DOING BUSINESS IN HONG KONG - PWC
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
This publication is a joint project with Doing business in Hong Kong
Contents
Executive summary 4 Disclaimer
This document is issued by The
Foreword 6
Hongkong and Shanghai Banking
Corporation Limited (the ‘Bank’)
Introduction 8 in Hong Kong in partnership with
PricewaterhouseCoopers (PwC).
Why set up a business in Hong Kong 14 It is not intended as an offer or
for investing in mainland China? solicitation for business to anyone
in any jurisdiction. It is not intended
How to start a business in Hong Kong 18 for distribution to anyone located
for investing in mainland China in or resident in jurisdictions
which restrict the distribution
Taxation in Hong Kong 22 of this document. It shall not be
copied, reproduced, transmitted or
further distributed by any recipient.
Taxation in mainland China 30
The information contained in
Audit and accountancy 38 this document is of a general
nature only. It is not meant to
Human Resources and Employment Law 40 be comprehensive and does not
constitute financial, legal, tax or
Trade 44 other professional advice. You
should not act upon the information
Banking in Hong Kong 46 contained in this publication without
obtaining specific professional
advice. This document is
Country overview 48
produced by the Bank together
with PricewaterhouseCoopers
Contacts 50 (‘PwC’). Whilst every care has been
taken in preparing this document,
neither the Bank nor PwC makes
any guarantee, representation or
warranty (express or implied) as to
its accuracy or completeness, and
under no circumstances will the
Bank or PwC be liable for any loss
caused by reliance on any opinion
or statement made in this
document. Except as specifically
indicated, the expressions of
opinion are those of the Bank
and/or PwC only and are subject
to change without notice. This
document is not a 'Financial
Promotion'.
The materials contained in this
publication were assembled in
June 2012 and were based
on the law enforceable and
information available at that time.
Executive summary
Hong Kong, which has been a 5-hour flight. Hong Kong’s workforce. Hong Kong‘s labour
ranked the ‘World’s Freest International Airport is one force has not been known to
Economy’ for over a decade, of the busiest international voice any objections against
is a regional business hub in airports in the world, with foreign investment.
Asia. Hong Kong’s proximity to direct flights to over 160
China, its similarities in terms international destinations. While the Hong Kong
of culture, social customs and Government has adopted a
language, and its international • Hong Kong’s proximity to, and policy of minimum intervention
business environment, have close and unique relationship towards the regulation of
made it an ideal base for foreign with, mainland China, has made the territory's business and
investors to enter the Chinese it the gateway to mainland industry, investors still need
market. These characteristics China for business. English is to be aware of regulatory
also help mainland investors the language of business in aspects relating to their specific
to invest in regional and global Hong Kong and many people sector, where appropriate. This
markets. Hong Kong continues speak English, Cantonese and document contains reference
to be Asia’s second largest and Putonghua and have a good to some common issues that
the world’s third largest Foreign understanding of international investors should be aware of
Direct Investment recipient. and mainland Chinese business. when operating in Hong Kong
and/or using Hong Kong as a
Based on the World Bank • Although no particular aspects gateway to mainland China,
Doing Business Survey, Hong of Hong Kong‘s tax regime although specific advice on
Kong is ranked second in terms favours foreign investment their particular circumstances
of ease of doing business in and there are no significant should be sought.
the world. It offers a number tax incentives for foreign
of competitive advantages as investment, Hong Kong‘s
a hub for investors to conduct low and simple tax system
their business, such as: is attractive to foreign investors.
The corporate tax rate and
• The Hong Kong Government income tax rate are capped at
has long been endorsing a 16.5% and 15% respectively,
‘market driven with minimal with no turnover tax and no tax
government interference‘ on capital gains or dividends.
policy. Foreign investment is
welcome and there is no policy • Hong Kong is a free port and
to protect the local industry generally imposes no customs
against foreign competitors. duties on imported goods, with
The Hong Kong business a few limited exceptions.
community is also receptive
to foreign investment. • Hong Kong‘s immigration
policies are designed to
• Strategically located at the attract professionals, talented
centre of Asia, all of the individuals and investors to
region‘s key markets are within ensure the city‘s continued
a 4-hour flight and half of the competitiveness and enrich
world’s population is within the quality of Hong Kong‘s
4
Foreword
In today‘s world, businesses Founded in Hong Kong and Peter Wong
must compete on a much wider Shanghai in 1865, HSBC Chief Executive, Asia Pacific
playing field, no longer confined has over 140 years expertise The Hong Kong and Shanghai
within national borders. in helping customers to seize Banking Corporation Limited
business opportunities in
Since the 1950s, we have China. Backed by our global
witnessed the rise of dynamic presence in 84 countries
Asian economies starting with and territories with around
Japan and then spreading in 6,900 offices worldwide, we
the 1960s and 70s to the Asian are well positioned to assist
Tigers – Hong Kong, Singapore, entrepreneurs, multinationals
Taiwan and South Korea. While and conglomerates eager
their economic success has to tap into this exciting and
brought tremendous prosperity, booming market.
it is safe to say that none
attracted the same attention Created in collaboration with
as the rise of China has in the PricewaterhouseCoopers,
last 20 years. The awakening this guidebook, Doing
of the Chinese dragon is, to Business in Hong Kong,
borrow the words of Napoleon provides a thorough analysis
two centuries ago, ‘shaking of various options in
the world‘. establishing a business in
China. It underscores Hong
Today, China is the second Kong‘s strategic importance
largest economy in the world for doing business in China,
after the United States and explains the taxation systems,
is the fastest-growing major and also takes you through
economy. Not only has China the process of setting up a
become the workshop of company in Hong Kong and
the world, the country‘s in the Mainland.
increasingly affluent population
is becoming a significant As your trusted partner, HSBC
consumer market itself. is always looking for ways to
facilitate your business growth.
With this guide, I hope you find
building your venture in China
has fewer complexities than
you thought and I wish you a
prosperous future in the land
of dragons!
6
Introduction
Doing business in Hong Kong
Free trade is the lifeblood of Kong Express Rail Link is under The Heritage Foundation,
Hong Kong. It is one of the most construction with journey times The Wall Street Journal and the
open and externally orientated from Hong Kong to Guangzhou Cato Institute in the United States
economies in the world. only 48 minutes. and the Fraser Institute of Canada
have consistently rated Hong
Unrivalled location Gateway to China Kong as the world‘s freest economy.
• The cornerstone of the economy
Hong Kong has a prime Hong Kong is blessed with
rests on free enterprise, free trade
location at the geographical an invaluable geographic
and free markets open to all.
and economic centre of Asia. advantage – its proximity to
Business executives in Hong mainland China. Flanking the
• No barriers to trade – no tariffs,
Kong have fast and easy access mouth of the PRD, Hong Kong no quotas, no exceptions.
to all the major markets in the has served as the gateway to
region. This central position China for more than a century • No restrictions on investments
is one of the key reasons for and a half. There is nowhere inward or outward.
the city‘s popularity as a better than Hong Kong to obtain
location for regional operations. the expertise, information and • No foreign exchange controls.
facilities needed to tap into the
Hong Kong International Airport immense Chinese market. • No nationality restrictions on
is repeatedly voted as one of, corporate or sectorial ownership.
if not the best airport in the China‘s entry to the World
world. It operates on a 24- Trade Organisation and
hour basis, with daily non-stop development of increasingly
flights to major cities in Asia competitive industries have
Pacific, North America, Europe, set the stage for even greater
the Middle East and South economic expansion. The
Africa. Travelers can reach Closer Economic Partnership
most countries in Asia within Arrangement (CEPA), which
a five-hour flight. took effect at the beginning of
2004, provides Hong Kong with
Located on the southeast coast additional and exclusive market
of mainland China, Hong Kong access benefits.
fronts a vast hinterland that
is, with 1.3 billion people, the The marriage of Hong Kong‘s
largest single market in the world-class financial, marketing
world. Corporate executives and technical expertise and
can travel back and forth to sophisticated infrastructure
Beijing, Shanghai and other with the Mainland‘s rapidly
major Chinese cities in a single developing manufacturing
day while making their home and services base has created
in Hong Kong. For companies a win-win situation. China
with manufacturing facilities is now Hong Kong‘s largest Contents of this section
in the Pearl River Delta (PRD trading partner, and thousands are adapted from the website
region), their executives can of international companies of Invest HK www.investhk.gov.hk
travel there by car in one to involved in China trade have as of May 2012.
three hours. In addition, the chosen to establish their
8 Guangzhou-Shenzhen-Hong beachhead in Hong Kong.
Rule of law courts in Hong Kong. Foreign government practices ensure The government began high-speed rail link. Opened Hong Kong maintains a stable
affairs, defence and Chinese that companies are free to deregulating the industry as on 6 July 1998, it is one of the and mature legal system covering
The rule of law is fundamental constitutional issues are the pursue their business interests early as 1995 when it issued world‘s busiest airports and such business-critical areas as
to Hong Kong‘s success. All responsibilities of the sovereign on a level playing field without fixed-line telecommunications can process about 53.9 million intellectual property.
are equal before the law. The state, China. concern for corruption. network service licences to passengers and 3.9 million
legal system of the Hong Kong four providers. tonnes of air cargo annually.
Special Administrative Region Arbitration Free flow of information Besides, as part of the Hong
(HKSAR) is separate from The mobile phone services Kong International Airport
the Mainland‘s. The impartial Hong Kong has developed Freedom of information is market is very competitive Master Plan 2030, the Airport
judiciary is independent of into one of the world‘s major another core advantage that with five operators and 18 Authority (‘AA‘) recommended
the legislative and executive arbitration centres since Hong Kong offers businesses. networks. There are currently that the government build
branches, and is drawn from establishing its International From obtaining a driving licence 187 internet service providers an additional runway as the
several British Commonwealth Arbitration Centre in 1985. Its to checking your Facebook in Hong Kong, all are allowed two existing runways are
jurisdictions as well as from expertise in commerce, finance, account, reading the daily to provide broadband services forecast to reach capacity by
Hong Kong itself. Cases are shipping and construction news or researching potential under their licences. Broadband 2020. With the government‘s
heard in English and/or Chinese. provides the necessary pool business partners, Hong Kong internet connection virtually approval, AA will proceed
of experienced professionals is committed to transparent, covers all households and with an Environmental Impact
The Basic Law came into to promote dispute settlements. timely and reliable information. commercial buildings. Assessment process and the
effect when China resumed These include accountants, preparation of the associated
sovereignty of Hong Kong architects, bankers, engineers Hong Kong enjoys The only modern, fully- design details of the facilities
in mid-1997 and serves as and insurance experts, as well constitutionally guaranteed developed deep-water under a three-runway system.
the region‘s constitutional as lawyers. freedom of speech and freedom harbour between Singapore
framework. Its underlying of the press. Information about and Shanghai, Hong Kong is International lifestyle
premises are best summed up Police government services is easily the focal point of all maritime
as ‘One Country, Two Systems‘ available online and there is activities in southern China. Hong Kong offers a stimulating,
and ‘No change for 50 years‘. Hong Kong has long been a unrestricted access to the The container port in and dynamic and cosmopolitan
Post-1997 Hong Kong inherited safe city with low crime rates. internet. around Kwai Chung is privately lifestyle, but it also has
the laws of the former colony Crucial to this achievement owned. In the fourth quarter its tranquil side with lush
so that Hong Kong today is its effective and efficient World-class infrastructure of 2011, Hong Kong handled countryside and remote beaches
continues to benefit from a 37,000-strong police force. a total of 6.2 million TEUs. accessible only from the sea.
stable and mature legal system, People in Hong Kong take it Vessel turnarounds are among Some 40% of Hong Kong
covering such business-critical Clean government for granted that everything the fastest in the world and port is protected as country and
areas as intellectual property. works properly. charges are among the lowest marine parks and shielded from
Hong Kong is one of the most worldwide. Container ships at development. The marshlands in
Court of Final Appeal corruption-free economies The electricity grid is state-of- terminal berths are routinely the north of the territory shelter
in the world. Cronyism, the-art and supply is more than turned around in about ten one of the widest varieties of
The Court of Final Appeal influence-peddling and bribery adequate. Blackouts are not hours, while the turnaround birdlife in the world. Botanists
operates in Hong Kong and is receive zero tolerance here. part of the vocabulary. Drinking time for conventional vessels and zoologists are still finding
staffed by senior judges from This is due to its strong public water is readily and reliably working in mid-stream at hitherto unrecorded species of
Hong Kong and distinguished administration as well as the available. Taxis operate around buoys or anchorages is 25 flora and fauna.
overseas judges on rotation. Independent Commission the clock. Mobile phones and 37 hours respectively.
It is the highest appellate Against Corruption (ICAC). connect – even in tunnels and It‘s a city of eastern and western
court which hears appeals in Since it was founded in 1974, in the underground railway. The state-of-the-art Hong cultures, with an abundance of
both civil and criminal matters the ICAC has promoted a Kong International Airport arts centres, museums, concert
and may confirm, reverse or strong anti-corruption culture The telecommunications is just 23 minutes from the halls and libraries. The annual
vary the decision of the lower in Hong Kong. Clean system is fully digitised. central business district by a Hong Kong Arts Festival and
10
other cultural events all year The salaries tax is charged
round feature top performers at either progressive rates of
from around the world. It‘s also 2% to 17% or a standard rate
the food capital of China, with of 15%, and is imposed only
every regional cuisine celebrated, on income from employment,
and a city with well-developed office or pension of individuals
international tastes. Whatever arising in or derived from
one fancies, whether it‘s haggis Hong Kong. The salaries tax is
or sushi, French haute cuisine or assessed on a yearly basis and
burgers, falafel or pizza, diners can be paid in two instalments,
are spoilt for choice. usually between January and
April of the following year.
Low taxes
The property tax applies to
Hong Kong taxes are among the owners of land or buildings
lowest in the world, and the tax situated in Hong Kong. It is
regime is simple and predictable. low by international standards:
15% (from 2008/09 onwards)
The profits tax rate is the of the rental income from
same for foreign and local the land or buildings with an
companies – a low 16.5%. allowance of 20% permitted
The actual tax bill is often even for the cost of repairs and
less after various deductions maintenance.
and depreciation allowances.
There is no sales tax or VAT
There is no capital gains tax, in Hong Kong. The limited
withholding tax on dividends tax base, combined with
and interest or collection of exceptionally low tax rates,
social security benefits in makes Hong Kong's tax
Hong Kong. incidence much lower
than in virtually all other
developed economies.
Why set up a business
in Hong Kong for investing
in mainland China? Hong Kong is an important offshore
RMB and international financial centre.
Hong Kong is one of the best Double Tax Agreement Provisions in the comprehensive In this example, it is assumed
cities for businesses. It has (DTA) – Comprehensive agreement provide beneficial that the Parent Company
one of the most flexible and DTA between China and treatments for Hong Kong is from a country/state that
supportive corporate governance Hong Kong companies investing in China does not have a tax treaty
regimes in the world. (e.g. reduced withholding tax with China. In addition, the
China and Hong Kong entered rates on dividends, interest, tax implications in Parent
Advantages of entering into a comprehensive DTA in royalties and exemption Company‘s home country
China via Hong Kong August 2006 to replace the treatment for certain capital are ignored for simplicity
limited scope agreement gain). The table below briefly purposes.
The following are some signed in 1998. The illustrates the tax benefits
advantages of using Hong Kong comprehensive agreement relating to dividends for It is worth noting that the
companies for investing in China. took effect on 1 January 2007 a foreign investor (Parent Chinese tax authorities have
in China and on 1 April 2007 Company) to invest in China via recently geared up their
in Hong Kong. a Hong Kong holding company. efforts to attack business
arrangements that are
established for the purpose
Scenario 2 of tax avoidance. As such,
Scenario 1 it is imperative for the Parent
Parent Company Investing
Parent Company Directly Company to have justifiable
into China via a Hong Kong
Investing into China commercial reasons to
Holding Company
establish the Hong Kong
China Operating Company Holding Company and also
maintain sufficient commercial
Profit before tax 100 100 substance in the Hong Kong
Holding Company in order
China CIT 100 x 25% = 25 100 x 25% = 25 to enjoy the preferential
Distributable dividend 100 – 25 = 75 100 – 25 = 75 treatment under the China/
Hong Kong DTA.
Hong Kong Holding Company
China withholding income tax N/A 75 x 5%2 = 3.75
Distributable dividend N/A 75 – 3.75 = 71.25
Parent Company
China withholding income tax 75 x 10%1 = 7.5 N/A 3
Total dividend received 75 – 7.5 = 67.5 71.25
Overall China and Hong Kong tax burden 32.5 28.75
Notes:
1. The withholding income tax rate on dividends under China‘s domestic tax law is 10%.
2.The withholding income tax rate on dividends is 5% under the double tax agreement between China and Hong Kong
if the Hong Kong Holding Company owns not less than 25% capital of the China Operating Company.
3.Hong Kong does not levy withholding income tax on dividends.
14
Closer Economic Partnership RMB offshore centre
Arrangement (CEPA) –
Opportunities for Hong Kong Hong Kong plays a vital bridging
role for money flows between
CEPA is the first free trade China and the rest of the world.
agreement concluded between In 2004, Hong Kong became
China and Hong Kong. Under the first place outside China
CEPA, both sides have agreed to conduct personal renminbi
to enhance co-operation in (RMB) business. Since then,
trade and investment promotion the Hong Kong Government
in order to improve the overall has been actively exploring
business environment. Hong with Mainland authorities the
Kong Service Suppliers (HKSS) introduction of new types
can enjoy greater liberalisation of RMB business in Hong
measures compared to foreign Kong with an aim to further
investors when entering China‘s enhance the capability of
service sectors. Hong Kong‘s financial system
to handle RMB-denominated
Professional bodies in Hong transactions. The C hinese
Kong and the regulatory Government also actively
authorities in China have supports the growth of the
also signed a number of RMB market in Hong Kong.
agreements or arrangements
on mutual recognition of Starting from July 2011, eligible
professional qualifications. enterprises in China can settle
cross-border trade in RMB with
Since the signing of the main their trading counterpartners
text of CEPA in June 2003, in all foreign countries and
another eight supplements jurisdictions.
have been signed between
2004 and 2011 to further This further strengthens the
enhance the liberalisation status of Hong Kong as an
measures for various service important offshore RMB and
sectors. CEPA provides a international financial centre.
window of opportunity for
Hong Kong businesses to gain
greater access to the Mainland
market. Foreign investors with
business establishments in
Hong Kong may leverage
on the CEPA benefits to
tap the vast opportunities
of the Mainland market.
16
How to start a business
in Hong Kong for investing
in mainland China
Setting up a business in to check the index of company Business Registration bylaws, the latest published in Hong Kong. A certificate of Facts at a glance
Hong Kong is straightforward. names at the Companies Certificate can be issued accounts and a specified form registration will be issued upon
Procedures are transparent Registry to see whether the within 24 hours of online containing the information of completion of the registration • The most commonly used business
and simple. proposed name has already application or 4 working days each director and secretary, (usually 14 working days from vehicles for doing business in Hong
been registered. If the name of paper submission. the name and address in Hong the date of filing the above Kong are private limited companies
Establishing an entity is not the same as one already Kong of a person resident in documents). A foreign and branches of foreign companies.
in Hong Kong appearing on the index of The Business Registration Hong Kong who is authorised corporation is required
company names and is not a Certificate must be renewed to accept on behalf of the to be registered under the • The procedures for incorporation of
a new private limited company and
Forms of foreign investment name that requires the prior annually at the current rate foreign corporation service Business Registration
registration of a branch of foreign
The principal forms through consent of the Chief Executive, of HK$2,450 (HK$2,000 is of process and any notices Ordinance within one month
company in Hong Kong are simple
which a business can be the duly signed incorporation waived for the fiscal year served on the corporation etc, from its date of commencement
and straightforward.
conducted in Hong Kong are documents can be submitted 2012/13). A capital fee payable within one month from having of business in Hong Kong.
as follows: to the Registrar of Companies to the Registrar of Companies established a place of business • The time frame for incorporation
for registration. upon incorporation is HK$1 per of a limited company can be as
1. Company incorporated in Hong HK$1,000 of authorised capital short as 24 hours for online
Kong (either private or public via Effective from 11 July 2008, (subject to a maximum fee of Setting up an entity in Hong Kong applications, whilst it takes about
listing on the Stock Exchange of particulars of the first directors HK$30,000). 14 days to register a foreign
To determine the form of presence to be
Hong Kong). and first secretary of the company as a non-Hong Kong
established in Hong Kong
company to be incorporated In addition to the above company in Hong Kong.
2. Branch of a foreign company. and place of its registered office requirements, a public company A private limited company OR a branch of foreign company?
(which must be in Hong Kong) must file a prospectus, or
3. Representative or liaison office are required to be reported in statement in lieu thereof, before To register the foreign company
To establish a private as a non-Hong Kong company
of a foreign company. the incorporation documents. it allots any shares. limited company (a Hong Kong branch)
If the proposed names are
4. Joint venture (can be acceptable for registration It is also possible to purchase
set up either as a company under the Companies ‘ready-formed‘ private
or partnership). Ordinance, the company will companies. Also known as Do a name search at the
Do a name search at the CR
Companies Registry (CR)
then be registered and the ‘shelf‘ companies, these are
5. Partnership. certificate of incorporation companies formed in advance
will be issued. of them being acquired by
Prepare draft Memorandum and Articles Prepare a statutory form and
6. Sole proprietorship. an investor. The attraction of Association (M&A), incorporation form certified copies of the corporate
The Companies Registry is principally one of time, and Notice to Business Registration Office documents of the foreign company
Of the above, privately and the Inland Revenue since the shelf company is
incorporated companies and Department jointly immediately available to trade
branches of foreign companies implemented the ‘One or enter into contracts. Submit the signed M&A, incorporation Submit the signed statutory form
are most commonly used by stop Electronic Company form and the Notice to the CR online or and certified documents to the
in paper form for registration CR for registration
foreign investors. Incorporation and Business Under the Companies
Registration Service’ on Ordinance, a foreign
Process 18 March 2011. Any person corporation establishing a A certificate of incorporation and a
A certificate of registration to
As a result of the government‘s who applies for incorporation place of business in Hong Business registration certificate to be
be issued to the company
policy of encouraging free of a local company will be Kong must register with the issued to the company simultaneously
enterprise, formalities for deemed to have made a Registrar of Companies as a
company incorporation and simultaneous application non-Hong Kong company and
business registration are kept for business registration. file, inter alia, a copy of the Apply for a business registration
to a minimum. To incorporate Normally the Certificate corporation‘s certificate of certificate for the branch
a company, the first step is of Incorporation and the incorporation, charter and
18Establishing an entity the parties to the venture may However, in practice, only • Formulate an appropriate • Based on the PRC Company Facts at a glance
in mainland China apply for approval to have the foreign financial institutions business scope to cater for Law, in general, the minimum
company structured as a have been granted licences the intended activities in China. registered capital for setting • Major forms of investment vehicles
Forms of foreign investment separate legal entity with limited to operate branches. up an enterprise ranges from include representative offices,
The most direct way to liability. Sharing of profits and • Ensure the application RMB30,000 to RMB100,000, equity joint ventures, cooperative
penetrate into the Chinese losses may be agreed between Process documents for submission but this could be higher if the joint ventures, wholly foreign owned
market is to set up local the investing parties separately are complete, accurate and enterprise is engaged in a enterprises, joint stock companies
presence. There are various from the proportion of capital Setting up in China in the right format. special industry. In practice, and partnership enterprises.
forms of investment vehicles contributions. If all assets revert In general, ROs and there could also be variations
• Before setting up in China, a foreign
available to suit different to the Chinese partner at the partnership enterprises are • Ascertain the appropriate on the registered capital
company should review its current
business objectives and termination of the venture, only required to be registered channel for approval and required depending on the
investments and future business
operations. Below are the major capital repatriations of the with the State Administration registration and go through local practice of the particular
plans to determine the optimal
forms of investment vehicles foreign partner are permitted of Industry and Commerce them one by one. city where investment is to investment vehicle to set up in
that can be set up by foreign over the life of the CJV. (SAIC) or its local counterparts, be made. accordance with the current China
companies (including Hong Kong whereas the FIEs are subject Capital structure investment regulations and specific
companies) in China: 4. Wholly Foreign Owned to approval by the Ministry of Time frame industrial policies.
Enterprises (WFOEs) Commerce or its local • FIE is required by China laws
1. Representative Offices (ROs) WFOEs are those established counterparts before performing and regulations to have a The approval time frame would • The investor should formulate
Setting up a RO is one of the exclusively with the foreign business registration with SAIC. registered capital and depend on the type of entity to a business scope, prepare the
simplest ways to get into China investor‘s capital. However, there Additional pre-approvals and a total investment. Registered be set up. Usually, it would take relevant application documents
and gain on-the-market are a few industries which are special licences may be capital refers to the amount of around one to two months for and submit the application
experience. Legally, ROs are to still restricted to joint venture and required for certain industries, equity contributed by the setting up a RO and may take documents to the relevant approval
be established purely for liaison WFOEs are not allowed. such as banking, insurance investor(s) that is registered around three to five months for and registration authorities for
purposes, and their activities and construction. with the business registration setting up a JV or a WFOE. setting up a company in China.
are limited to the provision of 5. Joint Stock Companies (JSCs) bureau and has to be actually
services that do not give rise JSCs, also known as companies ROs, FIEs and partnership paid up. Total investment refers • Timeframe for the set-up depends
to any earnings. limited by shares, are established enterprises have to comply with to the amount of funds on the type of investment vehicle
primarily for listing on Chinese or post-establishment registrations, required to establish and to be set up.
2. Equity Joint Ventures (EJVs) foreign stock markets. The capital such as registration with local operate the enterprise.
An EJV is a Chinese legal entity stock of a JSC is made up of tax authorities, before they can
that takes the form of a limited equal value shares. Contributions become operational. • The registered capital
liability company established in are made by both domestic and contributed to the enterprise
China. The partners have joint foreign shareholders. A foreign company shall take can be used as working capital
management of the company, the following steps in order for daily operating purposes,
and the profits and losses are EJVs, CJVs, WFOEs and JSCs to set up in China: e.g. salaries, rental, purchase
generally distributed according are generally referred to as of office equipment etc. The
to the ratio of each partner‘s foreign investment enterprises • Verify the feasibility and form of capital contribution can
capital contribution. Capital (FIEs) in China. Profits of FIEs prerequisites for setting up be in cash and/or in kind (e.g.
repatriation before the can be remitted abroad. Foreign because they could be subject by way of machinery and
termination of the EJV is not companies are also allowed to to local differences in practices equipment, intangibles etc). At
allowed. set up partnership enterprises and interpretations of the law. least 30% of the capital should
in China. Under ‘The Company be contributed in cash.
3. Cooperative Joint Law of the Peoples‘ Republic of • Optimise the tax-effectiveness
Ventures (CJVs) China‘ (the PRC Company Law), of its shareholding structure
A CJV can operate as a non- a foreign company may and funding arrangements.
separate legal entity, although establish branches in China.
20Taxation in Hong Kong
Taxation in Hong Kong is low. • Property tax – tax on income Profits tax
Offshore income, capital gains derived from a real property in
and dividends are not taxed. Hong Kong. Tax rates
The profits tax rates are 16.5%
Basis of taxation Apart from income tax, stamp for corporations and 15% for
duty is payable on chargeable unincorporated businesses
Hong Kong adopts the instruments executing for the year of assessment
‘territorial source principle‘in certain transactions. For 2012-13, which are amongst
charging tax. This means that transfer or sale of residential the lowest in the region (e.g.
generally income is only taxed property, special stamp duty compared with 25% in China
if it arises in or is derived may be applicable. and 17% in Singapore).
from Hong Kong through a
trade, business or profession Legislative framework Key features
carried on in Hong Kong. Below are the key features of the
However, there are a limited Under the Basic Law, Hong Hong Kong profits tax system.
number of business receipts Kong is an autonomous Special
which would not otherwise Administrative Region of China Taxation of income:
be chargeable to tax in Hong and has a legal system that • Trading receipts with a Hong
Kong based on the above is separate from that of China. Kong source are taxable.
principle but are nonetheless The adherence to the rule of
deemed to be taxable in Hong law by the HKSAR Government • Capital receipts are not subject
Kong (e.g. certain royalties ensures that an independent to tax.
received by a non-resident for and effective legal system is
the use of copyright materials being maintained in Hong Kong. • Dividends from local companies
in Hong Kong or by a Hong The Hong Kong judiciary is chargeable to tax are exempt
Kong taxpayer). renowned for its transparency whereas dividends from overseas
and efficiency in upholding companies are generally offshore
Principal taxes justice and safeguarding the in nature and not subject to tax.
rights and freedoms provided
Hong Kong has a scheduler under the law. • Certain exemptions are
income tax system. Incomes available, e.g. certain interest
of different nature are taxed The principal governing income derived by non-financial
separately. The main applicable law for direct taxes is the institutions; certain income
taxes for doing business in Inland Revenue Ordinance, of offshore or non-resident
Hong Kong are: which is administered investment funds; exemptions
by the Commissioner of for mutual funds/unit trusts/
• Profits tax – tax on profits Inland Revenue. A dispute qualifying debt instruments etc.
derived from Hong Kong from between taxpayers and the
carrying on a trade, business Commissioner on a question • Foreign source income is not
or profession in Hong Kong. of law may be resolved through taxed even if it is remitted to
the court system. Hong Kong.
• Salaries tax – tax on income
derived from Hong Kong from
an office, an employment or
a pension.
22• Tax residence is generally property was once owned Salaries tax
irrelevant for profits tax by a person carrying on
purposes, except for the business in Hong Kong). Tax rates
purpose of double taxation A lower withholding rate may For the year of assessment
arrangement/agreements. be available when the recipient 2012-13, the progressive
is a resident of a jurisdiction rates range from 2% to
Deduction of expenses: with which Hong Kong has a 17% (with a marginal tax
• Expenses that are revenue tax treaty. band of HK$40,000) and
in nature and incurred in the the standard rate is 15%.
production of assessable profits Transfer pricing
are deductible. For transactions between a Key features
Hong Kong company and a Below are the key features
• Generous tax depreciation closely connected non-resident, of the Hong Kong salaries
allowance or outright deduction where the transactions result tax system:
for capital assets are available. in no profit or less than the
ordinary profit for the Hong Taxation of income:
• Certain capital expenditure Kong company, the non- • Income arising in or derived
is deductible, e.g. qualified resident is deemed to carry on from Hong Kong from an office,
expenditure on research business in Hong Kong through an employment or a pension
and development, cost of the Hong Kong company. Other is subject to salaries tax. This
purchasing certain intellectual than the specific transfer pricing includes but is not limited to:
property rights etc. rule that deals with transactions
between Hong Kong companies – salaries and wages
Treatment of tax losses and non-residents, the general – leave pay
There is no group tax relief anti-avoidance provisions – fees
in Hong Kong. Allowable tax may also be used by the tax – commissions
losses can be carried forward authority to challenge non- – bonuses
indefinitely to offset against arm‘s length transactions. – gratuities
future assessable profits but The tax authority issued a – perquisites
cannot be carried backward. Departmental Interpretation – pensions
and Practice Note in December – the rental value of a
Taxation of payments 2009 to provide guidelines on place of residence
to non-residents transfer pricing methodologies provided by an employer
Hong Kong does not impose and related issues. In – income from vesting
any withholding tax on general, the Organisation for of share awards
dividends or interest paid to Economic Co-operation and – gains derived from any
non-residents. Certain royalties Development (OECD) transfer employee share options
received by non-resident pricing guidelines will be are also taxable when
corporations are subject to applied by the tax authority. the option is exercised,
profits tax at 4.95% (i.e. a Taxpayers with cross-border assigned or released.
deemed profit rate of 30% related-party transactions may
of the sum received at the apply for an advance pricing • For non-Hong Kong
profits tax rate of 16.5%) or arrangement in respect of their employments, only income
16.5% (i.e. 100% of the sum transactions with associated derived from services rendered
received is deemed taxable companies who are resident in in Hong Kong is taxable.
where the amount is received a jurisdiction with which Hong
from an associated corporation Kong has a tax treaty.
and where the intellectualFacts at a glance • Residence, domicile or base period varies from one about to leave Hong Kong other Property tax is not assessed top of the ad valorem stamp
citizenship is generally treaty to another); than on a normal business trip. when the property is used as a duty currently payable on
• Hong Kong adopts the ‘territorial irrelevant except for the • the remuneration is not paid by, residence by the owner because conveyance on the sale of
source principle‘ in charging tax, purpose of double taxation or on behalf of, a resident entity Property tax there is no consideration for the immovable property as shown
i.e. only income arising in or derived arrangement/agreements. in Hong Kong; and use of the property. in the table below, with a few
from Hong Kong is taxable. • the remuneration is not borne Property tax is levied on the certain exemptions available.
Deductions and allowances: by a permanent establishment owner of any land or buildings Stamp duty The SSD rates range from 5%
• Businesses are subject to profits • Various concessionary in Hong Kong. in Hong Kong at the standard to 15% with higher rates for
tax at 16.5% or 15% on trading deductions are available: rate of 15% (for the year of The following table summarises shorter holding periods. The SSD
profits sourced in Hong Kong. e.g. approved charitable In order to enjoy treaty assessment 2012-13) on income the stamp duty rates for three payable will be calculated based
donations, home loan interest, protection, the individual is derived from the right to use major types of chargeable on the stated consideration or
• Individuals are subject to salaries
self-education expenses, required to file an individual tax such land or buildings instruments for year of the market value (whichever is
tax at either progressive rates
contributions to recognised return and make the claim in (i.e. rental income). assessment 2012-13. higher) of the resold property at
(ranging from 2% to 17%) or
retirement schemes etc. the return. the applicable duty rate. The seller
standard rate of 15% on Hong
Kong sourced income from an
If income from property Relief is provided for the and buyer are jointly and severally
office, an employment or a pension. • Various personal allowances Structuring of chargeable to property tax is transfer of shares or properties liable for paying the SSD.
such as basic allowance, child remuneration package included in a corporation's between group companies if
• No tax on capital gains and dividends. allowance and dependent Employees will often receive profits for profits tax purposes, certain conditions are satisfied. Capital gains tax
parent allowance are also allowances and benefits in the amount of property tax paid
• No turnover tax. available when progressive tax addition to their regular salary, is set-off against the profits tax There is a Special Stamp Duty There is no capital gains tax
rates apply. bonuses and commissions. assessed. A corporation which (‘SSD‘) on resale of residential in Hong Kong.
• No withholding tax on payments pays profits tax on the profits property which was acquired
of interest or dividends to non- Tax thresholds It is essential that the relevant derived from a property can on or after 20 November 2010 Turnover tax
residents; certain royalties received There is a 60-day income tax issues be considered prior alternatively claim exemption and resold within 24 months
by non-residents are subject to tax exemption in Hong Kong. to the determination of the from property tax. from the date of acquisition. Hong Kong does not impose
at 4.95% in general. Individuals who ‘visit’ Hong remuneration package. Tax The SSD will be imposed on any turnover tax.
Kong for not more than 60 advantages may be provided
• Other applicable taxes include days in a year of assessment without increasing the overall
property tax and stamp duty. may not be liable to salaries cost of the employer. The
tax. Nevertheless, tax following are some examples Three major types of stamp duty rates
reporting may still be required of components which, if
depending on the employment properly structured, would Chargeable instrument Duty rate Person(s) liable
arrangement. With Hong be exempt from salaries tax
Kong’s recent expansion of the or taxed preferentially: Agreement for transfer of Half by the transferor and half
0.2% of the value of the stock
treaty network, the threshold Hong Kong stock by the transferee
as defined in the respective • Accommodation provided HK$100 – 4.25% of the
treaties is more widely used by the employer. Conveyance on sale of All parties executing
consideration of the property
to provide additional protection • Company car. immovable property the transaction
(see Note 1)
from being liable to salaries tax. • Relocation expenses.
Individuals who are eligible for 0.25% – 1% of the annual rental All parties executing
Lease of immovable property
treaty protection can generally Withholding tax (see Note 2) the transaction
be exempt from salaries tax
if the following conditions There is no withholding on
are met: wages, with the exception Notes:
• the individual‘s cumulative stay that an employer is under an 1. Rate varies with the property consideration, with higher rate for higher property value and marginal relief upon entry into each higher rate band.
in Hong Kong does not exceed obligation to withhold any 2. Rate varies with the term of the lease with higher rate for longer lease period.
183 days in a base period (this payment to an employee who isAdministration of the Taxable profits are computed tax return is issued on the first system is available to small Tax treaty network
tax system based on the accounting working day in April following corporations if certain conditions
profits of the financial year the tax year. Companies are are satisfied. As of mid-May 2012, Hong
The tax year runs from 1 April ending within the tax year with required to file the tax return Kong entered into 24
of a year to 31 March of the appropriate adjustments for tax within a prescribed period. Individual taxpayers will comprehensive double tax
following year. purposes. Normally, the profits Electronic filing via the eTAX receive their tax returns in arrangement/agreements
May. The individual tax return with the following countries
has to be filed within a month respectively: Austria, Belgium,
Withholding tax rates on various types of passive income from the date of issue in Brunei, the Czech Republic,
Dividends Interest Royalties general. Electronic filing via France, Hungary, Indonesia,
the eTAX system is available Ireland, Japan, Jersey, Kuwait,
HK domestic non-treaty rate for non-resident corporations 0% 0% 4.95% to individual taxpayers whose Liechtenstein, Luxembourg,
HK domestic non-treaty rate for non-resident individuals 0% 0% 4.5% case is not complicated. mainland China, Malaysia,
Notice of assessment will Malta, the Netherlands,
Austria 0/10% Nil 3%
be issued after the tax return New Zealand, Portugal, Spain,
Belgium 0/5/15% 0/10% 5% has been examined by the Switzerland, Thailand, the
Brunei Nil 0/5/10% 5% tax authority. The dates of United Kingdom and Vietnam.
payment of tax are specified As of mid-May 2012, the
Czech Republic 5% 0% 10% in the assessment notice. agreements with Jersey,
France 10% 0/10% 10% A system of provisional tax Kuwait, Malaysia, Malta,
payments applies whereby Portugal and Switzerland have
Hungary 5/10% 0/5% 5%
estimated tax payments are not yet entered into force
Indonesia 5/10% 0/10% 5% made during the current tax pending the completion of the
Ireland 0% 0/10% 3% year. The provisional tax payable ratification procedures of the
is normally estimated based on governments concerned. The
Japan 5/10% 10% 5%
the previous year‘s tax liability. table on the left summarises
Jersey Nil Nil 4% The final tax liability for a tax the withholding tax rates
Kuwait 0/5% 0/5% 5% year is subsequently determined on various passive incomes
after lodgement of the return specified in the arrangement/
Liechtenstein Nil Nil 3% and the provisional tax paid will agreements concluded by
Luxembourg 0/10% Nil 3% then be deducted from the final Hong Kong so far.
tax payable.
Mainland China 5/10% 0/7% 7%
In addition, Hong Kong has
Malaysia 5/10% 0/10% 8% entered into agreements for
Malta Nil Nil 3% relief from double taxation
with respect to international
The Netherlands 0/10% Nil 3%
air traffic and international
New Zealand 0/5/15% 0/10% 5% operation of ships with
Portugal 5/10% 10% 5% numerous countries.
Spain 0/10% 0/5% 5%
Switzerland 0/10% 0% 3%
Thailand 10% 10/15% 5/10/15%
The UK 0/15% 0% 3%
Vietnam 10% 0%/10% 7%/10%
28
Note: The withholding rates under the domestic law would apply if they are lower than the rates specified in the arrangement/agreements.Taxation in mainland China
The standard corporate Corporate income tax (CIT) law • Arm‘s length prices must be an establishment or place c. Environment protection Facts at a glance
income tax rate for tax resident used for transactions conducted of business in China but the projects and energy/water
enterprises in mainland China Key messages between related parties. income derived from there conservation projects; • Starting from 1 January 2008,
is 25% but various tax • Tax resident enterprises, which is not effectively connected d. Qualified new/high tech a unified corporate income tax
incentives are available to include enterprises incorporated Corporate income tax system with such establishment or enterprises established in (CIT) system is applicable to
businesses engaged in certain in China and foreign enterprises place of business, is subject Shenzhen, Zhuhai, Shantou, foreign investment enterprises
industries. whose effective management is Residence concept to withholding CIT on China Xiamen, Hainan and Pudong and foreign corporations, as
located in China, are liable to CIT Enterprises incorporated in source income (generally New Area of Shanghai well as domestic enterprises.
China tax regime on their worldwide income. China are automatically tax includes passive income, such established after 1 January
• Tax resident enterprises in
resident enterprises. A foreign as, dividends, interest, royalties, 2008;
China are taxed on their
Principal taxes • Accelerated depreciation enterprise with its effective rental income, capital gains). e. Software production
worldwide income. Non-tax
The main applicable taxes is acceptable under certain management located in China enterprises;
resident enterprises are taxed
when doing business in circumstances. is also regarded as a tax resident To avoid double taxation of f. IC design enterprises;
on China sourced income.
China are as follows: enterprise. The effective foreign sourced income, a g. Qualified IC production
• Amortisation of intangible management refers to the place foreign tax credit is allowed enterprises; • CIT is at a flat rate of 25%.
1. Taxes on income: assets is allowed. where the overall management for income taxes paid to h. Qualified energy-saving
a. Corporate income tax (CIT) and control over the business other countries on foreign- service enterprises; • Individuals are subject to China‘s
b. Individual income tax (IIT) • In principle, the accrual method and production, personnel, sourced income. i. Encouraged enterprises in individual income tax (IIT) law.
of accounting is required. accounting, properties etc, underprivileged areas of Individuals domiciled in China
2. Taxeson transactions – of an enterprise is, in substance, Tax Incentives Xinjiang. are subject to IIT on their
turnover tax system: • Income tax is levied at a flat exercised. Tax resident worldwide income.
a. Value-added tax (VAT) rate of 25%. enterprises are subject to Reduced tax rate Other forms of incentives
b. Business tax (BT) CIT on worldwide income. The following enterprises are Other forms of tax incentives • Foreign individuals who are not
c. Consumption tax (CT) • Dividends paid between eligible for the reduced CIT rate – reduction of revenue, domiciled in China and have not
qualified tax resident enterprises A non-tax resident enterprise, of 15% upon approval: investment tax credit, etc. – are resided in China for more than
3. Other taxes: are exempt from CIT. However, which has an establishment a. Qualified new/high tech also available for enterprises five years may reduce their IIT
a. Customs duties non-tax resident enterprises are or place of business in enterprises; that are engaged in encouraged liabilities on employment
b. Stamp tax subject to a 10% withholding China, is subject to CIT on b. Qualified integrated circuits industries or which invest in income under certain conditions.
c. Vehicle and vessel tax CIT (unless reduced under a the income derived by such (‘IC‘) production enterprises; research and development and Employment income is subject
d. Motor vehicle tax treaty) on dividend income establishment or place of c. Qualified technology specific equipment. to the progressive rates from
acquisition tax derived from China. business. Examples of such advanced service enterprises. 3% to 45%. Individuals carrying
e. Deed tax establishment or place of Gross income out sole-proprietary business are
f. Land appreciation tax • Foreign tax credits are available. business include representative Qualified key software production subject to the progressive rates
from 5% to 35%.
g. Real estate tax offices, factories, farms, places enterprises are eligible for a Inter-company transactions
h. Urban and township • Qualified technology related where natural resources are reduced CIT rate of 10%. In principle, the CIT law requires
• Double taxation relief is offered
land-use tax enterprises are eligible for a exploited; places where labour an enterprise to conduct
through credit, exemption or
i. Resources tax reduced tax rate of 15% or services are provided; places business transactions with its
reduction provided under
j. Urban Construction and 10% upon approval. Other where contractor projects Tax reduction and exemption related parties in accordance national statutes and tax treaties.
Maintenance Tax forms of tax incentives – tax (e.g. construction, installation, Enterprises carrying out the with the arm‘s length principle.
k. Education Surcharge holiday, reduction of revenue, assembly, repair and exploration) following projects are eligible for If a related party transaction is
l. Local Education Surcharge investment tax credit, etc – are undertaken. a certain period of tax holidays not conducted at arm‘s length
m. Vessel tonnage tax are also available for enterprises upon approval; and there is a reduction of gross
n. Arable land occupation tax that are engaged in encouraged For a non-tax resident a. Agriculture, forestry, animal- income or taxable income,
o. Other surtaxes and levies industries or which invest in enterprise that has no husbandry and fishery the Chinese tax authorities
research and development and establishment or place of projects; are authorised to make the
specific equipment. business in China, or that has b. Specified basic infrastructure appropriate tax adjustment.
30 projects;Capital gains, interest, Donation and expenses, taxes and losses, medical insurance for local • Bad or doubtful debts
royalties and dividends debt forgiveness that are actually incurred by Chinese staff are deductible, Enterprises other than financial
Capital gains, interest and royalty Unless otherwise prescribed in a tax resident enterprise and subject to caps stipulated by institutions are not allowed
income derived by a tax resident the tax regulations, tax resident relevant to the generation of the government. to deduct bad debt provisions
enterprise are taxable as ordinary enterprises should include income, are deductible. for CIT purpose. Financial
income. Capital gains refers to donations received and releases Other staff welfare expenditure institutions may deduct bad
the gains from the disposition from debt as their taxable income. Depreciation is deductible subject to a cap debt provision subject to a
of property, including residential The straight-line method of of 14% of the total salaries cap for CIT purposes. Bad
property, buildings, structures Non-taxable income depreciation has to be followed expenses of an enterprise. debt losses are deductible
and attached facilities located in Fiscal appropriation, and there is a minimum only when the loss is actually
China, and from the assignment governmental administration depreciation period for different Insurance premiums incurred and approved by the
of land use rights and the charges and governmental types of fixed assets. Certain in-charge tax bureau.
transfer of equity investments. funds that are collected and fixed assets, for example, fixed Premiums paid for commercial
For any gain derived from the administered as treasury assets replacement due to insurance for investors or • Amortisation of
transfer of land use rights, management of the state advancement of technology employees are generally not intangible assets
buildings and premises and are non-taxable income under or fixed assets that are subject deductible with a few exceptions. The straight-line method is
related facilities attached the CIT law. to constant vibration or severe allowed with a minimum
thereto, a land appreciation corrosion, may be depreciated Payments to affiliates amortisation period of not less
tax is also levied. Tax-exempt income over a shorter period or using than 10 years or pursuant to
Tax-exempt income includes: accelerated depreciation methods. Management fees of a the useful life agreed in the
Dividends paid between qualified interest on state treasury stewardship nature are not contracts.
tax resident enterprises are CIT bonds; dividends paid between Interest deductible. However, service
exempt under the CIT law. qualifying tax resident Interest on loans is generally fees paid for genuine services • Advertising and
enterprises; dividends derived deductible. On borrowings from provided by affiliates in China promotional expenses
Service fees by a non-tax resident enterprise non-financial institutions by or overseas, and charged at The deduction is limited to
Service fees generated from that has an establishment a non-financial institution, the arm’s length, may be allowed 15% of the annual sales
consultation, management, or place of business in deductible interest expense for deduction. Other payments revenue. Excess portion is
training and other labour China from a tax resident cannot exceed the commercial to affiliates, such as royalties, allowed to be carried forward
services by a tax resident enterprise (the dividends are interest rate. However, the are also tax-deductible provided and deducted in future years.
enterprise are taxable as part of effectively connected with deduction of interest paid to that the charges are at arm’s
worldwide income, irrespective the establishment or place of related parties is subject to the length. • Research and
of the locality in which the business); and income derived thin capitalisation rule under the development (R&D)
services are performed. by qualifying non-profit- CIT Law. The thin capitalisation Other deductions A tax resident enterprise that
seeking organisations. ratio for the financial industry incurs qualified R&D expenses
Exchange gains and losses is 5:1 and for other industries • Business entertainment for the development of new
Exchange gains and losses Deductions is 2:1. expenses techniques, new products and
incurred during business Only 60% of actual incurred new craftsmanship is entitled
transactions and year-end Business expenses Staff welfare expenses business entertainment to an extra 50% deduction of
translation in respect of assets In principle, unless specifically expenses are deductible. In the R&D spending.
and liabilities denominated excluded under the CIT law Expenses incurred for basic addition, the total amount is
in foreign currencies should and other tax regulations, social security contributions, capped at 0.5% of the total • Donations
generally be accounted for in reasonable business supplementary pension sales (business) revenue of Donations to qualified charitable
the current year. expenditures including costs, insurance and supplementary the given tax year. institutions are deductible up to
12% of the annual profit.
32You can also read
