Hong Kong, tax, compliance, Greater
China and Belt Road Initiative
Table of Contents
I. General Overview on Hong Kong II. Legal Entities in Hong Kong III. Tax Law in Hong Kong
IV. Overview on Corporate law in Hong Kong V. Overview on the Bank System in Hong Kong VI. Hong Kong Hub for Asia
VII. The Belt & Road Initiative
Hong Kong – Overview 1/2
• Land developed: less than 25%
• Population: 7.4 million
• 8.5% of population are foreign nationals
• GDP 2017: 341 USD Billion
• Inflation rate: 2.4%
• Unemployment rate: 2.8%
• Interest Rate: 2.25%
• Balance of Trade: -49,109 HKD/Million
• Government Debt to GDP: 38.4%
Hong Kong – Overview 2/2
• Hong Kong is a Special Administrative Region of the People's Republic of China
• South-eastern tip of China, covering Hong Kong Island, Lantau Island, the Kowloon Peninsula and the New Territories, including 262 outlying islands
• Hong Kong's economy is characterized by free trade, low taxation and minimum government intervention
• Hong Kong is a major service economy
• Hong Kong is one of main financial and investment hubs in all of Asia
and has been ranked the freest economy in the world
Hong Kong - Overview
Pros
Major financial and business hub on the Asian continent Large percentage of foreign nationals
Triangular transactions New double tax treaties
Cons
Less manufacturing (limited space)
Expensive to purchase or rent land
Small market for a number of sentors
Different system from China
(law, currency, customs, …)
Hong Kong – Tax Overview
China
Corporate income tax: 25%
VAT: 10%
Withholding taxes such as dividends, interest, and royalties: 10%
Individual income tax
(progressive rate): 3%-45%
Hong Kong
Corporate income tax: 16.5 % No VAT taxes or Turnover taxes No dividends or interest tax
Royalties tax: 4.95%
Individual income tax: 2%-17% /
flat 15%
Social Security
China
20% of workers salary towards retirement program
Up to about 20% for medical, maternity, unemployment, and work- injury insurances
Total of about 40% of salaries
Hong Kong
5% contribution for employee
5% contribution for employer
Flat amount of HKD 1,500 per
month for employees earning
more than HKD 30,000/month
Immigration & Employment
China
Working Visa required to conduct any official business in China
• Contract must either be signed with a legal person in China or contract can be signed with company outside of China but work must be 3 months or longer
Hong Kong
Working Visa is required, which is granted for 6-12 months with 2- year extensions, to conduct any official business in Hong Kong Hong Kong ID Card required for anyone residing in Hong Kong for longer than 6 months
Structure
Representative Office Branch
Company
Representative Office in Hong Kong 1/2
Overview
● Representative Office could be beneficial if the goal is to experience Hong Kong and conduct market research
Requirements
•
Must obtain a Business Registration Certificateo However, limited registration with Hong Kong Companies Registry
•
Cannot conduct any revenue generating activities within Hong Kong o However, a local vendor can be hired to conduct sales in the areaRepresentative Office in Hong Kong 2/2
Limitations
● Parent company is fully responsible for all the liabilities associated with the Representative Office
● Cannot sign contracts due to lack of legal entity in Honk Kong (extension of parent company)
● No trading
● No sales Taxation
•
Due to lack of business activity and lack of revenue there are no profit taxesRepresentative Office - Hong Kong
Pros
Limited investment to start in the new market
Proper way for market research
Easy “soft” entry Can hire staff locally
Cons
Cannot carry out direct revenue earnings or other economic activities
Parent company is liable for all
activities
Branch in Hong Kong 1/2
Overview
● Branches in Hong Kong are viewed as an extension and are not seen as separate entity from parent company
Requirements
● A representative of the company who can act on its behalf, who is a permanent resident of Hong Kong/
Possible to start immigration policy after arrival and after setting up the structure
● Location of office or place of business and a secretary who is a resident of Hong Kong Registration as a Non-Hong Kong Company, within a month of beginning operations
Branch in Hong Kong 2/2
Abilities
● No Capital Requirement
● Can invoice local clients
● Can enter local sales contracts
● Can conduct full business Taxation
● Branch tax rate of 16.5% of Hong Kong profits
Branch- Hong Kong
Pros
No capital requirements Can invoice clients and do activities limited to the Representative Office
Branch tax rate of 16,5% on Hong Kong Profits
Cons
Only viewed as an extension of parent company
Representative has to be a Hong Kong resident
Secretary who is a Hong Kong resident
Liability for parent company as
it is not incorporated
Company in Hong Kong 1/2
Overview
● A limited liability company in Hong Kong is separate entity from the parent company.
Requirements
● Business Registration Certificate within one month of operations
○ To be incorporated a Certificate of Incorporation is needed but can be done together
● At least one director of any nationality or residence: foreign employees can be both, director and a employee in the same structure; to be a resident in Hong-Kong, the foreign employee must have an Hong Kong ID (compulsory for any person intending to stay in Hong Kong for more than 180 days) and be approved by the immigration authorities.
Company in Hong Kong 2/2
● At least one shareholder
● director can be of any nationality or residence
● One secretary who resides in Hong Kong or a company who has a registered office in Hong Kong
● Both representative and secretary status are requested : two different persons Individual representative and Corporate entity as secretary
A private limited liability company in Hong Kong owned by a foreign (or Chinese) entity can perform all business activities
● Taxation: Corporate income tax rate of 16.5% on Hong Kong profits for incorporated business
Company- Hong Kong
Pros
Limited liability as the new entity is separate from parent company
Ideal to start a Hub to develop regional markets in future
Faster registration and licence compared to a company in China
Cons
Longest process out of all three options for Hong Kong Director requirements
Requires a secretary who resides in Hong Kong
Cannot hire staff in China nor
grant proper visa fro China
Structure Comparison: Hong Kong
Representative Office
Ideal for testing the market or doing market research in Hong Kong No profit taxation
Branch
Extension of the parent company who able to bill clients and generate
revenue
Requires permanent resident of Hong Kong to be the company
representative
Company
Full business operations and limited liability for the company
Can perform all business activities but has to meet requirements with
director, shareholder,
and secretary
Profit tax rates
Corporations: 16,5%
Unincorporated business: 15%
Resident and non resident
A company is considered resident in Hong Kong if the management and the control of its business is exercised in Hong Kong in the relevant year of assessment.
Basis
Corporate tax is levied on income arising in or derived from Hong Kong. Foreign-source income are not subject to income tax.
Taxation - Corporate Income Tax
Capital gains
Capital gains are generally not taxable, even if income tax can belevied on transactions with nature of trade.
Losses
Losses can be carried forward indefinitely, without any restriction, and set off against future profits. Only losses arising in Hong Kong can be used to set off against chargeable profits.
Taxation - Corporate Income Tax
Resident and non resident
An individual is considered a tax resident in Hong Kong if he/she stays for a total period of at least 180 days during a year of assessment and not less than 300 days in a year of assessment and the year immediately before or after.
Basis
Individuals are subject to salaries tax on all income arising in or derived from Hong Kong from any employment or pension.
Taxation - Individual Income Tax
Taxable income
An individual can be subject to three kind of taxes according to the nature of the income.
Salaries tax is levied on the profits from employment, profit tax is imposed on the profits from self- employment and business income, while the property tax is charged on the rental income (if the rental activity does not constitute a business).
Employment income
An individual’s gross income subject to salaries tax is aggregated as assessable income and include
bonuses, gratuities and benefits in kind if they are convertible in cash. Expenses, deductions and personal allowances are deducted from the gross income to arrive at net chargeable income.
Several revenue as employment income derived from services provided outside Hong Kong, pensions from a recognized retirement scheme, disability pensions and severance payments are not included in taxable income.
Taxation - Individual Income Tax
Rates
Individual tax rates are as follows:
- profits tax on individuals is levied at a flat rate of 15%
- property tax is levied at a flat rate of 15% on rental income, after a standard deduction of 20%
- salaries tax is levied on net chargeable income (assessable income less personal deductions and allowances) at a progressive rates from 2% to 17% or at a flat rate of 15% on assessable income less personal deductions, which ever calculation produces the lower tax liability.
Taxation - Individual Income Tax
The minimum requirements for setting up a private limited company in Hong Kong in relation to the corporate governance are the following:
- One shareholder - One director
- A company secretary
- A registered office address in Hong Kong - Auditors
- A Business Registration Certificate
Corporate Law in Hong Kong – Corporate
Governance
The same person can be the secretary, director and shareholder of a company, except for the following limitations;
- The sole director of a company cannot also be the secretary of the company.
- If the company secretary is a natural person, he/she should ordinarily reside in Hong Kong and if the company secretary is a body corporate, its registered office or place of business should be in Hong Kong. - The registered office of the company must be situated in Hong Kong.
- The company secretary must be either an individual resident in Hong Kong or another Hong Kong limited company.
- The auditors must be a firm of Hong Kong accountants.
- Shareholders and directors can be individuals or corporations of any nationality or residence, except that no corporate director is allowed in the case of a private company which is a member of a group of companies of which a listed company is a member.
Corporate Law in Hong Kong – Corporate
Governance
There is no standard and mandatory layout for Articles of Association in Hong Kong. However, it should necessarily include the following information:
- Name of the company
- The member’s liability: limited or unlimited
- The company’s objective, based on a relevant license for the business field - The capital and initial shareholdings
- Provisions in case of bankruptcy
Corporate Law in Hong Kong – Article of Association
The registration of a company in Hong Kong is mainly articulated in 3 phases:
1) Establishment of the main specification of the company (name, organizational structure, share capital amount, company secretary and registered office address)
2) Preparation of the registration documents and registration in the Companies Registry (CR) 3) making company chops and printing Article of Association
Set-up Procedure
1) Establishment of the main specification of the company The main specification to be established in the first phase are:
- Company name that can be either in Chinese or English and must not exist in the Company Registry;
- Members of the Board of Directors at least one of which must be a natural person. There are no specific restrictions related to the nationality of the directors.
- The amount of the share capital and the number of shares; the Company Ordinance does not set any minimum or maximum limit concerning the amount of the capital. The amount stated in the Article of Association must be contributed right after the registration of the company.
- Company secretary and registered office address: it is recognized the possibility to use the service of a professional firm, which provides nominee company secretary service. The address must be located in Hong Kong
Set-up Procedure
2) Preparation of the registration documents and registration in the Companies Registry (CR)
In this phase the investor must prepare all the company documents required for the registration including:
- Article of Association
- Company Registration Form
the documents must be submitted to the Business Registration Office and to the Company Registry in order to complete the registration; if the documents are prepared in compliance with the regulation and they are accepted, the Company Registry will issue the Certificate of Incorporation and the company will legally exist.
In the meantime the Business Registration Office will issue the Business Registration Certificate.
Some business activity may require additional licenses such as import and export licences.
Set-up Procedure
3) making company chops and printing Article of Association
After the company registration and the business registration the investor should find a service provider to make the company chops and the print of Article of Association
Set-up Procedure
Registered companies are required to keep accounting records that are sufficient to show and to explain all the transactions, to disclose the company’s financial position and to enable directors to ensure that the financial statement is compliant with the Company Ordinance.
The records must be preserved for seven years after the end of the financial year to which the last entry was made.
Statutory reports are required annually to all the companies incorporated in Hong Kong.
The file must contain the audited financial statement (inclusive of the balance sheet, the profit and loss statement and the cash flow statement), the audit report signed by a certified public accountant.
Set-up and maintenance – Legal annual
requirements
GENERAL REQUIREMENTS
Usually the bank requires the physical presence of the directors and of the authorized signatories to in their offices for the opening of the bank account in order to verify the identity of the main shareholder, at least two directors and the authorized signatories.
The passports of all the attendants are required and the bank will enquire the attendants about the relevant business details (use of the bank account, business scope, expected turnover, general budget data, origin of the invested funds).
Financing – Requirements to open a bank account
DOCUMENTATION REQUIRED
- Copy of the Business Registration Certificate - Copy of the Certificate of Incorporation
- Copy of the Article of Association
- Board Resolution for the opening of the bank account that must state the authorized person for the opening of the bank account and the authorized signatories
- Company file at the Company Registry
Financing – Requirements to open a bank account
Financing – Other Information
Bank accounts
In Hong Kong there is not a range of bank accounts with specific purposes like in China mainland and we consider generally the following bank accounts to be adopted:
• HKD account
• CNY account
• foreign currencies accounts
• credit cards accounts
• loan accounts
• financial investments accounts
there is no indication of capital account
Belt & Road Initiative – The project
• Time horizon Investment Belt & Road initiative: 2049
• Number of countries involved: more than 70
• BRI combined population: 3.2 billion (around 63% of the World’s population)
• Combined gross domestic product: $ 13 trillion – 1/3 of World’s GDP
• Estimated capital for the BRI project: around $2 trillion
Belt & Road Initiative – Goals
❖ Development of roads and other type of infrastructures
❖ High-speed fiber optic and Energy pipelines
➢ Establishment of trade logistic and institution
➢ RMB internationalization
❑ Boost Aggregate Demand for its industries o Policy coordination
o Simplified procedures customs co-operations
▪ Reducing barriers to trade and investments within participant countries
▪ New market access for Chinese companies
Countries involved in the BRI Project
Region Countries
Europe Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croazia, Czech Republic, Estonia, France, Georgia, Germany, Greece, Holland, Hungary, Italy, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, Ukraine
Central Asia Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan
East Asia China, Mongolia
South Asia Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,Sri Lanka
South-East Asia Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor- Leste, Vietnam
Middle East and North Africa Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kenya, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine, Syria, United Arab Emirates, Yemen
Source: RsA Report (2018)
The Belt & Road Initiative
TAX:
> Focus on duties reductions
> FTZ and hub China policy
> Tax incentives
> Regional tax trends
> DTT improvement
> Customs and tax authorities coordination
> Exchange of information
BUSINESS:
>Global Market offered by China
>Africa focus: highest demographic growth within 2050
>Emerging Economies + Frontier Economies Opportunities
>Doing Business in China -> Doing Business Everywhere (with China)
>From “Open Door Policy” - Deng Xiaoping (1978) to “BRI = Open Door Policy to the Globe” - Xi Jinping (2013)
