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HONG	
  KONG	
  COMPANY	
  INCORPORATION	
  –	
  WHITE	
  PAPER	
  
	
  
	
  
Hong	
  Kong	
  has	
  evolved	
  into	
  one	
  of	
  the	
  important	
  business	
  centers	
  in	
  the	
  region.	
  Located	
  on	
  
the	
   South	
   East	
   Coast	
   of	
   China	
   it	
   became	
   part	
   of	
   China	
   on	
   1	
   July,	
   1997.	
   It	
   is	
   a	
   Special	
  
Administrative	
   Region	
   (SAR)	
   within	
   the	
   People’s	
   Republic	
   of	
   China	
   with	
   its	
   own	
   legislature	
  
and	
  courts.	
  Despite	
  the	
  presence	
  of	
  business	
  centers	
  such	
  as	
  Shanghai,	
  Hong	
  Kong	
  continues	
  
to	
   gain	
   popularity	
   as	
   an	
   offshore	
   jurisdiction	
   and	
   commercial	
   hub	
   because	
   of	
   the	
   economic	
  
and	
   political	
   stability	
   and	
   simple	
   and	
   straightforward	
   tax	
   regime	
   and	
   legislative	
   system.	
   A	
  
Hong	
   Kong	
   offshore	
   company	
   is	
   a	
   very	
   popular	
   vehicle	
   for	
   conducting	
   offshore	
   banking	
  
activities,	
  international	
  trade,	
  investment	
  activities,	
  and	
  for	
  asset	
  protection.	
  
	
  
Some	
  of	
  the	
  key	
  benefits	
  of	
  Hong	
  Kong	
  as	
  an	
  offshore	
  jurisdiction	
  include:	
  
	
  
Favorable	
  Tax	
  regime:	
  Hong	
  Kong	
  follows	
  a	
  territorial	
  policy	
  of	
  taxation,	
  the	
  companies	
  are	
  
taxed	
   only	
   on	
   the	
   income	
   that	
   is	
   derived	
   from	
   Hong	
   Kong	
   and	
   profits	
   earned	
   beyond	
   the	
  
shores	
  of	
  Hong	
  Kong	
  are	
  exempted	
  from	
  tax.	
  Moreover	
  there	
  is	
  no	
  VAT,	
  or	
  capital	
  gains	
  tax	
  or	
  
tax	
   on	
   dividends	
   -­‐	
   this	
   makes	
   it	
   a	
   highly	
   desirable	
   jurisdiction.	
   Thus,	
   a	
   Hong	
   Kong	
   offshore	
  
company	
   that	
   generates	
   income	
   from	
   abroad	
   practically	
   pays	
   zero	
   tax.	
   Overseas	
   profits	
   are	
  
exempt	
  from	
  taxation	
  in	
  Hong	
  Kong	
  even	
  if	
  it	
  is	
  brought	
  back	
  to	
  the	
  jurisdiction.	
  
	
  
Even	
  for	
  revenue	
  generated	
  from	
  Hong	
  Kong	
  the	
  tax	
  applicable	
  on	
  taxable	
  profit	
  is	
  just	
  16.5%,	
  
one	
  of	
  the	
  lowest	
  in	
  the	
  region.	
  After	
  deductions	
  and	
  exemption	
  the	
  effective	
  tax	
  rate	
  will	
  be	
  
much	
  lower	
  than	
  the	
  headline	
  tax	
  rate.	
  
	
  
Positive	
  Image:	
  Hong	
  Kong	
  companies	
  are	
  not	
  perceived	
  as	
  offshore	
  tax	
  haven	
  as	
  Hong	
  Kong	
  
is	
  not	
  regarded	
  as	
  a	
  tax	
  shelter.	
  In	
  an	
  article	
  published	
  in	
  May	
  2009,	
  the	
  Director	
  of	
  the	
  OECD’s	
  
Centre	
   for	
   Tax	
   Policy	
   and	
   Administration	
   commended	
   Hong	
   Kong’s	
   efforts	
   to	
   comply	
   with	
   the	
  
international	
  standards	
  on	
  tax	
  transparency	
  and	
  exchange	
  of	
  information	
  while	
  pointing	
  out	
  
that	
   Hong	
   Kong	
   is	
   not	
   a	
   tax	
   haven	
   according	
   to	
   the	
   OECD	
   criteria.	
   Subsequently,	
   in	
   its	
  
September	
   2009	
   report,	
   the	
   OECD	
   vindicated	
   again	
   that	
   Hong	
   Kong	
   is	
   not	
   a	
   tax	
   haven	
   and	
  
recognised	
   Hong	
   Kong’s	
   commitments	
   to	
   the	
   OECD	
   standards.	
   Therefore	
   a	
   Hong	
   Kong	
  
Offshore	
  company	
  commands	
  a	
  respectable	
  image.	
  
	
  
Strategic	
   Location:	
   Hong	
   Kong	
   is	
   considered	
   as	
   the	
   gateway	
   to	
   China,	
   the	
   world’s	
   biggest	
  
market	
  and	
  facilitates	
  easy	
  access	
  to	
  mainland	
  China	
  and	
  all	
  the	
  key	
  markets	
  of	
  Asia,	
  most	
  of	
  
the	
  Asian	
  cities	
  are	
  within	
  four	
  hours	
  flying	
  radius.	
  
	
  
Free	
   economy:	
   Hong	
   Kong	
   is	
   regarded	
   as	
   the	
   world’s	
   most	
   free	
   economy	
   with	
   the	
   lack	
   of	
  
restrictions	
   and	
   government	
   interventions	
   in	
   trade.	
   The	
   economic	
   policy	
   allows	
   free	
   inflow	
  
and	
   outflow	
   of	
   capital	
   and	
   there	
   is	
   no	
   exchange	
   control.	
   The	
   jurisdiction	
   allows	
   100%	
   foreign	
  
ownership	
   of	
   companies.	
   It	
   has	
   been	
   ranked	
   as	
   the	
   freest	
   in	
   the	
   world	
   by	
   the	
   Index	
   of	
  
Economic	
  Freedom	
  for	
  15	
  consecutive	
  years.	
  
	
  
Political	
   Stability:	
   Hong	
   Kong	
   a	
   former	
   British	
   Dependent	
   Territory	
   became	
   a	
   Special	
  
Administrative	
  Region	
  of	
  People’s	
  Republic	
  of	
  China	
  in	
  July	
  1997.	
  Since	
  then	
  Hong	
  Kong	
  has	
  
retained	
  its	
  autonomous	
  status	
  and	
  under	
  the	
  “one	
  country	
  two	
  systems”	
  concept,	
  the	
  Chinese	
  
government	
   does	
   not	
   interfere	
   with	
   the	
   governance	
   of	
   Hong	
   Kong	
   which	
   has	
   flourished	
   by	
  
leaps	
  and	
  bounds	
  with	
  a	
  significant	
  share	
  of	
  the	
  world’s	
  largest	
  banks,	
  corporations	
  and	
  high	
  
net	
   worth	
   individuals.	
   World	
   Investment	
   Report	
   2009	
   released	
   by	
   the	
   United	
   Nations	
  
Conference	
  on	
  Trade	
  and	
  Development	
  (UNCTAD)	
  reaffirmed	
  Hong	
  Kong	
  as	
  one	
  of	
  the	
  world’s	
  
and	
   Asia’s	
   most	
   attractive	
   destinations	
   for	
   FDI.	
   Despite	
   the	
   tough	
   economic	
   situation	
   Hong	
  
Kong	
   attracted	
   US$63	
   billion	
   inward	
   investment	
   in	
   2008	
   and	
   continues	
   to	
   be	
   Asia’s	
   second	
  
largest	
  and	
  is	
  the	
  world’s	
  seventh	
  largest	
  FDI	
  recipient.	
  This	
  reflects	
  the	
  investment	
  climate	
  
and	
  investor’s	
  confidence	
  which	
  are	
  a	
  direct	
  outcome	
  of	
  political	
  stability.	
  
	
  
Strong	
   Economy:	
   With	
   a	
   population	
   of	
   7	
   million	
   and	
   foreign	
   exchange	
   reserves	
   of	
   over	
  
US$140	
   billion	
   the	
   economy	
   of	
   Hong	
   Kong	
   is	
   resilient	
   and	
   vibrant.	
   The	
   Hong	
   Kong	
   Stock	
  
Exchange	
  is	
  Asia’s	
  second	
  largest	
  stock	
  exchange	
  in	
  terms	
  of	
  market	
  capitalization,	
  behind	
  the	
  
Tokyo	
   Stock	
   Exchange.	
   As	
   of	
   31	
   December	
   2007,	
   the	
   Hong	
   Kong	
   Stock	
   Exchange	
   had	
   1,241	
  
listed	
  companies	
  with	
  a	
  combined	
  market	
  capitalization	
  of	
  $2.7	
  trillion.	
  
	
  
Absence	
   of	
   Nationality	
   or	
   Residency	
   Limitation:	
   As	
   an	
   international	
   business	
   center	
   the	
  
jurisdiction	
  does	
  not	
  have	
  any	
  stipulation	
  regarding	
  the	
  nationality	
  or	
  the	
  residency	
  of	
  share	
  
holders	
  and	
  directors.	
  A	
  minimum	
  of	
  one	
  director	
  and	
  shareholder	
  is	
  required	
  and	
  there	
  is	
  no	
  
cap	
  on	
  the	
  maximum	
  numbers	
  and	
  a	
  foreigner	
  who	
  is	
  not	
  residing	
  in	
  Hong	
  Kong	
  can	
  act	
  as	
  the	
  
director.	
   The	
   director	
   and	
   shareholder	
   can	
   be	
   the	
   same	
   person.	
   However	
   the	
   company	
  
secretary	
  must	
  be	
  a	
  resident	
  individual	
  or	
  a	
  resident	
  company.	
  
	
  
Minimum	
   Share	
   Capital:	
   The	
   minimum	
   paid	
   up	
   capital	
   is	
   HK	
   $1	
   and	
   recommended	
   share	
  
capital	
  is	
  HK$10,000.	
  Bearer	
  shares	
  are	
  not	
  allowed.	
  
	
  
Filing	
  of	
  Returns:	
  If	
  a	
  company	
  does	
  not	
  do	
  any	
  business	
  in	
  Hong	
  Kong,	
  which	
  is	
  usually	
  the	
  
case	
   with	
   offshore	
   companies,	
   there	
   is	
   generally	
   no	
   requirement	
   to	
   file	
   financial	
   statements	
  
and	
   no	
   audit	
   is	
   required.	
   It	
   is	
   only	
   necessary	
   to	
   file	
   an	
   annual	
   Declaration	
   of	
   “No	
   business	
  
activity	
   in	
   Hong	
   Kong.”	
   However	
   if	
   the	
   offshore	
   company	
   has	
   an	
   office	
   in	
   Hong	
   Kong	
   or	
   has	
  
employees	
   in	
   Hong	
   Kong	
   then	
   it	
   is	
   required	
   to	
   file	
   audited	
   financial	
   accounts.	
   Moreover	
   the	
  
government	
   reserves	
   the	
   right	
   to	
   request	
   for	
   filing	
   annual	
   statements	
   at	
   a	
   short	
   notice	
   any	
  
time	
  therefore	
  it	
  is	
  recommended	
  to	
  maintain	
  the	
  books	
  up-­‐to-­‐date.	
  
	
  
Provision	
   for	
   Anonymity:	
   The	
   names	
   and	
   details	
   of	
   the	
   Directors	
   and	
   Shareholders	
   are	
  
disclosed	
  in	
  public	
  records	
  however	
  the	
  nominee	
  provision	
  could	
  be	
  used	
  in	
  order	
  to	
  maintain	
  
anonymity.	
  
	
  
Regulatory	
   Compliance:	
   The	
   other	
   regulatory	
   compliance	
   are	
   simple	
   and	
   is	
   similar	
   to	
   any	
  
resident	
   companies	
   such	
   as	
   maintenance	
   of	
   proper	
   records,	
   renewal	
   of	
   licenses,	
   notifying	
   any	
  
changes	
  in	
  the	
  registered	
  details	
  etc.	
  
	
  
Investment	
   Environment:	
   Apart	
   from	
   certain	
   narrow	
   areas	
   (for	
   example,	
   broadcasting),	
  
foreign	
  investment	
  is	
  not	
  subject	
  to	
  special	
  regulatory	
  regimes	
  or	
  requirements.	
  	
  
	
  
Funds	
   from	
   profit	
   or	
   capital	
   accounts	
   can	
   be	
   freely	
   repatriated	
   and	
   remitted	
   overseas,	
   and	
  
there	
  is	
  no	
  foreign	
  exchange	
  control.	
  
 
The	
  general	
  tax	
  environment	
  in	
  Hong	
  Kong	
  is	
  favourable	
  to	
  investors	
  and	
  in	
  addition	
  there	
  are	
  
a	
  number	
  of	
  exemptions	
  from	
  tax	
  or	
  allowances	
  designed	
  to	
  stimulate	
  particular	
  industries	
  or	
  
businesses.	
  
	
  
The	
  most	
  common	
  forms	
  of	
  business	
  vehicle	
  used	
  by	
  foreign	
  companies	
  are:	
  
       ●      Representative	
  offices.	
  
       ●      Branches	
  of	
  parent	
  companies.	
  
       ●      Locally	
  incorporated	
  subsidiaries	
  of	
  parent	
  companies.	
  
       ●      Partnerships.	
  
       ●      Joint	
  ventures.	
  
       ●      Trusts.	
  	
  	
  
       	
  
       Registration	
   formalities.	
   The	
   incorporation	
   of	
   a	
   private	
   company	
   in	
   Hong	
   Kong	
   is	
  
       registered	
  on	
  the	
  filing	
  of	
  the	
  memorandum	
  of	
  association	
  and	
  articles	
  of	
  association.	
  After	
  
       the	
   constitutional	
   documents	
   are	
   filed	
   with	
   (and	
   a	
   statement	
   of	
   compliance	
   and	
   the	
  
       prescribed	
  capital	
  fee	
  are	
  submitted	
  to)	
  the	
  Registrar	
  of	
  Companies	
  (Registrar),	
  he	
  issues	
  a	
  
       certificate	
   of	
   incorporation	
   certifying	
   the	
   name	
   and	
   the	
   date	
   of	
   incorporation	
   of	
   the	
  
       company.	
  This	
  process	
  takes	
  about	
  six	
  working	
  days.	
  Every	
  person	
  establishing	
  a	
  place	
  of	
  
       business	
  in	
  Hong	
  Kong	
  must	
  also	
  register	
  with	
  the	
  Business	
  Registration	
  Office.	
  
       	
  
       Share	
   capital.	
   Apart	
   from	
   certain	
   companies	
   that	
   are	
   regulated	
   (for	
   example,	
   banking,	
  
       securities	
  and	
  insurance),	
  there	
  is	
  no	
  required	
  minimum	
  or	
  maximum	
  authorised	
  capital.	
  
       	
  
       Non-­‐cash	
  consideration.	
  Shares	
  can	
  be	
  allotted	
  for	
  cash,	
  services	
  or	
  other	
  consideration	
  
       such	
  as	
  the	
  transfer	
  of	
  property.	
  The	
  issued	
  share	
  capital	
  may	
  be	
  issued	
  at	
  par	
  value,	
  partly	
  
       paid-­‐up	
  or	
  paid	
  at	
  a	
  premium.	
  If	
  a	
  company's	
  articles	
  of	
  association	
  permit,	
  shares	
  can	
  also	
  
       be	
  issued	
  as	
  redeemable	
  shares.	
  
       	
  
       Rights	
   attaching	
   to	
   shares.	
   The	
   rights	
   attaching	
   to	
   shares	
   are	
   normally	
   set	
   out	
   in	
   the	
  
       company's	
   memorandum	
   and	
   articles	
   of	
   association	
   and	
   subject	
   to	
   the	
   provisions	
   of	
   the	
  
Companies	
  Ordinance.	
  
	
  
Foreign	
   shareholders.	
   There	
   is	
   no	
   requirement	
   that	
   a	
   shareholder	
   be	
   resident	
   in	
   Hong	
  
Kong	
  except	
  in	
  certain	
  narrow	
  circumstances.	
  
	
  
Management	
  structure.	
  A	
  private	
  company	
  must	
  have	
  at	
  least	
  one	
  director	
  while	
  a	
  public	
  
company	
   must	
   have	
   at	
   least	
   two.	
   Listed	
   companies	
   have	
   more	
   detailed	
   obligations	
  
concerning	
   the	
   composition	
   of	
   their	
   boards	
   of	
   directors.	
   There	
   are	
   no	
   restrictions	
   on	
  
foreign	
  managers.	
  
	
  
Directors'	
  liability.	
  If	
  a	
  director	
  does	
  not	
  comply	
  with	
  his	
  duties	
  he	
  may	
  be	
  liable	
  to	
  civil	
  
or	
   criminal	
   proceedings	
   and	
   may	
   be	
   disqualified	
   from	
   acting	
   as	
   a	
   director.	
   Certain	
   non-­‐
statutory	
  guidelines	
  on	
  directors'	
  duties	
  have	
  been	
  issued	
  by	
  the	
  Companies	
  Registry.	
  
	
  
Parent	
   company	
   liability.	
   The	
   parent	
   company	
   is	
   not	
   liable	
   for	
   the	
   debts	
   of	
   its	
  
subsidiary;	
  its	
  legal	
  liability	
  is	
  limited	
  to	
  the	
  amount	
  of	
  any	
  unpaid	
  issued	
  share	
  capital.	
  
	
  
Reporting	
  requirements.	
  A	
  profit	
  and	
  loss	
  account	
  and	
  a	
  balance	
  sheet	
  for	
  the	
  company	
  
must	
  be	
  audited	
  by	
  Hong	
  Kong	
  registered	
  auditors	
  and	
  laid	
  before	
  the	
  shareholders	
  at	
  a	
  
general	
   meeting	
   within	
   18	
   months	
   of	
   incorporation	
   and	
   then	
   at	
   least	
   once	
   in	
   every	
  
calendar	
  year.	
  Generally,	
  Hong	
  Kong	
  private	
  companies	
  with	
  share	
  capital	
  are	
  not	
  required	
  
to	
  file	
  their	
  accounts	
  with	
  the	
  Registrar	
  of	
  Companies.	
  	
  
In	
  addition,	
  an	
  annual	
  return	
  must	
  be	
  filed	
  with	
  the	
  Registrar	
  of	
  Companies	
  at	
  least	
  once	
  a	
  
year	
   (unless	
   there	
   has	
   been	
   no	
   change	
   in	
   the	
   filed	
   particulars	
   since	
   the	
   date	
   of	
   the	
   last	
  
annual	
   return,	
   in	
   which	
   case	
   a	
   certificate	
   confirming	
   this	
   fact	
   can	
   be	
   filed	
   instead	
   of	
   an	
  
annual	
  return).	
  	
  
A	
   company	
   must	
   also	
   notify	
   the	
   Registrar	
   of	
   certain	
   changes	
   concerning	
   the	
   company	
   (for	
  
example,	
   any	
   change	
   in	
   the	
   directors	
   or	
   secretary	
   or	
   in	
   the	
   filed	
   particulars	
   of	
   any	
   existing	
  
directors	
  or	
  secretary).	
  
	
  
Visas	
  and	
  work	
  permits:	
  Foreign	
  employees	
  must	
  obtain	
  a	
  Hong	
  Kong	
  employment	
  visa	
  
to	
  work	
  in	
  Hong	
  Kong.	
  To	
  qualify	
  for	
  this	
  visa,	
  a	
  person	
  must	
  possess	
  skills,	
  knowledge	
  or	
  
       experience	
   relevant	
   to	
   the	
   job	
   that	
   is	
   unavailable	
   locally.	
   This	
   test	
   can	
   generally	
   be	
  
       satisfied	
  in	
  the	
  case	
  of	
  an	
  intra-­‐company	
  or	
  intragroup	
  transfer.	
  The	
  applicant	
  also	
  needs	
  
       to	
   nominate	
   a	
   sponsor,	
   which	
   must	
   be	
   a	
   Hong	
   Kong	
   company	
   or	
   a	
   foreign	
   company	
  
       registered	
  in	
  Hong	
  Kong.	
  The	
  sponsor	
  is	
  usually	
  the	
  employer	
  company.	
  
       It	
  normally	
  takes	
  six	
  weeks	
  for	
  the	
  application	
  to	
  be	
  processed.	
  The	
  government	
  charges	
  
       nominal	
  fee	
  for	
  the	
  visa	
  if	
  the	
  application	
  is	
  approved.	
  
       	
  
       Imports	
   and	
   exports:	
   Hong	
   Kong	
   does	
   not	
   impose	
   export	
   tax.	
   Imports	
   of	
   the	
   following	
  
       items	
  are	
  taxed	
  (the	
  rate	
  of	
  taxation	
  varies	
  depending	
  on	
  the	
  specific	
  good	
  concerned):	
  
       ●      Liquor	
   with	
   an	
   alcoholic	
   strength	
   of	
   more	
   than	
   30%	
   by	
   volume	
   measured	
   at	
   a	
  
              temperature	
  of	
  20	
  degrees	
  Celsius.	
  
       ●      Tobacco.	
  
       ●      Hydrocarbon	
  oil.	
  
       ●      Methyl	
  alcohol	
  and	
  any	
  mixture	
  containing	
  methyl	
  alcohol.	
  
       ●      Motor	
  vehicles.	
  


       Double	
  Tax	
  Agreements:	
  Hong	
  Kong	
  has:	
  
       ●      Comprehensive	
   double	
   tax	
   treaties	
   with	
   Belgium,	
   Luxembourg,	
   the	
   People's	
   Republic	
  
              of	
  China	
  (PRC),	
  Thailand	
  and	
  Vietnam,	
  and	
  double	
  tax	
  treaties	
  have	
  been	
  signed	
  with	
  
              Austria,	
   Brunei,	
   Hungary,	
   Indonesia,	
   Ireland,	
   Kuwait,	
   Liechtenstein,	
   The	
   Netherlands	
  
              and	
  the	
  UK	
  but	
  are	
  not	
  yet	
  in	
  effect.	
  
       ●      Double	
   tax	
   arrangements	
   concerning	
   airline	
   and	
   shipping	
   income	
   with	
   Denmark,	
  
              Germany,	
  The	
  Netherlands,	
  Norway,	
  Singapore,	
  Sri	
  Lanka	
  and	
  the	
  UK.	
  
       ●      Double	
  tax	
  arrangements	
  concerning	
  airline	
  income	
  with	
  Bangladesh,	
  Canada,	
  Croatia,	
  
              Ethiopia,	
  Finland,	
  Iceland,	
  Israel,	
  Jordan,	
  Kenya,	
  Korea,	
  Kuwait,	
  Mauritius,	
  Mexico,	
  New	
  
              Zealand,	
   the	
   Russian	
   Federation,	
   Sweden	
   and	
   Switzerland.	
   Double	
   tax	
   arrangements	
  
              concerning	
   airline	
   income	
   have	
   been	
   signed	
   with	
   Estonia,	
   Fiji,	
   Laos,	
   Maldives	
   and	
  
              Macau,	
  but	
  are	
  not	
  yet	
  in	
  effect.	
  	
  
       ●      Double	
  tax	
  arrangements	
  concerning	
  shipping	
  income	
  with	
  the	
  US.	
  
	
  
 
________________________________________	
  
Intuit	
  Management	
  Consultancy	
  
www.intuitconsultancy.com
Dubai:	
  +971	
  4	
  351	
  8381	
  
UK:	
  +	
  44	
  78	
  2765	
  5809	
  
India:	
  +91	
  9840708181	
  


The	
  information	
  in	
  this	
  document	
  is	
  of	
  a	
  general	
  nature	
  and	
  is	
  not	
  intended	
  to	
  address	
  the	
  circumstances	
  of	
  any	
  particular	
  individual	
  or	
  entity.	
  
There	
  can	
  be	
  no	
  guarantee	
  that	
  the	
  information	
  in	
  this	
  document	
  is	
  accurate	
  as	
  of	
  the	
  date	
  it	
  is	
  received,or	
  that	
  it	
  will	
  continue	
  to	
  be	
  accuratein	
  
the	
  future.	
  No	
  individual	
  or	
  entity	
  should	
  act	
  on	
  the	
  contents	
  herein	
  without	
  appropriate	
  professional	
  advice	
  and	
  only	
  after	
  a	
  complete	
  
examination	
  of	
  their	
  particular	
  circumstances.	
  	
  

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Doing Business in Hong Kong

  • 1. HONG  KONG  COMPANY  INCORPORATION  –  WHITE  PAPER       Hong  Kong  has  evolved  into  one  of  the  important  business  centers  in  the  region.  Located  on   the   South   East   Coast   of   China   it   became   part   of   China   on   1   July,   1997.   It   is   a   Special   Administrative   Region   (SAR)   within   the   People’s   Republic   of   China   with   its   own   legislature   and  courts.  Despite  the  presence  of  business  centers  such  as  Shanghai,  Hong  Kong  continues   to   gain   popularity   as   an   offshore   jurisdiction   and   commercial   hub   because   of   the   economic   and   political   stability   and   simple   and   straightforward   tax   regime   and   legislative   system.   A   Hong   Kong   offshore   company   is   a   very   popular   vehicle   for   conducting   offshore   banking   activities,  international  trade,  investment  activities,  and  for  asset  protection.     Some  of  the  key  benefits  of  Hong  Kong  as  an  offshore  jurisdiction  include:     Favorable  Tax  regime:  Hong  Kong  follows  a  territorial  policy  of  taxation,  the  companies  are   taxed   only   on   the   income   that   is   derived   from   Hong   Kong   and   profits   earned   beyond   the   shores  of  Hong  Kong  are  exempted  from  tax.  Moreover  there  is  no  VAT,  or  capital  gains  tax  or   tax   on   dividends   -­‐   this   makes   it   a   highly   desirable   jurisdiction.   Thus,   a   Hong   Kong   offshore   company   that   generates   income   from   abroad   practically   pays   zero   tax.   Overseas   profits   are   exempt  from  taxation  in  Hong  Kong  even  if  it  is  brought  back  to  the  jurisdiction.     Even  for  revenue  generated  from  Hong  Kong  the  tax  applicable  on  taxable  profit  is  just  16.5%,   one  of  the  lowest  in  the  region.  After  deductions  and  exemption  the  effective  tax  rate  will  be   much  lower  than  the  headline  tax  rate.     Positive  Image:  Hong  Kong  companies  are  not  perceived  as  offshore  tax  haven  as  Hong  Kong   is  not  regarded  as  a  tax  shelter.  In  an  article  published  in  May  2009,  the  Director  of  the  OECD’s   Centre   for   Tax   Policy   and   Administration   commended   Hong   Kong’s   efforts   to   comply   with   the   international  standards  on  tax  transparency  and  exchange  of  information  while  pointing  out   that   Hong   Kong   is   not   a   tax   haven   according   to   the   OECD   criteria.   Subsequently,   in   its   September   2009   report,   the   OECD   vindicated   again   that   Hong   Kong   is   not   a   tax   haven   and  
  • 2. recognised   Hong   Kong’s   commitments   to   the   OECD   standards.   Therefore   a   Hong   Kong   Offshore  company  commands  a  respectable  image.     Strategic   Location:   Hong   Kong   is   considered   as   the   gateway   to   China,   the   world’s   biggest   market  and  facilitates  easy  access  to  mainland  China  and  all  the  key  markets  of  Asia,  most  of   the  Asian  cities  are  within  four  hours  flying  radius.     Free   economy:   Hong   Kong   is   regarded   as   the   world’s   most   free   economy   with   the   lack   of   restrictions   and   government   interventions   in   trade.   The   economic   policy   allows   free   inflow   and   outflow   of   capital   and   there   is   no   exchange   control.   The   jurisdiction   allows   100%   foreign   ownership   of   companies.   It   has   been   ranked   as   the   freest   in   the   world   by   the   Index   of   Economic  Freedom  for  15  consecutive  years.     Political   Stability:   Hong   Kong   a   former   British   Dependent   Territory   became   a   Special   Administrative  Region  of  People’s  Republic  of  China  in  July  1997.  Since  then  Hong  Kong  has   retained  its  autonomous  status  and  under  the  “one  country  two  systems”  concept,  the  Chinese   government   does   not   interfere   with   the   governance   of   Hong   Kong   which   has   flourished   by   leaps  and  bounds  with  a  significant  share  of  the  world’s  largest  banks,  corporations  and  high   net   worth   individuals.   World   Investment   Report   2009   released   by   the   United   Nations   Conference  on  Trade  and  Development  (UNCTAD)  reaffirmed  Hong  Kong  as  one  of  the  world’s   and   Asia’s   most   attractive   destinations   for   FDI.   Despite   the   tough   economic   situation   Hong   Kong   attracted   US$63   billion   inward   investment   in   2008   and   continues   to   be   Asia’s   second   largest  and  is  the  world’s  seventh  largest  FDI  recipient.  This  reflects  the  investment  climate   and  investor’s  confidence  which  are  a  direct  outcome  of  political  stability.     Strong   Economy:   With   a   population   of   7   million   and   foreign   exchange   reserves   of   over   US$140   billion   the   economy   of   Hong   Kong   is   resilient   and   vibrant.   The   Hong   Kong   Stock   Exchange  is  Asia’s  second  largest  stock  exchange  in  terms  of  market  capitalization,  behind  the   Tokyo   Stock   Exchange.   As   of   31   December   2007,   the   Hong   Kong   Stock   Exchange   had   1,241   listed  companies  with  a  combined  market  capitalization  of  $2.7  trillion.    
  • 3. Absence   of   Nationality   or   Residency   Limitation:   As   an   international   business   center   the   jurisdiction  does  not  have  any  stipulation  regarding  the  nationality  or  the  residency  of  share   holders  and  directors.  A  minimum  of  one  director  and  shareholder  is  required  and  there  is  no   cap  on  the  maximum  numbers  and  a  foreigner  who  is  not  residing  in  Hong  Kong  can  act  as  the   director.   The   director   and   shareholder   can   be   the   same   person.   However   the   company   secretary  must  be  a  resident  individual  or  a  resident  company.     Minimum   Share   Capital:   The   minimum   paid   up   capital   is   HK   $1   and   recommended   share   capital  is  HK$10,000.  Bearer  shares  are  not  allowed.     Filing  of  Returns:  If  a  company  does  not  do  any  business  in  Hong  Kong,  which  is  usually  the   case   with   offshore   companies,   there   is   generally   no   requirement   to   file   financial   statements   and   no   audit   is   required.   It   is   only   necessary   to   file   an   annual   Declaration   of   “No   business   activity   in   Hong   Kong.”   However   if   the   offshore   company   has   an   office   in   Hong   Kong   or   has   employees   in   Hong   Kong   then   it   is   required   to   file   audited   financial   accounts.   Moreover   the   government   reserves   the   right   to   request   for   filing   annual   statements   at   a   short   notice   any   time  therefore  it  is  recommended  to  maintain  the  books  up-­‐to-­‐date.     Provision   for   Anonymity:   The   names   and   details   of   the   Directors   and   Shareholders   are   disclosed  in  public  records  however  the  nominee  provision  could  be  used  in  order  to  maintain   anonymity.     Regulatory   Compliance:   The   other   regulatory   compliance   are   simple   and   is   similar   to   any   resident   companies   such   as   maintenance   of   proper   records,   renewal   of   licenses,   notifying   any   changes  in  the  registered  details  etc.     Investment   Environment:   Apart   from   certain   narrow   areas   (for   example,   broadcasting),   foreign  investment  is  not  subject  to  special  regulatory  regimes  or  requirements.       Funds   from   profit   or   capital   accounts   can   be   freely   repatriated   and   remitted   overseas,   and   there  is  no  foreign  exchange  control.  
  • 4.   The  general  tax  environment  in  Hong  Kong  is  favourable  to  investors  and  in  addition  there  are   a  number  of  exemptions  from  tax  or  allowances  designed  to  stimulate  particular  industries  or   businesses.     The  most  common  forms  of  business  vehicle  used  by  foreign  companies  are:   ● Representative  offices.   ● Branches  of  parent  companies.   ● Locally  incorporated  subsidiaries  of  parent  companies.   ● Partnerships.   ● Joint  ventures.   ● Trusts.         Registration   formalities.   The   incorporation   of   a   private   company   in   Hong   Kong   is   registered  on  the  filing  of  the  memorandum  of  association  and  articles  of  association.  After   the   constitutional   documents   are   filed   with   (and   a   statement   of   compliance   and   the   prescribed  capital  fee  are  submitted  to)  the  Registrar  of  Companies  (Registrar),  he  issues  a   certificate   of   incorporation   certifying   the   name   and   the   date   of   incorporation   of   the   company.  This  process  takes  about  six  working  days.  Every  person  establishing  a  place  of   business  in  Hong  Kong  must  also  register  with  the  Business  Registration  Office.     Share   capital.   Apart   from   certain   companies   that   are   regulated   (for   example,   banking,   securities  and  insurance),  there  is  no  required  minimum  or  maximum  authorised  capital.     Non-­‐cash  consideration.  Shares  can  be  allotted  for  cash,  services  or  other  consideration   such  as  the  transfer  of  property.  The  issued  share  capital  may  be  issued  at  par  value,  partly   paid-­‐up  or  paid  at  a  premium.  If  a  company's  articles  of  association  permit,  shares  can  also   be  issued  as  redeemable  shares.     Rights   attaching   to   shares.   The   rights   attaching   to   shares   are   normally   set   out   in   the   company's   memorandum   and   articles   of   association   and   subject   to   the   provisions   of   the  
  • 5. Companies  Ordinance.     Foreign   shareholders.   There   is   no   requirement   that   a   shareholder   be   resident   in   Hong   Kong  except  in  certain  narrow  circumstances.     Management  structure.  A  private  company  must  have  at  least  one  director  while  a  public   company   must   have   at   least   two.   Listed   companies   have   more   detailed   obligations   concerning   the   composition   of   their   boards   of   directors.   There   are   no   restrictions   on   foreign  managers.     Directors'  liability.  If  a  director  does  not  comply  with  his  duties  he  may  be  liable  to  civil   or   criminal   proceedings   and   may   be   disqualified   from   acting   as   a   director.   Certain   non-­‐ statutory  guidelines  on  directors'  duties  have  been  issued  by  the  Companies  Registry.     Parent   company   liability.   The   parent   company   is   not   liable   for   the   debts   of   its   subsidiary;  its  legal  liability  is  limited  to  the  amount  of  any  unpaid  issued  share  capital.     Reporting  requirements.  A  profit  and  loss  account  and  a  balance  sheet  for  the  company   must  be  audited  by  Hong  Kong  registered  auditors  and  laid  before  the  shareholders  at  a   general   meeting   within   18   months   of   incorporation   and   then   at   least   once   in   every   calendar  year.  Generally,  Hong  Kong  private  companies  with  share  capital  are  not  required   to  file  their  accounts  with  the  Registrar  of  Companies.     In  addition,  an  annual  return  must  be  filed  with  the  Registrar  of  Companies  at  least  once  a   year   (unless   there   has   been   no   change   in   the   filed   particulars   since   the   date   of   the   last   annual   return,   in   which   case   a   certificate   confirming   this   fact   can   be   filed   instead   of   an   annual  return).     A   company   must   also   notify   the   Registrar   of   certain   changes   concerning   the   company   (for   example,   any   change   in   the   directors   or   secretary   or   in   the   filed   particulars   of   any   existing   directors  or  secretary).     Visas  and  work  permits:  Foreign  employees  must  obtain  a  Hong  Kong  employment  visa  
  • 6. to  work  in  Hong  Kong.  To  qualify  for  this  visa,  a  person  must  possess  skills,  knowledge  or   experience   relevant   to   the   job   that   is   unavailable   locally.   This   test   can   generally   be   satisfied  in  the  case  of  an  intra-­‐company  or  intragroup  transfer.  The  applicant  also  needs   to   nominate   a   sponsor,   which   must   be   a   Hong   Kong   company   or   a   foreign   company   registered  in  Hong  Kong.  The  sponsor  is  usually  the  employer  company.   It  normally  takes  six  weeks  for  the  application  to  be  processed.  The  government  charges   nominal  fee  for  the  visa  if  the  application  is  approved.     Imports   and   exports:   Hong   Kong   does   not   impose   export   tax.   Imports   of   the   following   items  are  taxed  (the  rate  of  taxation  varies  depending  on  the  specific  good  concerned):   ● Liquor   with   an   alcoholic   strength   of   more   than   30%   by   volume   measured   at   a   temperature  of  20  degrees  Celsius.   ● Tobacco.   ● Hydrocarbon  oil.   ● Methyl  alcohol  and  any  mixture  containing  methyl  alcohol.   ● Motor  vehicles.   Double  Tax  Agreements:  Hong  Kong  has:   ● Comprehensive   double   tax   treaties   with   Belgium,   Luxembourg,   the   People's   Republic   of  China  (PRC),  Thailand  and  Vietnam,  and  double  tax  treaties  have  been  signed  with   Austria,   Brunei,   Hungary,   Indonesia,   Ireland,   Kuwait,   Liechtenstein,   The   Netherlands   and  the  UK  but  are  not  yet  in  effect.   ● Double   tax   arrangements   concerning   airline   and   shipping   income   with   Denmark,   Germany,  The  Netherlands,  Norway,  Singapore,  Sri  Lanka  and  the  UK.   ● Double  tax  arrangements  concerning  airline  income  with  Bangladesh,  Canada,  Croatia,   Ethiopia,  Finland,  Iceland,  Israel,  Jordan,  Kenya,  Korea,  Kuwait,  Mauritius,  Mexico,  New   Zealand,   the   Russian   Federation,   Sweden   and   Switzerland.   Double   tax   arrangements   concerning   airline   income   have   been   signed   with   Estonia,   Fiji,   Laos,   Maldives   and   Macau,  but  are  not  yet  in  effect.     ● Double  tax  arrangements  concerning  shipping  income  with  the  US.    
  • 7.   ________________________________________   Intuit  Management  Consultancy   www.intuitconsultancy.com Dubai:  +971  4  351  8381   UK:  +  44  78  2765  5809   India:  +91  9840708181   The  information  in  this  document  is  of  a  general  nature  and  is  not  intended  to  address  the  circumstances  of  any  particular  individual  or  entity.   There  can  be  no  guarantee  that  the  information  in  this  document  is  accurate  as  of  the  date  it  is  received,or  that  it  will  continue  to  be  accuratein   the  future.  No  individual  or  entity  should  act  on  the  contents  herein  without  appropriate  professional  advice  and  only  after  a  complete   examination  of  their  particular  circumstances.