Business in Hong Kong
Hong Kong Special Administrative Region (hereinafter - Hong Kong) is recognized as one of the world's leading financial centers. It is an attractive place for investment, as it has significant advantages for foreign investors.
Legal system of Hong Kong
Hong Kong's legal system remains heavily influenced by the UK to this day, as it was a British colony until June 30, 1997. Since 1997, when the Basic Law of Hong Kong (hereinafter referred to as the Basic Law) came into force, Hong Kong has become a special administrative region of the People's Republic of China (hereinafter referred to as the PRC).
The most significant feature of the Basic Law is the fundamental principle of "one country, two systems", according to which two systems of legislation operate simultaneously in the jurisdiction: the legislation of Hong Kong, formed under the influence of Great Britain, and the legislation of the PRC in terms of foreign policy and defense. Socialist policies are not applied in Hong Kong, and the old capitalist system and way of life will remain unchanged until 2047. As follows from the above, Hong Kong law has many sources:
The basic Law
With the adoption of the Basic Law, all systems and policies applied in Hong Kong are based on its provisions. The National People's Congress The Basic Law empowers Hong Kong to exercise a high degree of autonomy. Hong Kong enjoys executive, legislative and independent judiciary, including final judicial sanction. Although foreign policy is the prerogative of the Central People's Government, Hong Kong is empowered to regulate its own foreign affairs. The Central People's Government is also responsible for the defense of Hong Kong, but maintaining public order in the jurisdiction is a matter for the local government.
National Chinese law
Only a few national laws apply in Hong Kong. According to Article 158 of the Basic Law, the Standing Committee of the National People's Congress shall interpret the provisions of the Basic Law on the basis of decisions of the Hong Kong courts on the application of the relevant provisions.
Common law and equity
The common law and the law of equity are dealt with primarily in the decisions of the higher courts of Hong Kong and other common law jurisdictions. The hallmark of the common law is its dependence on a system of precedent, which is not limited to judicial decisions arising within any one jurisdiction. Article 84 of the Basic Law provides that Hong Kong courts may refer to the precedents of other common law jurisdictions. In addition, the High Court of Appeal and the Judiciary of Hong Kong have the power to invite judges from other common law jurisdictions to participate in trials.
Legislation passed in Hong Kong
The vast majority of legislation in force in Hong Kong is made at the local level and is contained in the Laws of Hong Kong. A large number of legislative acts are adopted through delegated powers. This is called subsidiary legislation. For example, an ordinance may delegate to the chief executive officer of the Executive Board (the chief executive officer on the recommendation of the Executive Board) the authority to set the rules for the implementation of the legislative scheme.
Chinese customary law
Chinese customary law applies in Hong Kong only in some respects. For example, under section 13 of the New Territories Ordinance, courts may recognize and enforce Chinese custom or customary land rights in the new territories. Chinese law and custom are also recognized in the Legitimacy Law.
International law
More than 200 international treaties and agreements apply in Hong Kong. The Agreement does not form part of the internal laws of Hong Kong until it is put into effect by it. However, international law may influence the development of common law in Hong Kong. It may, for example, be invoked by a court as an aid in interpretation. The rapidly developing rules of customary international law can also be adopted by common law.
Hong Kong International Tax Treaties
Among the main advantages of Hong Kong as an investment jurisdiction are the following:
Minimal state intervention in most sectors of the economy
Legal protection of private property, legal inheritance and foreign investment
Absence of foreign exchange control regarding the transfer of funds abroad
Simplicity of the tax system and the lowest corporate tax rate among major Asian economies (currently 16.5%)
Elimination of some taxes commonly levied in other countries (such as capital gains tax, sales tax and VAT), which significantly reduces the costs of local businesses
Access to Asian markets, and especially to the Chinese market, including a number of preferences, such as zero tariffs on certain goods
Types of companies in Hong Kong
The most common forms of business organization in Hong Kong are:
Companies (registered in Hong Kong)
Branches of foreign companies
Representations
Investors can set up companies limited by shares, companies limited by guarantee and unlimited companies in Hong Kong.
A company limited by guarantee is a company without a share capital. The liability of the participants in such a company is limited by the charter to the amount that the participants respectively undertake to contribute to the assets of the company in the event of its liquidation (non-profit organizations are usually registered in this form).
In companies limited by shares, the liability of the members is limited by the articles of association to the value of the shares they hold. Such companies can be private and public (listed).
There are more than 500,000 private companies in Hong Kong, while less than 2,000 are public companies. Thus, private companies limited by shares in Hong Kong account for more than 99%. In view of this, we will further describe the procedure for establishing private joint-stock companies.
Company registration procedureTransfer pricing rules in Hong Kong
Company registration procedure Taxation in Hong Kong Transfer pricing rules in Hong Kong At the moment, transfer pricing rules do not apply in Hong Kong. However, in early August 2017, the country's government published a report on the results of the consultations and announced plans to introduce a new transfer pricing regime into local legislation. The government plans to submit a legislative proposal by the end of 2017, and this bill is expected to be based on the OECD's transfer pricing guidelines.
Subsequently, the Internal Revenue Division (IRD) would be required to develop guidance to facilitate understanding of transfer pricing rules (including measures that would allow the IRD to adjust the profits or losses of companies engaged in transactions with related parties without obligation).
- The consultation report sets out the framework for the transfer pricing regime and addresses the following areas:
- mandatory requirements for transfer pricing documentation, with an exemption from the requirement for transfer pricing documentation where certain thresholds are not met;
- internal transactions subject to inclusion in the transfer pricing regime;
- specific provisions relating to intellectual property;
- penalties for non-compliance (including penalties up to 300% of underpaid tax if there is no “reasonable excuse”, or if there is a deliberate attempt to evade tax);
- advance mode (APA).
CFC (Controlled Foreign Companies) rules in Hong Kong
Currently not applicable.
Thin capitalization rules in Hong Kong
There are no thin capitalization rules in Hong Kong. However, for interest to be deductible, at least one of six specific criteria must be met, in addition to satisfying the general requirement that these expenses are incurred in the production of taxable income. The overall purpose of these criteria is to ensure that the interest deduction is waived if the related income is not taxable in Hong Kong.
Currency control in Hong Kong
Absent.
- Austria
- Belarus
- Belgium
- Brunei
- Great Britain
- Hungary
- Vietnam
- Bailiwick of Guernsey
- Jersey
- Indonesia
- Spain
- Ireland
- Italy
- Qatar
- China
- Korea
- Kuwait
- Latvia
- Liechtenstein
- Luxembourg
- Malaysia
- Malta
- Mexico
- Netherlands
- New Zealand
- UAE
- Pakistan
- Portugal
- Russia
- Romania
- Thailand
- France
- Czech Republic
- Switzerland
- South Africa
- Japan
Hong Kong has also signed limited double tax treaties. In the field of air transportation, such agreements have been concluded with the following states: Bangladesh, Belgium, Great Britain, Denmark, Germany, Iceland, Israel, Jordan, Canada, Kenya, China, Korea, Kuwait, Laos, Mauritius, Macau (independent territory of China), Maldives, Mexico , Netherlands, New Zealand, Norway, Russia, Seychelles, Fiji, Finland, Croatia, Sweden, Switzerland, Estonia, Ethiopia.
In the field of maritime transport, the above agreements have been concluded with the following states: Denmark, Great Britain, Germany, the Netherlands, Norway, and the USA.
In the field of air and sea transport, agreements have been signed with Singapore and Sri Lanka.
Mutual privileges have been agreed with the following states: Korea, New Zealand, Chile.
Agreements on the exchange of tax information have been concluded with Denmark, Greenland, Iceland, Norway, the USA, the Faroe Islands, and Sweden.
Hong Kong has also signed the Multilateral Agreement on the Automatic Exchange of Financial Information on Tax Matters, which will come into effect from September 2018.
