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  • General Background Information on Hong Kong

    1. Geography and climate

    Hong Kong has 1,084 square kilometres of land which includes 235 outlying islands. The population is approximately 6.7 million. Only 15% of the territory is suitable for large scale development projects due to its mountaineous terrain and extensive land reclamation has been undertaken for a number of projects to enable expansion to continue. Hong Kong has only one natural resource, its sheltered harbour.

    The territory has a moderate sub topical climate with a long, hot and humid summer and a mild winter. Typhoons can occur during the summer months.

    2. History of Hong Kong

    In its early days, Hong Kong was regarded as an uninviting prospect for settlement. A population of about 3,650 was scattered over 20 villages and hamlets, and 2,000 fishermen lived on board their boats in the harbour.

    Hong Kong Island was ceded to Britain in 1841 after the first Opium War. The first Opium War had commenced because at the end of the 18th Century the British were dissatisfied with the trading conditions in Guangzhou, which were heavily balanced in China's favour. In order to reverse the trade imbalance, the British started to import opium, illegally. In 1839, the Emperor appointed Lin Zexu as special Commissioner in Canton to stamp out the opium trade. Lin's troops surrounded the foreign factories and maintained a blockade until all stocks of opium had been surrendered, and an agreement made by the traders and ships' masters never to import it again. As a result an expeditionary force was sent from Britain demanding a commercial treaty in British terms or the cession of a small island under British rule and the war began. There were further disputes and a second Opium War whereupon the territory was extended into the mainland in 1860 and the New Territories were leased to Britain for 99 years in 1898. The lease expired on 30 June 1997 and Hong Kong was returned to China.

    The adopted the British administration systems as well as establishing its first Executive and Legislative Councils which were largely made up of official majorities. The first Chinese was nominated in 1880 for the Legislative Council and the Executive Council also nominated its first Chinese member in 1926. Government policy was laissez-faire, treating Hong Kong as a market place open to all and where the government held the scales impartially. Currently, the Legislative Council has 60 seats. The Basic Law provides that 24 members have to be elected directly, 30 elected by their respective functional constituencies and 6 by the Election Committee. In the coming 3rd term in 2003, 30 members will be directly elected and there will be no seats via the Election Committee.

    After the Chinese revolution of 1911, which overthrew the Manchu Dynasty, there was a long period of unrest in China and many people found shelter in Hong Kong. When Guangdong fell to the Japanese in 1938, more than 700,000 refugees entered Hong Kong, bringing its population at the outbreak of World War II to an estimated 1.6 million. It was said by some that at the height of the influx, about 500,000 people were sleeping on the streets!

    At approximately the same time that Japan bombed the Pearl Harbour, it invaded Hong Kong. This Japanese occupation lasted for 3 years and 8 months. After the Japanese surrender, Chinese civilians returned. The influx was also contributed to by the defeat of the Chinese Nationalist Government in the civil war between the Chinese Communist Party. The former eventually became the ruler of Taiwan until the recent election in 2000 in which the Democratic Progressive Party took over under the leadership of current President, Chen Shui-bian. By mid-1950, the population had swelled to an estimated 2.2 million. It has continued to rise and now stands at 6.7 million, according to the recent Population Census 2001, conducted by the Census and Statistics Department.

    After a period of economic stagnation caused by the United Nations' embargo on trade with China, Hong Kong began to industrialize. From the start, the industrial revolution was based on cotton textiles, gradually adding woolens, man-made fibres and made-up garments to the list. Electronic products, watches and clocks, and printing are also important industries. Hong Kong continued to expand its role as a entrepot with its neighbours and trade with China was no exception. Coupled with tourism, this led to vast improvements in communications, with an increasing number of people entering China from or through Hong Kong. Hong Kong became the first major city in the world to fully digitalis its telephone network. International dialing can now be directed to 232 countries. It also boasts the highest rate of telephone penetration in Asia and the 2nd highest rate of business fax use in the world. The mobile phone penetration is one of the world's highest at 74% as at May 2000. There are almost 230 Internet Service Providers in Hong Kong connecting about 3 million Internet users to the world-wide-web. In addition, 40 newspapers and 700 periodicals are published in HK. At present, about 30,700 vehicles and 310,000 people cross between the borders of Hong Kong and the Mainland daily. More than 800 flights are scheduled weekly to 42 Mainland cities. These connections and facilities make Hong Kong a favourable place to do business both with the international market and the Chinese market.

    Despite the economic crisis in 1997, the Hong Kong economy revived further in 2000, with a strong and broad-based upturn on both the external and domestic fronts. Externally, total exports of services rose by 14.3% in real terms. The total exports of goods also accelerated in growth to well in the double-digit range at 17.1% in real terms. This far outpaced the 4 per cent increase in 1999, and was the fastest growth recorded since 1992. Within total exports of goods, re-exports surged by 18 per cent in real terms in 2000. This well exceeded the 5 per cent rise in 1999, and represented the highest growth figure recorded since 1993. Domestic exports went up by 8 per cent in real terms in 2000. This was in stark contrast to a 7 per cent fall in 1999, and was the fastest growth recorded since 1988. In line with the surge in re-exports and intake of imports for local use, imports of goods soared by 18 per cent in real terms in 2000, after virtually zero growth in 1999. Apart from buoyant import absorption in all the major markets, improved price competitiveness and productivity upgrading over the past year or so also rendered a boost. The GDP attained double-digit growth, at 10.5% in real terms in 2000. This was much faster than the 3.1% growth in 1999, and was the highest growth recorded since 1987. However, with a gloomy economic performance world-wide in 2001, the Hong Kong Government forecasts (as at 31 August) that the GDP will only rise by 1% this year. On the other hand, the Consumer Price Index will drop by 1.3%. However, the GDP Per Capita remains strong at US$24,000 (in 2000), ranking higher than some of the large nations such as the United Kingdom and Australia.

    On the legal context, the Rule of Law has been upheld by a respected and world-class independent judiciary. In fact, the courts jurisdiction has expanded considerably compared to the situation before 1997. This is due to the establishment of the Court of Final Appeal in Hong Kong as the highest appellate court whereas, in the past, all final adjudication rested with the Privy Council in the United Kingdom. The number of solicitors and barristers have also continued to rise steadily, with about 10% being foreign lawyers. All locally qualified lawyers speak English, as do most of the general population. This is mainly because all citizens of Hong Kong enjoy a 9 year free and compulsory education, in which the medium of instructions are English, Cantonese and Putonghua.

    3. Hong Kong's Economy

    The world's freest economy
    Hong Kong was again rated in 2002 by the Heritage Foundation of the US as the world's freest economy. This award has been received by Hong Kong for 8 consecutive years already. Indeed, the 2001 Survey of Regional Offices Representing Overseas Company in Hong Kong conducted by the Census and Statistics Department identified 3,237 regional operations of foreign origin in Hong Kong. These comprise 944 regional headquarters and 2,293 regional offices, a significant increase compared to 855 regional headquarters and 2,146 regional offices in 2000. It also showed the stark increase of confidence amongst international enterprises post-reunification as there were only 903 regional headquarters and 1,611 regional offices back in 1997. These information are surely the best evidences to ease doubts that Hong Kong is no longer regarded by top overseas corporations as one of the first-choices in their lists to expand their business.
    - Economy built on free enterprise, free trade, free market open to all
    - No barriers to trade-no tariffs, quotas, exceptions
    - No restrictions to investments, inward or outward
    - Hugh trade volume only trails US, the EU as a whole, Japan and Canada
    - Ratio of trade in goods to GDP is 254%
    - Ratio of total trade in goods and services to GDP is 295%
    - No foreign exchange controls

    Hub for international business
    - a level playing field for all who do business
    - No restrictions on capital flows into or out of Hong Kong
    - Modern, efficient and cheap communications keep companies connected around the globe
    - Prime geographical position for expanding business into China and other Asian economies
    - Located between the time zones of major markets in North America and Europe, Asia and the Pacific

    Launching pad for China
    - Mainland China is Hong Kong's biggest trading partner
    - About 50% of all external investment in the Mainland come from Hong Kong
    - Hong Kong is the major entrepot for China's trade with the world-90% of Hong Kong's re-exports originate from, or are destined for the Mainland
    - 1,850 Mainland enterprises operate in Hong Kong
    - Hong Kong companies or Hong Kong-China Joint Ventures, employ some 5 million people in the adjoining Guangdong Province of the Mainland
    - Hong Kong is a major source of funding for Mainland enterprises
    - Arrangements with the Mainland to avoid double taxation on shipping, aviation, land transport, other business areas and personal taxation
    - Hong Kong is the perfect location for foreign companies to set up regional headquarters to control businesses in China
    - Hong Kong offers accounting and legal expertise, and an unmatched pool of knowledge, on how to do business in Mainland China markets

    World-class infrastructure
    - US$30 billion will be spent over the next 5 years on significant expansion of the railway network, new land formation, roads, new town developments, government buildings, schools, community facilities and environmental protection
    - One of the world's busiest and most efficient privately owned and operated container ports
    - New container, mid-stream and river trade facilities coming on line
    - Communication networks and facilities among the best in the world
    - New HK International Airport, opened in July 1998, consolidating HK's position as a regional transportation and logistics hub. Since it came into operation, it has continually won awards as the Best Airport in numerous surveys and rankings
    - Most of the main locations in the territory are accessible by the Mass Transit Railway (underground network) or the Kowloon Canton Railway. Public bus and mini-bus networks also cover the whole territory.
    - Hong Kong Disneyland to be opened in 2005

    Low, simple, predictable tax regime
    - Firms pay only 16% profits tax-unlimited carry-over of losses
    - Max. 15% salaries tax for individuals
    - No value added or sales tax: No capital gains tax
    - No withholding tax on dividends and interest
    - Only income sourced in HK is taxable: No global taxation
    - The 2001/2002 Budget announced in March on honing HK's strengths to capitalize on opportunities arising from China's imminent accession to the WTO

    Small and accountable government
    - Government spending is capped in line with trend growth of GDP over time
    - Public spending is only about 21% of GDP
    - Basic philosophy is "maximum support, minimum intervention"
    - In business, government intervention is kept to the minimum so as not to constrain creativity and entrepreneurial flair

    Foundations of success
    - The Rule of Law
    - A Level Playing Field
    - Corruption-free Government
    - Free Flow of Information

    People-our greatest asset
    - Rarely industrial trouble in HK
    - Work ethic high
    - English remains the lingua franca of the business and legal community
    - 9 years of free compulsory education, with 96% of children going on to higher levels of education
    - 30% of those aged 17-20 go onto education in tertiary institutions. Increased numbers of working people with or without degree continue to study in the 9 universities in HK.
    A services economy
    - More than 80% of GDP derived from services
    - About 80% of all jobs in services sector
    - World's 10th-largest exporter of services, 2nd only to Japan in Asia
    - Prominent financial centre-2nd largest stock market in Asia, world's 9th largest banking centre and 7th largest foreign exchange market
    - Most popular tourist destination in Asia after the Mainland
    - One of the world's leading film and entertainment production centres

    Helping business
    - Government-funded business studies in progress to give recommendations to remove obstacles and constraints to business development

    Invest Hong Kong
    - established on 1 July 2000 to spearhead HK's efforts to attract inward investment
    - provides solution-oriented investment promotion, facilitation and aftercare services
    - investment support services
    - contacts to connect prospective business partners
    - assistance on work visa applications, trade mark registration, fire and environmental protection requirements and business incorporations, consultation

    Innovation and technology
    - Innovation and Technology Commission established
    - 1st phrase of Cyberport and Science Park to be ready for occupation by early 2002 to help HK develop as a world-class base for IT companies, multi-media content creation and to turn innovative ideas into commercial products
    - Innovation and Technology Fund and Applied Science and Research Institute established to provide funding and infrastructure

    A home away from home in Asia
    - Some 46 international schools
    - Numerous country parks covering 40% of HK
    - World-class events for sports lovers
    - Some of the best restaurants and finest cuisine
    - Cultural performances, exhibitions, carnivals, etc.
    - Regional airline hub-easy access to the world

    4. Employment Visas

    Expatriates are permitted to work in Hong Kong and the Immigration Department has established procedures to facilitate the administrative ease with which visas can be processed and obtained. For an expatriate seeking to relocate to Hong Kong, the applicable visas are likely to be either an employment visa, an investment visa or a dependant visa.

    The overriding consideration of the Immigration Department in considering whether to grant an employment visa is whether the applicant has sufficiently unique skills that are difficult to source in the Hong Kong labour market and that are essential for the operation of the Hong Kong employer. The employment visa must be sponsored by the proposed Hong Kong employer of the applicant. The sponsor will need to establish to the Immigration Department that it has the financial resources necessary to fully support the applicant while he works in Hong Kong, and that it will pay any costs of repatriating the applicant to his home country should the Immigration Department so require.

    The application for an employment visa will invariably require the production to the Immigration Department of documents relating to the applicant and the sponsor (and indeed the group of companies to which the sponsor may belong). Special care must be taken in the preparation of the documents for the application to ensure that complete and accurate information is given to the Immigration Department. This is because it is a criminal offence for anyone to give false or misleading information to the Immigration Department.

    Neither the preparation nor the submission of the application give the right to the applicant to start to work in Hong Kong. This permission is only given upon approval of the application by the Director of Immigration. The applicant should not, as a general rule, come to Hong Kong during the period that his application is under consideration. This is because his status during any such visit would be that of a visitor, and, from a practical point of view, the Immigration Department frown upon applications that would change the status of a person in Hong Kong from a visitor's visa to an employment visa.

    A criminal offence is committed by both the applicant and the sponsor if the applicant works in Hong Kong (whether or not the applicant is paid) prior to the grant of the employment visa.

    An investment visa requires substantially the same kind of documentary compliance required for an employment visa. The Immigration Department, in considering an investment visa application, will consider whether the proposed investment in the enterprise in Hong Kong will bring substantial resources and benefit to the Hong Kong economy that are not already available in Hong Kong.

    Dependant visas allow dependants of a person, who has obtained an employment visa or has the right of abode in Hong Kong, to stay in Hong Kong and to take up employment or to receive education in Hong Kong. Assuming that the applicant for an employment visa would travel to Hong Kong with his family, the applicant would sponsor the dependant visa applications. The governing principle is that the applicant/sponsor must satisfy the Immigration Department that he has sufficient means to support his family's stay in Hong Kong and that his family has adequate re-entry facilities to his specified country of repatriation.

    5. Employment Conditions

    The Employment Ordinance provides a comprehensive framework for a code of employment. The law provides for statutory holidays with pay, sickness allowance, maternity protection, rest days, paid annual leave and employment protection for employees. The law also provides for severance payments to workers who have been made redundant after 2 years of employment and long service payments to workers with long service of 5 years or more who are not entitled to a severance payment for some reason. We set out below some of the more salient points regarding employment in Hong Kong

    The Employment Ordinance provides that a contract of employment may be terminated during the first month by no notice on either the part of the employer or the employee. The employer is able to contract out of this provision but any clause purporting to do the same for an employee is void. After one month, the minimum notice period to be provided for in any employment contract is 7 days. If there is no agreed notice period, then the notice period must be at least one month.

    An employer may terminate the contract of employment without notice or payment in lieu if an employee:-

    (a) wilfully disobeys a lawful and reasonable order; or
    (b) misconducts himself in such manner as is inconsistent with the due and faithful discharge of his duties; or
    (c) is guilty of fraud or dishonesty; or
    (d) is habitually neglectful of his duties; or
    (e) such other reasons as are permitted by common law.

    Under Hong Kong law, an employee may, provided he has been in continuous employment with an employer for a period of 24 months or more, bring a claim to the Labour Tribunal for unreasonable dismissal against the Employer, within 6 months of such dismissal. In order to avoid any liability for unreasonable dismissal, the Employer would have to show one of the following:-

    (a) the employee commited an act or acts of grave misconduct;
    (b) the employee was incapable or unqualified for the employment;
    (c) the employee was dismissed for reasons of redundancy or other genuine operational requirements;
    (d) the employment is illegal; or
    (e) there is some other reason of substance for the dismissal.

    Employers are required to comply with the provisions under the Mandatory Provident Fund Schemes Ordinance, cap. 485 (the "MPF Legislation"). Under the MPF Legislation, all employees between the ages of 18 and 65 years and who have been employed for 60 days or more will be required to join a MPF scheme.

    Mandatory contributions are required from employers and employees to an approved MPF scheme. These are calculated on the basis of 10% of an employee's relevant income (which includes salary and bonuses), with the employer and employee each paying 5%. The maximum relevant income level under the legislation is HK$20,000.00. If the employee's income exceeds HK$20,000.00 per month, the employee and the employer are only required to contribute 5% of HK$20,000.00 (i.e. HK$1,000.00 per month). The employer and employee may, at their discretion, agree to contribute more.

    Once the employee has completed 60 days of employment and is eligible to join the MPF scheme, the employer must make contributions from the commencement of the employment, but the employee is only required to make contributions from the 30th day of employment

    The employer has the duty to deduct the 5% from the employee's relevant income and remit it together with the employer's contribution and remittance statement to the trustee of the MPF, within 7 working days after the last day of the contribution period. The employer must give the employee monthly pay-records detailing the amount of relevant income, contribution and date of remittance.

    If an employee is a foreign national who is in Hong Kong for less than a year or is covered by an overseas retirement scheme is exempt from the MPF legislation.

    Sick Leave
    An employee is entitled to receive a statutory sickness allowance from an employer equivalent to 4/5 of the employee's normal pay in respect of days upon which the employee has been absent from his employment for 4 or more consecutive days. The number of days in respect of which the employee is entitled to be paid the sickness allowance is calculated at the rate of :-
    (a) 2 days per completed month for the first 12 months of employment; and
    (b) 4 days per each completed month thereafter,

    and this entitlement accrues cumulatively up to a maximum of 120 paid sickness days. The employee is required to produce a proper medical certificate to the employer that covers all sickness days.

    Any rights to pay for employees where they are absent from work due to illness for less than 4 consecutive days, are a matter of agreement between the employer and employee. Generally, employers adopt a system where an employee is entitled to full pay for days when they are absent due to illness provided that a medical certificate is provided where the employee is absent for more than 2 consecutive days.

    Maternity Leave
    The Employment Ordinance provides that a female is entitled to 10 weeks' maternity leave if she has been employed for at least 18 hours a week for a period of four weeks. If the employee has been employed for 40 weeks, she will be entitled to paid maternity leave at the rate of four-fifths of her salary.

    Annual Leave
    An employee who has been employed for over a year is entitled, by law to paid leave. The number of days' leave an employee is entitled to depend on the number of years of employment. For one to three years' employment, the employee is entitled to 7 days paid annual leave a year and then it increases gradually to a maximum of 14 days a year.

    Rest Days
    Employers are required to grant their employees a minimum of one rest day a week.

    Statutory Holidays
    Hong Kong operates two systems of holidays comprising statutory holidays and public holidays. All statutory holidays are public holidays but not all public holidays are statutory holidays. Under the provisions of the Employment Ordinance, employees are granted 12 paid statutory holidays every year. Public holidays, as defined in the General Holidays Ordinance declare every Sunday and 17 other days as public holidays. In practice many employers observe public rather than statutory holidays.

    Employees Compensation Insurance
    The Employees' Compensation Ordinance, Cap.282, provides that an employer will be liable to pay compensation to his employee if that employee sustains personal injuries in consequence of an accident arising out of, and in the course of, the employment. The Employees Compensation Ordinance further provides that it is a criminal offence, for which an employer would be liable to a fine of up to HK$100,000.00 and to a term of imprisonment of up to 2 years, for an employer to employ any employee unless there is in force in relation to such employee an insurance policy issued by an insurer for an amount not less HK$100,000,000.00.

    6. Establishing an Office in Hong Kong

    There are three essential means by which an overseas company can establish a corporate presence in Hong Kong.

    Limited Liability Company
    The incorporation of a limited liability company creates (subject to certain limited exceptions) a separate legal entity from the shareholders and the incorporators. The vehicle can be used to create the typical parent company / subsidiary company relationship.

    Hong Kong private limited companies:

    • must have no less than 2 directors, 2 shareholders and 1 secretary. There is no restriction in Hong Kong in having a body corporate act as a shareholder, director or secretary of a company. In addition, a director may also act as a secretary of the company. The directors and shareholders do not need to be resident in Hong Kong. The secretary of a private limited company is however required to be a Hong Kong resident.
    • must have a registered office in Hong Kong. The registered office need not however, be the place where the company carries on business.
    • do not need to file financial statements with the Companies Registry. They are however, required for various purposes, to be filed with the Inland Revenue Department.
    • must hold an annual general meeting and file an annual return with the Companies Registry in Hong Kong.
    • must register with the Inland Revenue Department in Hong Kong.

    It is also, of course, possible to purchase a "shelf" company and restructure it as required. A "shelf" company is a company that has already been incorporated, but is not active. It is possible to purchase the "shelf" company, and to restructure the share ownership as required. Once the "shelf" company is purchased, the initial incorporators resign their directorships and transfer their shares to the new incumbents.

    Branch Office
    Every company incorporated outside Hong Kong that establishes a place of business in Hong Kong is required, within one month of the establishment of the place of business, to register the establishment of that place of business by delivering various documents to the Registrar of Companies in Hong Kong.

    This general statement of principle appears to be quite clear, but from a practical point of view, it is often very difficult to identify when a place of business is "established". The technical definition includes a share transfer or share registration office and any place for the manufacture or warehousing of goods, but excludes a place not used by the company to transact any business which creates legal obligations. This is still vague and open to interpretation. As a general rule of thumb, however, it is safe to state that an overseas company establishes a place of business in Hong Kong if it has some degree of permanence in Hong Kong and transacts any business which creates legal obligations.

    The formalities required for the registration of particulars of the overseas company with the Registrar of Companies in Hong Kong is quite involved and detailed. A substantial amount of documents and information must be provided by the overseas company, and certain of these documents will need to be authenticated and translated (if in a language other than English) to the satisfaction of the Registrar.

    An essential point to remember after the registration process is completed, is that the "branch" of the overseas company in Hong Kong is not a separate legal entity from the overseas company. This means that the overseas company is directly responsible and liable for the activities of its branch in Hong Kong.

    Representative Office
    If an overseas company wishes to establish a presence in Hong Kong, but will not conduct any transactions that give rise to legal obligations, then the overseas company can set up a representative office. A representative office is very limited in its scope of operations, and conventionally will only conduct marketing, promotional or liaison services in Hong Kong for the overseas company. The only formality for the establishment of a representative office in Hong Kong is the application for a business registration certificate to the Inland Revenue Department. Again, the representative office of the overseas company in Hong Kong is not a separate legal entity from the overseas company, and the overseas company will be directly responsible and liable for the activities of its branch in Hong Kong.

    Whatever corporate presence is decided upon, it would be necessary to take specialist legal, accounting, and taxation advice.

    7. Statutory Records

    Accounting Requirements
    In line with international standards, the books of accounts of a limited liability company in Hong Kong must give a true and fair view of the state of the company's affairs.

    The books of account can be kept at the registered office or at such other place as the directors think fit. If the books are kept outside Hong Kong, the company must send returns every six months that disclose the company's financial position to a location in Hong Kong of the directors' election, where the returns are to be maintained. These returns must contain sufficient information to enable the company's accounts to be prepared.

    The books of account must be preserved for seven years from the end of the financial year. A director who fails to take reasonable steps to ensure that the company keeps proper records may be liable to a fine and, if he is willful in his failure, imprisonment.

    The profit and loss account or (if the company is not trading for profit) the income and expenditure account, and a balance sheet must be presented to the company at its Annual General Meeting. If a director fails to do so he commits an offence.

    Private companies are generally not required to file copies of their financial statements at the Companies Registry.

    Auditing Requirements
    Unless registered as a dormant company, all limited companies are required to be audited. The primary purpose of this is to enable the shareholders to have sufficient information to assess the performance of the company's directors. Auditing is intended to act as an independent check on the company's financial position.

    The auditors are required to report to the members on the accounts of the company after they have examined them and on every balance sheet, profit and loss account and all group accounts laid before the company in general meeting during their office.

    Auditors must carry out sufficient investigations to enable them to form an opinion as to whether proper books of account have been kept and whether the company's balance sheet and profit and loss account are consistent with the books of account and returns.

    The auditors' report must state whether, in the auditors' opinion, the company's balance sheet, profit and loss account, and if relevant, the group accounts have been property prepared in accordance with the Companies Ordinance and whether the documents present a true and fair view of the company's financial affairs at the end of its financial year and of the company's profit and loss. In the case of a private company which does not have to publish full accounts, the auditors must state whether they have obtained all the information and explanations they require to determine if the balance sheet exhibits a true and correct view of the state of the company's affairs. If the auditors have been unable to obtain any information or explanation which they consider necessary for the audit, this must be stated in the report.

    Annual Returns
    Annual returns are, as a general rule, required to be completed within 42 days after the most recent anniversary of the date of incorporation of the company. A private limited company is immediately on completion of the annual return, required to forward to the Registrar a copy of the same signed by the director or the secretary of the company.

    8. Taxation

    Individual Tax
    Salaries tax is imposed on all income arising in or derived from Hong Kong from an office or employment or any pension. "Income arising in or derived from Hong Kong", includes all income derived from services rendered in Hong Kong. Special provisions apply to seamen, airmen and other persons who visit Hong Kong for short periods and also to those who have paid tax of substantially the same nature as Hong Kong Salaries Tax in any territory outside Hong Kong.

    Income includes, inter alia, the value of quarters provided rent free by an employer or the excess of this value over the rent actually paid by the employee to his employer for the quarters and any gain realized by the exercise of, or by the assignment or release of, a right to acquire shares, whether the shares are in the employing company or another. The value of quarters to be included in assessment is 10% [8% and 4% for not more than 2 bedrooms and 1 bedroom respectively in a hotel, hostel or boarding house] on total income (after deducting outgoings, depreciation, etc.) from the employer or any person associated with the employer. Where an employer refunds all or part of the rent paid by an employee, the place of residence is deemed to have been provided by the employer either rent free or for an amount equal to the difference between the rent paid and the amount refunded.

    Severance payments and long service payments that are required to be paid under the Employment Ordinance are not assessable to Salaries Tax, as they are not payments for services rendered but for termination of the employment. Any payment in excess of the amount computed in accordance with the Employment Ordinance may be subject to Salaries Tax.

    Salaries Tax is determined on a sliding scale according to a taxpayer's net chargeable income which is computed by deducting from his net assessable income allowable approved charitable donations and personal allowances. Tax at progressive rates is then charged on the net chargeable income, subject to its not exceeding the amount of tax charged at the standard rate on taxpayer's net assessable income after deduction of approved charitable donations.

    Salaries tax is assessed on the following basis:-

    Net Chargeable Income Rate Tax $
    On the First 35,000 2% 700
    On the Next
    7% 2,450
    On the Next 35,000
    12% 4,200
    Remainder 17%  
    Or 15% of assessable income, whichever is lower.

    Profits Tax
    Persons, including corporations, partnerships, trustees and bodies of persons carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. There is therefore no distinction made between residents and non-residents. A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong. The question of whether a business is carried on in Hong Kong and whether profits are derived from Hong Kong is largely one of fact. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

    If a person sells his flat or any property as part of a scheme of profit-making, it will be regarded as a business and he is required to pay tax on any profit he may make.

    The following sums are deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong under the Inland Revenue Ordinance:-

    (1) Sums received from the exhibition or use in Hong Kong of cinematography or television film or tape, any sound recording or any advertising materials connected with such film, tape, or recording.

    (2) Sums received for the use or right to use in Hong Kong a patent, design, trademark, copyright material or secret process or formula or other of a similar nature.

    (3) Sums received by or accrued to a person carrying on business in Hong Kong by way of grant, subsidy or similar financial assistance other than sums in connection with capital expenditure.

    (4) Sums received by way of hire, rental or similar charges for the use of movable property or the right to use movable property in Hong Kong.

    The current tax rate for businesses is 16%.

    The foregoing is only a general overview of various issues considered to be of possible interest. It is not, and should not be considered as, exhaustive. No person should rely on the contents hereof, nor construe them as legal or other advice without first obtaining advice from a lawyer qualified in Hong Kong.

    © 2002 Irish Business Forum of Hong Kong Ltd
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