year World Economic Forum (WEF) 3 rd largest Foreign Exchange Market in Asia and 6 th largest in the world One of the most open insurance centres in the world 7
Discover why Hong Kong is the Ideal Place to do business in Asia and Worldwide One of the largest asset management centres in Asia The world s 10 th largest Trading Economy The world s 11 th largest exporter of commercial services Financial industry, Real Estate, Tourism Industry and Fabricated products are pillar industry of economic development Products: Garment, Electronic products, Textile, Watches, Presswork, Plastic products, Metalwork, Food, Machines and Jewelry Top industries including Banking and Finance, Trade, Professional Services, Transportation and Logistics 8
Hong Kong Advantages: Comparison with other Jurisdictions Advantages Comparison with other jurisdictions No exchange controls Good infrastructure Transparent and Efficient banking system Simple and Fair Taxation System No trade restriction Major trading and gateway to Mainland China and Asia 9
Hong Kong Advantages: Comparison with other Jurisdictions Make good use of HK s famous to build HK brand and improve the international image Government survey as of June 2011: - 3,752 Regional headquarters and Regional offices (increased 3.1%) 81% responsible for business in Mainland China Majority by foreign corporate from USA (22%), Japan (17%), UK (9%) and Mainland China (7%) I/E Trade, Wholesale and Retail (50%), Professional, Business and Education services (19%), Finance and Banking (11%), Transportation, Storage and Courier service (8%) Source: Economic and Trade Information on Hong Kong 14 August 2012 10
Hong Kong Advantages: Comparison with other Jurisdictions Rankings on the ease of Doing Business 2013 Doing Business Rank: 2012 and 2013 ~ Rank 2 Economy Rank Singapore 1 Hong Kong 2 New Zealand 3 United States 4 Denmark 5 Norway 6 United Kingdom 7 Korea, Rep. 8 Georgia 9 Australia 10 Source: Doing Business in HK SAR, China
Hong Kong Advantages: Comparison with other Jurisdictions Economy Overview ~ Hong Kong vs East Asia & Pacific Topic Ranking 2013 Starting a Business 6 Dealing with Construction Permits 1 Getting Electricity 4 Registering Property 60 Getting Credit 4 Protecting Investors 3 Paying Taxes 4 Trading Across Borders 2 Enforcing Contracts 10 Resolving Insolvency 17 Source: Doing Business in HK SAR, China
Hong Kong Advantages: Comparison with other Jurisdictions Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Paying Taxes Trading Across Borders Getting Credit Protecting Investors Enforcing Contracts Resolving Insolvency Employing Workers (not included in rankings) Complexity and Cost of Regulatory Processes Measure the procedures, time and cost for a small to medium-sized limited-liability company to start up and operate formally Tracks the procedures, time and cost to build a warehouse including obtaining necessary licenses and premits, completing required notifications and inspections, and obtaining utility connections Analyzes the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse Examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered Addresses the taxes and mandatory contributions that a medium-sized company must pay or withhold in a given year, as well as measures of the administrative burden in payment taxes Looks at the procedural requirements for exporting and importing a standardized cargo of goods Strength of Legal Institutions Explores two sets of issues credit information registries and the effectiveness of collateral and bankruptcy laws in facilitating lending Measures the strength of legal protections of minority investors against the misuse of corporate assets by company directors for their personal gain Assesses the efficiency of the judicial system by following the evolution of a commercial sale dispute over the quality of goods and tracking the time, cost and number of procedures involved from the moment the plaintiff files and the lawsuit until payment is received Identifies weaknesses in existing bankruptcy law and the main procedural and administrative bottlenecks in the bankruptcy process Measures the regulation of employment, specifically as it affects the hiring and layoff of workers and the rigidity of working hours 13
Hong Kong Advantages: Comparison with other Jurisdictions 2013 Index of Economic Freedom : Ranking No. 1 Hong Kong Source: The Heritage Foundation
Hong Kong Advantages: Comparison with other Jurisdictions Statistics for 2008 to 2012 The number of companies on register was 1,056,570 (February 2013) Source: Statistic of the Hong Kong Companies Registry 15
Hong Kong Advantages: Comparison with other Jurisdictions Statistics for 2008 to 2012 Public companies Private companies Total No. of companies on register 2008 2009 2010 2011 2012 9,665 9,991 10,515 10,928 11,558 701,101 762,262 853,247 945,464 1,033,086 710,766 772,253 863,762 956,392 1,044,644 Source: Statistic of the Hong Kong Companies Registry 16
The China Opportunity Preferred Entry Point: Gateway to China Double Tax Arrangement Closer Economic Partnership Arrangement (CEPA) One of the world largest economy No longer just production base Growing consumer market Industry moving up the value chain Upgrading industrial processes 17
Preferred Entry Point: Gateway to China Foreign Investment Enterprises in PRC Wholly Foreign Owned Enterprise (WFOE) Sino-foreign Equity Joint Venture Enterprise (EJV) Sino-foreign Cooperative Joint Venture Enterprise (CJV) 18
Preferred Entry Point: Gateway to China Wholly Foreign Owned Enterprise (WFOE) Solely owned and operated by foreign investors Limited liability company Minimum registered capital: from RMB30,000 ~ RMB100,000 (Actual amount depends on factors, such as, business scope and location) Payment in full within 6 months of the date of establishment of the Company or by installments (payment in full within 2 years) 19
Preferred Entry Point: Gateway to China Wholly Foreign Owned Enterprise (WFOE) Operation must be within the business scope to be specified in Articles of Association Corporate Income Tax ~ Standard rate: 25% Qualified Small Scale Enterprise ~ 20% Qualified New High-Technology Enterprises ~ 15% Withholding Tax 20
Preferred Entry Point: Gateway to China Sino-foreign Equity Joint Venture Enterprise (EJV) Joint investment by at least one PRC party & at least one foreign investor Limited liability company Minimum registered capital: RMB100,000 Foreign investment at least 25% Represents the equity investment contributed by the parties Payment in full within 6 months of the date of establishment of the Company or by installments (payment in full within 2 years) 21
Preferred Entry Point: Gateway to China Sino-foreign Equity Joint Venture Enterprise (EJV) Operation must be within the business scope to be specified in Articles of Association Share the profits and losses in proportion to their contributions Corporate Income Tax ~ Standard rate: 25% Qualified Small Scale Enterprise ~ 20% Qualified New High-Technology Enterprise ~ 15% 22
Preferred Entry Point: Gateway to China Sino-foreign Cooperative Joint Venture Enterprise (CJV) Joint investment by at least one PRC party & at least one foreign investor Limited liability company Minimum registered capital: RMB100,000 Foreign investment at least 25% Represents the equity investment contributed by the parties Payment in full within 6 months of the date of establishment of the Company or by installments (payment in full within 2 years) 23
Preferred Entry Point: Gateway to China Sino-foreign Cooperative Joint Venture Enterprise (CJV) Operation must be within the business scope to be specified in Articles of Association Share the profits and losses in accordance with the agreement of the parties Corporate Income Tax ~ Standard rate: 25% Qualified Small Scale Enterprise ~ 20% Qualified New High-Technology Enterprise ~ 15% 24
Preferred Entry Point: Gateway to China Statistics for 2010 to 2011 Number 2010 2011 WFOE 22,085 22,388 EJV 4,970 5,005 CJV 300 284 Not include foreign investment from insurance, banking, securities sectors Source: US-China Business Council 25
Preferred Entry Point: Gateway to China WFOE Structure Hong Kong Company VS Offshore Company Hong Kong Company (Foreign Investor) Offshore Company (Foreign Investor) 100% 100% WFOE (PRC) WFOE (PRC)
Start Your Journey: Setting Up Your Company in Hong Kong General Requirements Director At least 1 director Can be individual or corporation Need not be resident in Hong Kong For individual director, must attain the age of 18 years If only 1 individual shareholder who is also the sole director, a reserve director can be appointed in order to act in the place of the sole director in the event of his death Shareholder At least 1 shareholder Can be individual or corporation Need not be resident in Hong Kong 27
Start Your Journey: Setting Up Your Company in Hong Kong Company Secretary If an individual, ordinarily reside in Hong Kong If a body corporate, has its registered office or a place of business in Hong Kong Registered Office Must have a registered office in Hong Kong 28
Start Your Journey: Setting Up Your Company in Hong Kong Share Capital No minimum authorized capital requirement At least one share is issued and either paid up, or due and payable Statutory Form Registration Fees Memorandum & Articles of Association Certificate of Incorporation Business Registration Certificate 29
Start Your Journey: Setting Up Your Company in Hong Kong New Companies Ordinance ~ Highlights on Key Changes Restricting Corporate Directorship in Private Companies Abolition of Par Value of Shares Replacing the Headcount Test Restricted on Disclosure of Residential Address and Identification Number 30
Midland Hong Kong: Strong Supports to help Companies Set Up and Expand Midland Hong Kong Company Formation and Maintenance Provision of Nominee Services Bank Account Opening Client Accounting Annual Audit 31
Hong Kong Ideal Jurisdiction To Start Your Business In Asia and Worldwide Part II - 1 : Highlights of Hong Kong Financial Reporting requirements 32
Part II - 1 : Highlights of Hong Kong Financial Reporting requirements Companies Ordinance (Ch. 32 of HK Laws) Financial Reporting Standards (The Hong Kong Institute of Certified Public Accountants) Hong Kong Financial Reporting Framework 33
Part II - 1 : Highlights of Hong Kong Financial Reporting requirements Hong Kong Financial Reporting Standards (HKFRS) -modeled on International Financial Reporting Standards (IFRS), -specifying certain fundamental principles, -defining the meanings of terms, and -demanding minimum levels of disclosure 34
Part II - 1 : Highlights of Hong Kong Financial Reporting requirements Other Financial Reporting Standards Hong Kong Financial Reporting Standard for Private Entities (fewer requirements) -No public accountability Small and Mediumsized Entity Financial Reporting Standards (easiest to follow) -No public accountability -All owners agreed -Small and medium size 35
Part II - 1 : Highlights of Hong Kong Financial Reporting requirements Audit Requirements Prepare Financial Statements Audited by Directors Certified Public Accountants Appoint Shareholders Report to 36
Hong Kong Ideal Jurisdiction To Start Your Business In Asia and Worldwide Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime 37
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Hong Kong s Taxation System : Simple Low Tax Rate Stable? 38
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Forbes Tax Misery Index 39
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Forbes Tax Misery Index Corporate Income Personal Income Employer Social Security Employee Social Security VAT 25 45 49 23 17 China 17 20 14.5 20 7 Singapore 16.5 15 5 5 0 Hong Kong Source: Forbes Tax Misery Index 2009, Inland Revenue 40
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Tax Rate Comparison 2012 Researched by: Organisation for Economic Co-operation and Development Indicator Payments (number per year) Hong Kong SAR, China East Asia & Pacific OECD 3 25 12 Time (hours per year) 78 209 176 Profit tax (%) 17.6 16.7 15.2 Labor tax and contributions (%) 5.3 10.9 23.8 Other taxes (%) 0.1 6.9 3.7 Total tax rate (% profit) 23.0 34.5 42.7 41
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime The Ranking of the Easiest Place of Paying Tax 2012 Researched by: Organisation for Economic Co-operation and Development 42
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Salaries Tax Property Tax Any company carrying on a business in Hong Kong are liable to profits tax only on profits derived from Hong Kong. Profits from sale of capital assets are specifically exempt from profits tax. 43
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Rates of tax 2013/2014 Salaries Tax Property Tax Limited companies Unincorporated businesses 16.5% 15% 44
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Salaries Tax Salaries tax is charged on all income arising in or derived from Hong Kong from any office or employment or any pension. Property Tax 45
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Salaries Tax Property Tax Personal allowances 2013/2014 Basic allowance Married person's allowance HK$120,000 HK$240,000 Rates of tax 2013/2014 First HK$40,000 2% Next HK$40,000 7% Next HK$40,000 12% On the remainder 17% Standard rate 15% 46
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Salaries Tax Property Tax Property tax is chargeable to owners of land and/or properties in Hong Kong. The tax is computed at the standard rate on the net assessable value of the property. 47
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Business Related Taxes : Profits Tax Rates of tax 2013/2014 Salaries Tax Property Tax Owners of Land or Buildings 15% 48
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System - tax will be levied only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong - does not distinguish between residents and non-residents = - Question: Whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong? 49
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System The territorial principle means that only income which meets the following three preconditions is subject to Hong Kong profits tax: -The company must trade in Hong Kong -The profit must arise from such a trade -The profit must arise in or be derived from Hong Kong 50
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System 1. The establishment of an office in Hong Kong : does not of itself render a company liable to profits tax where that office is not generating profits from within the territory. 51
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System 2. Place where the contract was negotiated and executed : A key criterion is the place where the contract was negotiated and signed. If the contract is negotiated and signed outside Hong Kong and the goods sold are not sourced from within Hong Kong then any income arising is not deemed Hong Kong source income for profits tax purposes. 52
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System 3. Booking Center : Merely a booking center in the sense that it does not negotiate or draft the sale agreement. Only issues an invoice on instructions, operates a bank account and maintains accounting records covering the transaction. Such a transaction is not deemed Hong Kong source income for profits tax purposes. 53
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Territorial Corporate Tax System 4. Cross Border Land Transportation : Income from cross-border land transportation is not deemed Hong Kong source income if the passengers or goods are normally not uplifted in Hong Kong. 54
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Profits Tax : Sources Rules Summary 55
Part II - 2 : Brief introduction of Hong Kong s Low and Simple tax regime Other Hong Kong Tax Incentives : Any Capital Gains Tax in Hong Kong? Any Dividend Tax in Hong Kong? Any VAT Tax in Hong Kong? Any Withholding Tax in Hong Kong? Can Tax Losses carried forward next year? No No No Limited Yes 56
Hong Kong Ideal Jurisdiction To Start Your Business In Asia and Worldwide Part II - 3 : Tax Planning in Hong Kong for International Business 57
Part II - 3 : Tax Planning in Hong Kong for International Business What is a Double Tax Agreement? A Double Tax Agreement (DTA) is a bilateral agreement between two countries that seeks to eliminate the double taxation of income. The main purpose of a DTA is to modify the tax rights of the respective jurisdictions. DTAs generally over-ride domestic law. 58
Part II - 3 : Tax Planning in Hong Kong for International Business Hong Kong s Current Tax Treaties Austria, Belgium, Brunei, Czech, France, Hungary, Indonesia, Ireland, Japan, Kuwait, Liechtenstein, Luxembourg, Mainland of the PRC, the Netherlands, New Zealand, Portugal, Spain, Switzerland, Thailand, Vietnam and the United Kingdom. Some of them are pending to be effective. 59
Part II - 3 : Tax Planning in Hong Kong for International Business Benefits of Double Tax Agreements - Setting rules for division of revenue between two countries. - Knowing the potential limits of tax liabilities in the other country. - Prevents tax evasion. - Allow taxpayers to claim for relief for taxes paid overseas. 60
Part II - 3 : Tax Planning in Hong Kong for International Business Methods of relieving double taxation in Hong Kong - Tax credit relief - Tax exemption - Reduced tax rate - Relief by deduction 61
Part II - 3 : Tax Planning in Hong Kong for International Business Ideas for International Tax Planning Strategy Good Idea!! 1. Not Setting up a Trading Permanent Establishment 2. Offshore Trading Business 3. Offshore Services Rendering Business 4. Infringement Commission in Group Companies 5. Transfer Pricing with Overseas Companies 62
Part II - 3 : Tax Planning in Hong Kong for International Business 1. Not Setting up a Trading Permanent Establishment Good Idea!! - Merely sets a buying office or representative office in Hong Kong. - i.e.: it does not have any exposure of profits tax in Hong Kong. 63
Part II - 3 : Tax Planning in Hong Kong for International Business 2. Offshore Trading Business Good Idea!! - Send travelling executives to overseas countries. - To negotiate and finalize the contract outside Hong Kong. - Not required to refer back to Hong Kong for instruction. 64
Part II - 3 : Tax Planning in Hong Kong for International Business 3. Offshore Services Rendering Business - All the services are carried out outside Hong Kong. - If some preparation services or post-services are done in Hong Kong, the profit will be taxed on an apportionment basis. Good Idea!! 65
Part II - 3 : Tax Planning in Hong Kong for International Business 4. Infringement Commission in Group Companies Good Idea!! - Any group companies wish to carry out business in that region have to pay a commission to that Hong Kong subsidiary. - The fact is that the Hong Kong subsidiary does not carry out any services but receives a commission from its other group companies. 66
Part II - 3 : Tax Planning in Hong Kong for International Business 5. Transfer Pricing with Overseas Companies Good Idea!! - Profit is able to be locked up in the overseas companies. - Profits can be under control between low tax rate country and high tax rate country for the Group. - Remember: Must be at arm s length. Reasonable. 67
THANK YOU! Our contact: Midland Consult (Hong Kong) Limited Room 2201, 22 nd Floor, 1 Duddell Street Central, Hong Kong SAR Tel: +852 2899 2009 +852 2899 2440 Fax: +852 2899 2664 Email: office@midlandconsult.hk Website: www.midlandconsult.hk
Midland Hong Kong Question and Answer Section 69