Hong Kong

Executive Summary
The Hong Kong Special Administrative Region is a self-governing territory of People’s Republic of China, to which Hong Kong’s sovereignty was transferred in 1997. Hong Kong has a high level of autonomy under the policy of “one country, two different systems”. Only foreign affairs and defense of Hong Kong are the responsibilities of China, all other political and economic aspects are managed by Hong Kong government directly. For more than a century Hong Kong has been a UK colony, and the English culture has significantly influenced local life style.

Hong Kong has an area of only 1,108 sq km where a population of 7 million inhabitants lives, thus making Hong Kong one of the most densely populated places in the world. Hong Kong is known to be a place where East meets West, and that is felt in its cuisine, music and traditions. Modern way of life constantly meets and contrasts Chinese traditional know-how.

Chinese and English are official languages. As Hong Kong is not a fully independent country, it does not have an official capital. Historically, Victoria City was considered to be an administrative capital, which is now renamed to Central. The Basic Law is the constitution which defines legislative, executive and judicial powers of Hong Kong authorities, but the final decision in interpreting its different aspects belongs to China. Legislative Council is a unicameral legislature of Hong Kong, a half of its members is elected by universal suffrage.

Hong Kong is one of the world’s most important financial centres, a place of international trade and commerce. Hong Kong has been experiencing significant growth during the years, has developed a free capitalist economy and has the greatest concentration of corporate headquarters and central offices of bigger and smaller companies in Asia. 90% of the GDP is generated by service sector. Hong Kong has little land that may be used for agriculture and few natural resources, so the most part of food products and raw materials are imported. Most of goods that are exported from Hong Kong are produced in China, which together with the US and Japan are main foreign trading partners of Hong Kong.The Hong Kong Dollar (HKD) is the national currency.

Hong Kong occupies the South coast of China, it faces South China Sea to the West, East and South. Hong Kong consists of Hong Kong Island, Lantau Island, the New Territories, Kowloon Peninsula and approximately 260 other smaller islands. Hilly and mountainous areas are characteristic to the most part of the Hong Kong’s landscape. Irregular coastline is rich with several beautiful beaches and bays.

Intensive urbanization and other sources of air pollution have caused significant environment damage, therefore now environment awareness and pollution free activities are actively promoted in Hong Kong. It has a humid subtropical climate. Rainfalls may be frequent during the summer seasons, and it is the time when typhoons occur, sometimes resulting in flooding and landslides. Springs and autumns are the most pleasant periods which are generally warm and sunny. Winters may be rather cold and windy, but the temperature has never gone below 0 degrees C. The average summer temperature is around 30 degrees C, while in winter it is approximately 15 degrees C.

Map, Flag and Coat of Arm

Types of Company

Sole Proprietorship

This type of structure has a nature of partnership with only one partner, whose liability is unlimited. It must pay profits tax as any other business structure, but the tax rate is reduced for sole proprietorships.

Private Company Limited by Shares
At least two shareholders may incorporate this type of company. In case the number of shareholders falls to one, that shareholder has an unlimited liability to company’s debts. There are no minimum authorized or issued capital requirements. Shares may not be no par value or bearer. Nominee shareholders, directors and secretary may be registered. A director can be a private person and a corporate entity, every company must have at least two directors. A company’s secretary must be resident in Hong Kong. Meetings can be held in Hong Kong and in any other country of the world. Accounts must be audited and annual returns must be filed.

Public Company Limited by Shares
This type of company’s name ends with “Public Limited Company” or “PLC”, and this company can offer its shares to general public. Only private persons can become this company’s directors.

Branch of Overseas Company
A foreign company may establish its branch in Hong Kong by submitting requested document to the Registrar of Companies. Generally, such a company must file its financial statements once a year, but exemptions may be granted on several occasions. This type of company is rather easy to establish but it has a greater liability, as is not treated as a separate legal entity in Hong Kong. Branches of foreign companies are treated in the same way as limited companies for taxation purposes.

Limited Partnership
At least one general and one limited partner may form a limited partnership. Liability of general partners is unlimited, while liability of limited partners is limited up to the capital invested. The maximum number of partners in one limited partnership is twenty. A limited partner cannot reduce or take out his share capital in case it continues to exist. Moreover, a limited partner cannot actively participate in the management of a partnership. Partnership must obtain a specific business license.

Hong Kong trust law is based on English trust law. Fixed and discretionary types of trusts are permitted. If a trust does not carry a business activity in Hong Kong it is not required to be registered and file annual returns. Hong Kong is not the most appropriate jurisdiction for asset protection trusts.

A tax year starts on 1st April and end on 31st March of each year.

Personal income tax in Hong Kong is known as salaries tax. Non-employment income (dividends or capital gains) are not taxed in the jurisdiction. In the last years the salaries tax rates have been constantly reduced, making them attractive to local inhabitants and foreigners.

Gift tax has a progressive nature, and its rate differs depending on the nature and value of a gift. Owners or occupiers of real estate properties are liable to pay property tax. Social insurance contributions are deducted for profit and salaries taxes purposes. Depending on a transaction, stamp duty is either a standard fee or is calculated as a percentage of a transaction value.

Territorial principle determines whether a company, partnership or sole proprietorship is liable to pay profit taxes in Hong Kong. Only income derived from a business activity conducted within Hong Kong is taxed. Status of resident or non-resident of a corporate entity is irrelevant in Hong Kong. Profit tax rates differ depending on a nature of business and profits derived from it. There is no withholding tax category, but on some occasions a Hong Kong company which makes payments to a foreign associate must withhold taxes; such situations must be evaluated on the individual basis.

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