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
The territory has a moderate sub topical climate with a long, hot
and humid summer and a mild winter. Typhoons can occur during the
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
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
- 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
- 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 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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,
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
- 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
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
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
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
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.
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
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.
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;
(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
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.
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.
Employers are required to grant their employees a minimum of one
rest day a week.
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.
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
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.
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
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.
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 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
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
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:-
Or 15% of assessable income, whichever is lower.
|Net Chargeable Income
|On the First
|On the Next
|On the Next
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.