About Hong Kong

The Hong Kong government encourages free enterprise by adopting a policy of minimal intervention, as evidenced by low tax rates, a simple tax structure, the absence of fiscal subsidies and incentives and freedom from foreign exchange controls.

Currency and Banking System

The monetary unit is the Hong Kong dollar (HK$). On 15 October 1983, the exchange rate was fixed at HK$7.8 = US$1. Aligning the Hong Kong dollar to the US dollar in the open market has produced, for the most part, the desired effect of stabilising the value of the Hong Kong dollar.

Hong Hong is the principal financial centre in South-East Asia, with many foreign banks maintaining branches there. The government imposes few restrictions on credit, and funds generally are readily available. Banks and finance companies are free to operate in the local and international exchange market with few restrictions. Hong Hong has a three-tier banking system regulated by the Banking Ordinance. Financial institutions are classified into the following three categories: licensed banks, restricted-license banks and deposit-taking companies. The categories are distinguished primarily by the size of their capital base, the amount of individual deposits that can be accepted and whether the word "bank" is included in the institution's name.

Stock Exchange and Foreign Investment

The Stock Exchange of Hong Kong is supervised by the Securities and Futures Commission under several ordinances, including the Securities Ordinance, that regulate securities transactions and provide for the registration of securities dealers and investment advisers. The Securities Ordinance established a compensation fund to protect investors from default by stock exchange members. The Listing Committee/Division of the stock exchange administers and supervises compliance with the Rules Governing the Listing of Securities, which set out detailed listing and disclosure requirements for listed companies. The Registrar of companies is responsible for making sure that prospectuses relating to the issue of shares comply with the Companies Ordinance.

Hong Kong has no restrictions on investments by overseas organisations, entities or individuals, except for investments in the media and public utilities, which are regulated by the government. It does not impose local participation requirements. No industry, regardless of its lack of technological sophistication, is prevented from coming to Hong Kong by any industry committee or investment review board. This policy permits any investor to participate in Hong Kong's economy.

Business Entities

Companies in Hong Kong may register as a limited liability company, a company limited by guarantee or an unlimited company. The most common form of business entity in Hong Kong is the limited liability company, which is limited by shares and may be private or public. Most business can be carried out in the form of a sole proprietorship or a partnership. The partners in an ordinary partnership are jointly liable for the debts and obligations of the partnership. The liability of one or more partners in a limited partnership is limited to the amount of their capital contributions. No specific legislation applies to joint ventures.

Forms of joint ventures include equity investments in a limited liability company or in a limited or unlimited partnership. Trusts are not commonly used to engage in business in Hong Kong although it has a Trustee Ordinance. Foreign companies can establish a branch in Hong Kong by submitting requisite documents to the Registrar of Companies within one month of establishing the place of business in Hong Kong. All forms of business entities must be registered under the Business Registration Ordinance at the Business Registration office of the Inland Revenue Department. Certain registration procedures and rules set out in the Business Registration Ordinance and the Hong Kong Companies Ordinance must be followed to establish a business in Hong Kong. To incorporate a business entity, the following procedures are required:

• A name search is required

• Two or more persons must subscribe their names to the Memorandum and Articles of Association

• An application has to be submitted to the Registrar of Companies, together with a copy of the company's memorandum and articles of association and a statutory declaration of compliance with the Companies Ordinance.

In addition, each limited liability company must also obtain a business registration certificate. A minimum of two founders is required to form a private or public company. No nationality or residency requirements are imposed. Shareholders can be either individuals or legal entities and shares may be held by nominee shareholders. All companies are required to have a minimum of two directors. Corporations may not be directors of public companies or of private companies that are members of corporate groups having a public company as a member. A director is not required to be resident of Hong Kong unless he or she serves as secretary of the company. All companies must have a company secretary who must be a Hong Kong resident.

Annual Requirements for Corporations

All limited companies must appoint independent auditors who are qualified for appointment as an auditor under the Professional Accountants Ordinance. The auditors must report to the shareholders in a general meeting on the financial statements they have examined. Every company incorporated in Hong Kong must have an annual general meeting in every calendar year. At the annual general meeting, shareholders approve the annual accounts, appoint auditors and elect directors. Within 42 days after the general meeting, an annual return must be filed with the Registrar of Companies. The annual return contains details concerning

• the share capital of the company

• its directors

• its secretary and shareholders

• its indebtedness in the form of mortgages and charges, and

• all business names under which the company carries on business

The annual return of public companies must also include a certified copy of the accounts, together with the relevant auditors and directors reports. Private companies are not required to file annual financial statements with the Registrar of Companies.

Taxation

Companies operating in or from Hong Kong enjoy many tax advantages. They benefit primarily from the low tax rate and the exemption from tax for income derived from outside Hong Kong. Hong Kong does not have a comprehensive system of taxation. Instead, it imposes tax separately on different types of income arising in or derived from Hong Kong. Capital gains, dividends and offshore income are not subject to tax in Hong Kong. Three direct taxes are imposed in Hong Kong - a profits tax on business profits, a salaries tax on income from employment and pensions, and a property tax on income from real estate. Hong Kong also has several types of indirect taxes such as stamp duty, capital duty, rental rates, excise duty entertainment tax, hotel accommodation tax and airport tax.

Profits Tax

All persons carrying on business in Hong Kong are subject to profits tax on their assessable profits derived from Hong Kong. Corporations, branches, partnerships, joint ventures, trusts, individuals and unincorporated bodies of persons carrying on business in Hong Kong are subject to profits tax. Profits tax is not imposed on profits from the disposal of capital assets. The current tax rate for corporation is 16.5%, for others it is 15%. The taxable profits is based on the profit shown in the financial statements of the business, subject to adjustments provided by specific provision of the Inland Revenue Ordinance. Dividends received are excluded from taxable profit. Withholding tax is not imposed on dividends paid. Foreign corporations are taxed to the extent that they have Hong Kong-source profits from a trade or business carried on in Hong Kong. The corporation, rather than the Hong Kong branch, is the legal entity subject to Hong Kong taxation. The factor determining whether the corporation is subject to tax is the extent to which the corporation has profits arising in or derived from Hong Kong.

Salaries Tax

Salaries tax is generally imposed on individuals who derive Hong Kong-source income from any office or employment or pension, including income derived from services rendered in Hong Kong. Income from any office or employment includes wages, salary, fees, commissions, gratuities, bonuses, perquisite, allowances and leave pay. The basis of taxation in Hong Hong is territorial, which means that residency has no significance except in very limited circumstances. If an individual is employed by an employer that is not resident in Hong Kong and perform duties outside Hong Kong, he will not be chargeable to tax on the remuneration for these services. Individuals who are employed by a non-resident employer, but who perform services in Hong Kong can apportion their overall remuneration on a "days-in-days out" basis. Salaries Tax is generally charged on net assessable income at the lower of, currently 15%, or on net assessable income less personal allowances at progressive rates, currently 2%, 9%, 17% and 20%.

Property Tax

Non-corporate leasehold owners of land and buildings in Hong Kong are subject to property tax on amounts earned from renting land and buildings. Property occupied as a private residence is exempt from property tax. Property occupied or used by a taxpayer for a business that generates income subject to profits tax (even if the business does not actually generate profit) may also be exempt. However, even if property tax is paid, it cannot be offset against the profits tax liability.

Tax Treaties

Hong Kong has entered into double tax treaty with few countries. An agreement with the United States concerning the taxation of shipping income is the only form of tax relief Hong Kong has negotiated with another country. The agreement, which became effective in 1989, provides for the reciprocal tax exemption of income from the international operation of ships. Except for limited tax credit relief for taxes paid in certain British Commonwealth countries other than the United Kingdom, no credit is given for foreign taxes paid. In certain circumstances, foreign taxes paid on Hong Kong taxable income may be deductible.

Legal Environment

The legal system in Hong Kong is based on English common law and rules of equity. It has developed further by the application of UK statutes, as well as by local ordinances, subsidiary legislation, decisions of the local courts, and Chinese laws and customs. Because Hong Kong will become a Special Administration Region of China, it has become important to ensure a comprehensive body of law that owes its authority to the legislature of Hong Kong. To achieve this authority, the Hong Kong government has initiated a programme to replace English laws applying to Hong Kong with Hong Kong ordinances. In 1991 the Hong Kong Bill of Rights was enacted to ensure the freedom currently protected by various statutes and common laws. The judiciary and courts of Hong Kong are independent of the territory's administration and operate under the direction of the Chief Justice.

Living In Hong Kong

Hong Kong is undoubtedly one of the most exciting and fascinating cities in the world. It has the pace of New York, the industriousness of Tokyo and the glamour of Paris. But Hong Hong is also truly unique, and newcomers will find much that is different from their home in the cultural, economic, political and geographical senses- all of which make Hong Hong interesting and often intriguing.