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Company and Jurisdictions

Hong Kong

Private Corporation

Legislation: Standard capital:
English Common Law supplemented by the 1993 Companies Ordinance Cap. 32, as amended. HKD 1,000.00 is the maximum authorised capital that attracts the minimum capital duty.
Annual government fees: Corporate Taxation:
USD 15. 17.5% on Hong Kong source income only.
Time to incorporate: Ready-made companies:
2 to 3 weeks (or 6 weeks if a Chinese representation of the name is to be included on the Certificate of Incorporation). Yes.
Minimum members: Registered office required:
One, individual or corporate. Yes, must be maintained in Hong Kong.
Local registered agent: Minimum number directors:
Yes. One, individual or corporate. A register of directors must be filed with the Registrar and is open to public inspection.
Officer to be locally resident: AGM required:
Directors need not be resident, but a local secretary is required. No.
Annual return required: Financial statements to be prepared and/or audited:
Hong Kong companies are required to file full audited accounts and must also prepare and file an annual return which gives details of the current directors and of the shareholders who have held shares in the company at any time during the year. Yes.
Balance sheets to be filed: Share register required:
No. Yes, at registered office
To be filed with Registrar: Open to public inspection:
Yes. Yes.
Exchange controls: Redomiciliation permitted:
No. No, in or out.
Language of incorporation: Confidentiality:
English. No specific statutory provisions governing confidentiality in relation to companies, but English law, which applies within the jurisdiction imposes a common law duty on professionals to keep the affairs of their clients confidential.
Bearer shares permitted:  
No

 

Advantages

Disadvantages


  • Not affected by EU savings directive.
  • Not a member of the OECD.
  • World-class banking and professional services.
  • Expensive audit costs.
  • Careful planning required to avoid Hong Kong tax on profits.

International Agreements

OECD Harmful Tax Practices

Non-OECD participating partners have criticised the OECD for not doing enough to involve significant offshore centres, such as Hong Kong, in the process of achieving transparency and information exchange. Hong Kong was not one of the 35 jurisdictions identified by the OECD in June 2000 as meeting the technical criteria for being a tax haven. However, at its global forum on harmful tax competition on 4 June 2004 in Berlin, the OECD listed Hong Kong as one of 11 additional financial centres that it intends to target as part of its drive to achieve a level playing field.

Tax Information Exchange Agreement (TIEA)

None

EU Savings Tax Directive

Not applicable

Financial Action Task Force (FATF)

Hong Kong is substantially in compliance with the FATF 40 Recommendations on Money Laundering, and has pledged to adhere to the Revised 40 FATF Recommendations. Overall, Hong Kong has developed a strong anti-money laundering regime. It is a regional leader in anti-money laundering efforts. Hong Kong has been a member of the FATF since 1990. It served as President of the FATF for the 2001/2002 term and served on the FATF Steering Group from 2001 to 2003.

Mutual Legal Assistance Treaties (MLATs)

Hong Kong’s mutual legal assistance agreements provide for the exchange of information for all serious crimes, including money laundering, and for asset tracing, seizure, and sharing. As of December 2004, Hong Kong had mutual legal assistance agreements with a total of 16 jurisdictions: Australia, Canada, the US, Italy, the Philippines, the Netherlands, Ukraine, Singapore, Portugal, Ireland, France, the UK, New Zealand, the Republic of Korea, Belgium, and Switzerland.

Hong Kong authorities exchange information on an informal basis with overseas counterparts, with Interpol, and with Hong Kong-based liaison officers of overseas law enforcement agencies. An amendment to the Banking Ordinance in 1999 allows the HKMA to disclose information to an overseas supervisory authority about individual customers, subject to conditions regarding data protection. The HKMA has entered into memoranda of understanding with overseas supervisory authorities of banks for the exchange of supervisory information and cooperation, including on-site examinations of banks operating in the host country.

Tax Treaties

Until June 2001, the territory had no comprehensive double taxation agreements in place. Since under the "territorial principle" only Hong Kong-source income is taxable the double taxation of income does not usually occur thereby obviating the need for double taxation treaties. However the government is now entering an increasing number of tax treaties of various types. Under article 151 of the Basic Law the territory can negotiate its own double taxation treaties independently of China using the abbreviation Hong Kong, China. The territory is not able to take advantage of any of China’s tax treaties because only mainland taxes are mentioned in these treaties. Nor will China impose the terms of any double taxation treaties on the territory given that under articles 106-108 of the Basic Law it guaranteed Hong Kong the right to maintain an independent taxation system free of interference from the mainland until the year 2047.

Hong Kong has entered into several limited double taxation agreements in relation to shipping and airline activities.

In December 2003, the governments of Hong Kong and Belgium signed a double taxation and prevention of fiscal evasion treaty marking the first comprehensive double taxation agreement concluded by the government of the Special Administrative Region.

The government of the SAR is hoping the Belgian treaty will represent the first of a network of similar agreements it wants to conclude in the future.

General Info

Full Country Name: The Hong Kong Special Administrative Region of China
Status: Special administrative region of China
Area: 1,098 sq km (424 sq mi)
Population: 6,898,686 (July 2005 est.)
Nationality: Chinese/Hong Konger
People: Chinese 95%, other 5%
Languages: Chinese (Cantonese), English; both are official
Currency: Hong Kong dollar (HKD) – HKD 7.779 per USD (2004)
Government: Limited democracy
Legal system: Based on English common law
Head of State: President of China, Hu Jintao

Geography

The Hong Kong Special Administrative Region of China (SAR) covers an area of 1,098 square kilometres on the southern coast of China. It comprises Hong Kong Island, Kowloon and the New Territories, and about 235 outlying islands. It has a subtropical climate with hot, wet summers and cool, dry winters. Hong Kong's harbour, strategically located on the primary Far Eastern trade routes, facilitated Hong Kong's development as one of the greatest trading ports in the Asia-Pacific Region.


History

The British East India Company made the first successful sea venture to China in 1699, and Hong Kong's trade with British merchants developed rapidly soon after. After the Chinese defeat in the First Opium War (1839-42), Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking. Britain was granted a perpetual lease on the Kowloon Peninsula under the 1860 Convention of Beijing, which formally ended hostilities in the Second Opium War (1856-58). The UK, concerned that Hong Kong could not be defended unless surrounding areas also were under British control, executed a 99-year lease of the New Territories in 1898, significantly expanding the size of the Hong Kong colony.

In the late 19th century and early 20th centuries, Hong Kong developed as a warehousing and distribution centre for trade with southern China. After the end of World War II and the communist takeover of Mainland China in 1949, hundreds of thousands of people fled from China to Hong Kong. Hong Kong became an economic success and a manufacturing, commercial, finance, and tourism centre.

On 1 July 1997, in accordance with the Sino-British Joint Declaration on the Question of Hong Kong (Joint Declaration) signed on 19 December 1984, Hong Kong returned to Chinese sovereignty. Hong Kong then became the Hong Kong Special Administrative Region (SAR) of the People's Republic of China (PRC). The Joint Declaration and the Basic Law of the Hong Kong SAR (Basic Law) provide that Hong Kong's capitalist system and way of life will remain unchanged for 50 years; and that Hong Kong will have a high degree of autonomy, except in foreign affairs and defence, which are the responsibility of the Chinese Government. The Joint Declaration and the Basic Law guarantee fundamental rights and freedoms of the people of Hong Kong. The Basic Law serves as a mini-constitution for Hong Kong. It was promulgated by the National People's Congress of the PRC in 1990. It prescribes, among other matters, the relationship between the Chinese Government and the Hong Kong SAR Government, the fundamental rights and duties of the Hong Kong people and the SAR's political structure, and contains provisions on the interpretation and amendment of its Articles.


Government and Politics

Executive branch
Head of State: President of China HU Jintao (since 15 March 2003)
Head of Government: Acting Chief Executive Donald TSANG Yam-kuen (since 12 March 2005)
Cabinet: Executive Council consists of seven non-official members and 14 official members; including Chief Secretary Donald TSANG Yam-kuen (since 1 May 2001), Financial Secretary Henry TANG (since 2 August 2003), and Secretary of Justice Elsie LEUNG (since 1 July 1997)
Elections: Previous chief executive TUNG Chee-hwa was elected to second term in March 2002 by 800-member election committee dominated by pro-Beijing forces, resignation accepted 12 March 2005; next election scheduled to be held 10 July 2005
Legislative branch

Unicameral Legislative Council or LEGCO (60 seats; in 2004 30 seats indirectly elected by functional constituencies, 30 elected by popular vote; members serve four-year terms)

Elections: last held 12 September 2004 (next to be held in September 2008)

Election results: seats by party - (pro-Beijing 34) DAB 12, Liberal Party 10, independents 11, FTU 1; (pro-democracy 25) independents 11, Democratic Party 9, CTU 2, ADPL 1, Frontier Party 1, NWSC 1; other 1

 

Judicial branch

Court of Final Appeal in the Hong Kong Special Administrative Region

Political parties and leaders

Association for Democracy and People's Livelihood or ADPL (Frederick FUNG Kin-kee, chairman); Citizens Party (Alex CHAN Kai-chung); Democratic Alliance for the Betterment of Hong Kong or DAB (MA Lik, chairman); Democratic Party (LEE Wing-tat, chairman); Frontier Party (Emily LAU Wai-hing, chairwoman); Liberal Party (James TIEN Pei-chun, chairman)

Note: political blocs include: pro-democracy - ADPL, Democratic Party, Frontier Party; pro-Beijing - DAB, Hong Kong Progressive Alliance, Liberal Party

LegCo’s main functions are enacting laws; examining and approving Government budgets, taxation and public expenditure; monitoring Government; endorsing the appointment and removal of judges of the Court of Final Appeal and the Chief Judge of the High Court and debating issues of public interest. Under the Joint Declaration and the Basic Law, LegCo is to be composed of local people and constituted by election with the ultimate goal of Legislative Council elected entirely on the basis of universal suffrage.

The Basic Law provides for constitutional development from 2007 to give Hong Kong people a more accountable and representative Government. Specifically, it lays down the ultimate aims of the election of the Chief Executive and all members of the Legislative Council by universal suffrage, although there is no timetable for reaching this goal. The SAR Government confirmed in November 2003 their belief that the system for electing the Chief Executive could be changed for the election due in 2007, if there was a need to do so. The method of electing LegCo could be changed for the 2008-2012 term at the earliest.

The pressure for early democratisation increased following major demonstrations in July 2003 and on 1 January 2004. In January 2004 the Chief Executive announced the formation of a Task Force on constitutional reform to study the detailed provisions in the Basic Law and consult with the Central authorities in Beijing before taking things further.

The Taskforce’s 4th report, issued in December 2004, announced a further consultation period until the end of March 2005, after which the Legislative Council would consider a final report with definitive proposals. However, following the resignation of the Chief Executive in March 2005, the final report of the Taskforce is likely to be delayed until late 2005.

Economy

Basic economic facts

GDP (2004 est.): USD 2344.5 billion

Growth rate (2004 est.): 7.9%

Per capita GDP (2004 est.): USD 34,200

Main industries: textiles, clothing, tourism, financial services, shipping, electronics, plastics, toys, watches, and clocks

Hong Kong is the tenth largest trading economy in the world, with total exports in goods and services, including re-exports from Mainland China, amounting to 174.2% of GDP for the first three months of 2004. Since the 1980s, many Hong Kong companies have moved their factories to cheaper locations in the Pearl River Delta (PRD), and manufacturing now makes up less than 5% of Hong Kong’s GDP. Services account for over 85% of GDP and although some lower-end operations have begun to follow their manufacturing counterparts across the border into Mainland China, financial services, tourism, logistics, retail and trade-related services continue to make up the key elements of the Hong Kong economy. Although historically important the property bubble burst during the Asian Financial Crisis and the property market is now valued at 60% of its pre-crisis high. Foreign exchange reserves are the fifth largest in the world after Japan, China, Taiwan and Korea. Although fiscal reserves are falling as a result of a growing budget deficit, no external debt exists. The Hong dollar is linked to the US dollar through a currency board.

Hong Kong’s economy is currently seeing a steady rebound following the global slowdown of 2001 and the outbreak of Severe Acute Respiratory Syndrome (SARS) in Spring 2003. Tourism and trade are the key drivers of growth, with visitor arrivals (most of whom come from Mainland China) up 127% (year-on-year) and visible exports 18.2% in June 2004. The economy registered strong growth of 8.1% in 2004, well above trend. The government estimates growth in 2005 to be between 4.5 and 5.5%, with medium term trend growth around 4%. The economic assistance received from Beijing has helped fuel the recovery. Much progress has been made in developing closer economic ties.

Hong Kong is a major international financial centre. Financial activity is facilitated by its low taxes and simplified tax system, sophisticated banking system, the availability of secretarial services and shell company formation agents, and the absence of currency and exchange controls.

There is no distinction made in Hong Kong between onshore and offshore entities, including banks, and no differential treatment is provided for non-residents, including on taxes, exchange controls, or disclosure of information regarding the beneficial owner of accounts or other legal entities. Hong Kong’s financial regulatory regimes are applicable to residents and non-residents alike. The Hong Kong Monetary Authority (HKMA) regulates banks. The Insurance Authority and the Securities and Futures Commission regulate insurance and securities firms, respectively. All three impose licensing requirements and screen business applicants.

In Hong Kong, it is not uncommon to use solicitors and accountants, acting as company formation agents, to set up shell or nominee entities to conceal ownership of accounts and assets. Hong Kong is a global leader in registering international business companies (IBCs), with nearly 500,000 registered in 2002. Many of the IBCs created in Hong Kong are owned by other IBCs registered in the British Virgin Islands. Many of the IBCs are established with nominee directors. The concealment of the ownership of accounts and assets is ideal for the laundering of funds. Additionally, some banks permit the shell companies to open bank accounts based only on the vouching of the company formation agent.

The open nature of Hong Kong’s financial system has long made it the primary conduit for funds being transferred out of China, which maintains a closed capital account. Hong Kong’s role has been evolving as China’s financial system gradually opens. In February 2004, Hong Kong banks began to offer Chinese currency- (renminbi or RMB) based, deposit, exchange, and remittance services. Later in the year, Hong Kong banks began to issue RMB-based credit cards, which could be used both in mainland China and in Hong Kong shops that had signed up to the Chinese payments system. This change brought many financial transactions related to China out of the money-transfer industry and into the more highly regulated banking industry, which is better equipped to guard against money laundering.

In 2003, Hong Kong took part in the International Monetary Fund’s Financial Sector Assessment Program (FSAP), which aims to strengthen the financial stability of a jurisdiction by identifying the strengths and weaknesses of its financial system and assessing compliance with key international standards. As part of the FSAP, a team of IMF and World Bank-sponsored legal and financial experts assessed the effectiveness of Hong Kong’s anti-money laundering regime against the FATF 40 Recommendations and the FATF Special Nine Recommendations on Terrorist Financing. The team described Hong Kong’s anti-money laundering measures as "resilient, sound, and overseen by a comprehensive supervisory framework."

The People’s Republic of China represents Hong Kong on defence and foreign policy matters. Hong Kong is an independent customs territory and economic entity separate from the rest of China and is able to enter into international agreements on its own behalf in commercial and economic matters. Hong Kong, independently of China, participates as a full member of numerous international economic organizations including the World Trade Organization (WTO), the Asia Pacific Economic Cooperation forum (APEC), and the Financial Action Task Force (FATF).

Through the PRC, Hong Kong is subject to the 1988 UN Drug Convention. It is an active member of the FATF and Offshore Group of Banking Supervisors and also a founding member of the APG. Hong Kong’s banking supervisory framework is in line with the requirements of the Basel Committee on Banking Supervision’s "Core Principles for Effective Banking Supervision." Hong Kong’s Joint Financial Intelligence Unit (JFIU) is a member of the Egmont Group and is able to share information with its international counterparts. Hong Kong cooperates closely with foreign jurisdictions in combating money laundering.




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