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cellspacing="0" cellpadding="1"> <tr> <td width="101"><b><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgeheading1">Author:</font></b></td> <td width="245"><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgecontent1"> <a href="/eng/ourpeople/JohnRichardson.htm"><font color="#0000CC">John Richardson</font></a> </font></td> </tr> <tr> <td width="101"><b><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgeheading1">Service Area:</font></b></td> <td width="245"><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgecontent1"> <font color="#0000CC">M&A and Commercial</font> </font></td> </tr> <tr> <td width="101"><b><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgeheading1">Date:</font></b></td> <td width="245"><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgecontent1"> April 2008 </font></td> </tr> <tr> <td width="101"><b><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgeheading1">Country:</font></b></td> <td width="245"><font face="verdana,helvetica,arial,sans-serif" size="2" class="knowledgecontent1"> <a href="/eng/aboutus/overview.htm"><font color="#0000CC">Hong Kong</font></a> </font></td> </tr> </table> </td> </tr> <tr> <td width="140" background="/eng/images/knowledge/symbol.gif"></td> <td width="500" valign="top"> <hr> <table width="500" border="0" cellspacing="0" cellpadding="0"> <tr> <td>&nbsp;</td> </tr> <tr> <td> <table border="0" cellpadding="2" width="507"> <tr> <td valign="top" width="506"> <p ALIGN="left" style="margin-right: .98"><a NAME="contents"><b><u><font face="Verdana" size="4" color="#0000ff">Doing Business in Hong Kong</font></u></b></a></p> <b> <p ALIGN="left" style="margin-right: .98"> <font face="Verdana" SIZE="2">SUMMARY OF CONTENTS</font> </p> </b> <div align="left"> <table BORDER="0" CELLPADDING="2" WIDTH="500"> <tr> <td WIDTH="249" VALIGN="TOP" HEIGHT="102"> <p style="margin-right: .98" align="left"><a href="#1"><b><font face="Verdana" size="2">Introduction</font></b></a> <p align="left" style="margin-right: .98"><a HREF="#2"><b><font face="Verdana" size="2">Visas and Work Permits</font></b></a> <p align="left" style="margin-right: .98"><a HREF="#3"><b><font face="Verdana" size="2">Types of Business Entities</font></b></a> <p align="left" style="margin-right: .98"><a href="#4"><b><font face="Verdana" size="2">Business Environment</font></b></a> <p align="left" style="margin-right: .98"><a HREF="#5"><b><font face="Verdana" size="2">Foreign Investment Policy</font></b></a></td> <td WIDTH="249" VALIGN="TOP" HEIGHT="102"> <p align="left" style="margin-right: .98"><a HREF="#6"><b><font face="Verdana" size="2">Government Initiatives and Incentives</font></b></a> <p align="left" style="margin-right: .98"><a HREF="#7"><b><font face="Verdana" size="2">Taxation</font></b></a> <p align="left" style="margin-right: .98"><a HREF="#8"><b><font face="Verdana" size="2">Workplace Relations</font></b></a></p> <p style="margin-right: .98" align="left"><a href="#9"><b><font face="Verdana" size="2">Dispute Resolution</font></b></a></td> </tr> </table> </div> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="1"><b> <font face="Verdana" SIZE="2"> INTRODUCTION </font> </b></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"> <font face="Verdana" SIZE="2"> Hong Kong is a Special Administrative Region of the People's Republic of China that is governed by the Basic Law (<em>Basic Law</em>) which forms a mini constitution for Hong Kong. Under the <em>Basic Law</em>, Hong Kong enjoys a high degree of autonomy except in relation to matters such as defence and foreign affairs. It has its own executive, legislative and independent judicial power, including that of final adjudication. Socialist systems and policies will not be practised in Hong Kong for a period of 50 years commencing in 1997 under the principle of &quot;one country two systems&quot;. </font> </p> <p ALIGN="JUSTIFY" style="margin-right: .98"> <font face="Verdana" SIZE="2">Hong Kong is an attractive place to do business and a leading international trading and service hub as well as a high value-added manufacturing base. It is one of the freest economies in the world and a gateway to investment in China.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" SIZE="2"> The Hong Kong government practises an open and liberal investment policy and actively encourages inward investment. Generally, there are no tariffs or regulatory measures adversely affecting international trade. </font> </p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" SIZE="2">Hong Kong's continuing success is largely due to a simple tax structure, low rates of tax, an excellent infrastructure and the government's firm commitment to free trade and free enterprise. </font> </p> <p ALIGN="JUSTIFY" style="margin-right: .98"> <font face="Verdana" SIZE="2"> The following provides an overview of the various factors that a foreign investor should consider when establishing a business in Hong Kong. </font> </p> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="2"><b> <font face="Verdana" SIZE="2"> VISAS AND WORK PERMITS </font> </b></a></p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Who requires an entry visa? </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Every person who wishes to enter Hong Kong for employment, investment, education, training or residence is required to obtain the appropriate entry visa before coming to Hong Kong unless he or she: </font> </p> <ol style="font-family: Arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> is a Hong Kong permanent resident with a Hong Kong Permanent Identity Card; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> has the right of abode in Hong Kong; or </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> has the right of unconditional stay in Hong Kong. </font> </li> </ol> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Sponsorship </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Every applicant for an entry visa, irrespective of the category of visa, needs to have a sponsor. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> In the case of an application for a visa for employment purposes, the Immigration Department usually insists that the employer act as the sponsor where the employer is a company. Otherwise, the sponsor may be an individual, in which case the sponsor must have been a Hong Kong resident for at least three years. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The sponsor is required to certify that the applicant:</font> </p> <ol style="font-family: Arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> is a suitable person to be allowed into Hong Kong for the purpose stated; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> will abide by the laws of Hong Kong; and</font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> will leave Hong Kong on the expiration of the stay granted by the Immigration Department.</font> </li> </ol> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The sponsor must also undertake to assume responsibility for the applicant's repatriation to his or her original country of residency if, at the expiration of the stay granted by the Immigration Department, the applicant fails to leave Hong Kong. In addition, the sponsor must undertake to inform the Immigration Department of any change in the conditions of the applicant's stay in Hong Kong (e.g. cessation of the applicant's employment with the sponsor in Hong Kong). </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Applications should be made through the sponsor before the applicant's arrival in Hong Kong, although in some cases the Immigration Department may accept applications made after the applicant has arrived in Hong Kong, in which case, the application will be a change of status application. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> It is important to note that a change of status applicant may not work in Hong Kong until an employment visa is obtained.</font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Policies regarding employment visa </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Under the existing immigration policy, a person seeking to enter Hong Kong for employment should possess a special skill, knowledge or experience of value which is not readily available in Hong Kong and show that he or she is not filling a post which can be filled locally. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Dependants of a person holding an employment visa are able to work in Hong Kong under the dependant's residency visa. Dependents that are subject to a condition of stay prohibiting employment which was imposed on them before 15 May 2006, may apply for cancellation of such condition so that they could take up employment in Hong Kong. </font> </p> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="3"><b> <font face="Verdana" SIZE="2"> TYPES OF BUSINESS ENTITIES </font> </b></a></p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> General </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> A foreign investor has a wide range of business structures to choose from when doing business in Hong Kong. The type of entity the investor chooses will depend on what best suits the particular needs of the investor and his or her financial and tax considerations. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The most common business entities used by non-residents in Hong Kong include:</font> </p> <ol> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> representative offices; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> branches of parent companies; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> subsidiaries of parent companies; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> partnerships; </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> joint ventures; and </font> </li> <li> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> trusts. </font> </li> </ol> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Representative office </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> When a foreign company wishes to analyse the suitability of the Hong Kong market for its goods or services or both, a representative office can be opened. A company establishing a representative office should register under the <em>Business Registration Ordinance</em>. This type of business entity is only permitted to carry on promotional and liaison work in Hong Kong. A representative office is prohibited from carrying on any business in Hong Kong or entering into any contracts in Hong Kong. Once such a company commences the carrying on of a business, it is required to register under the <em>Companies Ordinance</em>. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Branch office </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> If a foreign company wishes to carry on business in Hong Kong and operate through a branch office, it must register the business under the <em>Business Registration Ordinance</em>. It must also register as an overseas company under the <em>Companies Ordinance</em>. To register under the <em>Companies Ordinance</em>, the foreign company will need to appoint a local person authorised to accept service of proceedings and notices in Hong Kong and have a registered place of business. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2">The branch will not be subject to limitations on the scope of its activities. However, certain types of business activities will require approvals and licences from other government authorities before the proposed business activities can begin. The registered foreign company will then be able to carry on business in Hong Kong. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Hong Kong subsidiary </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> A foreign company may wish to incorporate a wholly-owned Hong Kong subsidiary as a Hong Kong company. One advantage of a subsidiary arrangement is that it limits the liability of the parent company in relation to operations carried on by the Hong Kong subsidiary. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The subsidiary may be either a private company or a public company. Either type has unique advantages. Professional assistance should be sought to ensure that the most suitable corporate form is chosen. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The majority of subsidiary companies are private companies. Private companies are limited to a maximum of 50 shareholders, must have restrictions on the transfer of shares and may not issue shares in bearer form. Private companies are also subject to fund raising restrictions and must not engage in any activity that would require the lodgement of a disclosure document (e.g. a prospectus). A company may be incorporated with one member, and companies which are not part of a listed group may have a single director. The directors of a Hong Kong company are not required to be Hong Kong residents. Every Hong Kong incorporated company must have a company secretary, who must be resident in Hong Kong. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Partnership </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Partnerships are comparatively inexpensive to establish and can be formed quickly. The agreement creating the partnership does not need to be registered, but the partnership itself requires registration under the <em>Business Registration Ordinance</em> once it establishes a place of business in Hong Kong. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Each partner is jointly liable with all the other partners for all debts and obligations of the partnership incurred while he or she is a partner. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> The size of partnerships is limited to 20 members. However, an exception is allowed for certain types of professional partnerships. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Joint venture company </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> This is a normal company used to carry on the joint venture activity on behalf of its shareholders. This type of business structure is an entity which is legally distinct from the parties which comprise it. It is used where a number of parties wish to carry on business together. The component parties' liability is limited to their share of capital investment in the joint venture company. The formalities for establishment are similar to those for a subsidiary company. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Trusts </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> While not commonly used in Hong Kong in this way, a trust can be utilised as a business vehicle or as an investment vehicle whereby a trustee conducts the trust's business on behalf of the &quot;members&quot; (known as beneficiaries) of the trust. The trustee may be a company (usually a private company) created for this purpose. The income generated will belong to the beneficiaries of the trust. The rights and duties of the trustees are set out in the trust deed. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> A trust is not a separate legal entity. The trustee can assume obligations as trustee and is allowed to use trust assets to satisfy its debts and obligations as trustee as provided for in the trust deed. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> Shelf companies </font> </b></p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Shelf companies are &quot;ready made&quot; companies, waiting to be purchased. Shelf companies, therefore, offer an immediate solution to an urgent requirement for a company, as it usually takes an average of seven to 10 working days to incorporate a company in Hong Kong. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> A shelf company would not come with the name and specific provisions in the Memorandum and Articles of Association which may be required, but these matters may be changed subsequent to the acquisition. </font> </p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" SIZE="2"> The Stock Exchange of Hong Kong Limited </font> </b> <font face="Verdana" SIZE="2"> <br> Investors may wish to consider raising local equity by listing on The Stock Exchange of Hong Kong Limited (<strong>Exchange</strong>). This avenue is also available to companies from some jurisdictions incorporated outside Hong Kong. The Exchange serves a wide array of international and domestic investors and end users, including many of the world's largest financial institutions. </font> </p> <p style="margin-right: .98" align="justify"> <font face="Verdana" SIZE="2"> Potential investors should ask their legal adviser for a thorough outline of the current listing rules. </font> </p> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="4"><b> <font face="Verdana" SIZE="2"> BUSINESS ENVIRONMENT </font> </b></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">General</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">During the last 20 years, Hong Kong's economy has nearly trebled in size with GDP growing in real terms at an average annual rate of 5.1%. Over the same period, Hong Kong's per capita GDP has doubled, giving an annual average growth rate of 3.9% in real terms.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong is characterised by a high degree of internationalisation, business-friendly environment, open and fair competition, free flow of information, well-established and comprehensive financial network, superb network of transport and telecommunications infrastructure, sophisticated support services and a well-educated work force complemented by a pool of efficient entrepreneurs.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">It also has a substantial amount of foreign exchange reserves, a fully convertible and stable currency, no exchange controls and a simple tax system with tax being levied at a low rate.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">Direct investment</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong is the second most favoured destination for inward direct investment in Asia, second only to mainland China. The stock of inward direct investment into Hong Kong at the end of 2005 amounted to HK$4,056 billion, equivalent to 293% of the GDP of Hong Kong.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">Services sector</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">The services sector has flourished and diversified into types of activities in line with the structural transformation of the economy. Trade-related and tourism-related services, community, social and personal services and finance and business services such as banking, insurance, real estate and a host of related professional services have all grown substantially over the past two decades. There has also been strong expansion in information technology, especially telecommunications services and Internet applications in line with the shift in economic structure towards a knowledge-based economy.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">Manufacturing sector</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Manufacturing businesses in Hong Kong are renowned for being versatile and flexible. The existence of many small establishments connected under an extensive local sub-contracting network has facilitated producers in coping with changing conditions in overseas markets. By increased outward processing arrangements in mainland China, Hong Kong's capacity has been substantially expanded, helping to maintain the price efficiency of its products, most of which are destined for export.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">Intellectual property rights</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Sources of intellectual property law</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong is a common law jurisdiction and the fundamentals of the intellectual property regime have been inherited from the English system, which was followed until the reversion of sovereignty in 1997. Intellectual property rights in Hong Kong, including patents, designs, trade marks and copyright, predominantly derive from legislation. However, as in other common law jurisdictions, the judiciary has developed, through precedents, remedies such as the tort of passing-off, malicious falsehood (trade libel) and breach of confidence. There are no generic unfair competition or fair trading laws.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Hong Kong intellectual property law (post-1997)</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">At midnight on 30 June 1997, Hong Kong ceased to be a colony of the United Kingdom and sovereignty reverted to China. In terms of the <em>Basic Law</em>, which governs Hong Kong's status as a Special Administrative Region of the People's Republic of China, Hong Kong remains as a separate jurisdiction from the rest of China for intellectual property purposes. The intellectual property laws of the People's Republic of China, therefore, do not apply in Hong Kong and vice versa.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Trade marks</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong has had an independent trade mark registration system for well over 100 years. The Hong Kong Trade Marks Registry opened its doors in 1873 &ndash; two years before the United Kingdom Trade Marks Registry was established. Although it is based closely on the United Kingdom Trade Marks Act 1994, the current Hong Kong<em> Trade Marks Ordinance</em> (which came into force in 2003) is an independent piece of legislation. The Hong Kong <em>Trade Marks Ordinance</em> places emphasis on the first-to-file system followed in China, which is a departure from the practice under the previous law. The Ordinance specifically recognises rights in well-known trade marks consistent with Hong Kong's obligations under the <em>Paris Convention for the Protection of Industrial Property</em>.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Patents</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">There is a separate Hong Kong patent regime as Chinese patents do not automatically cover Hong Kong. The Hong Kong <em>Patent Law</em> provides a re-registration system under which patents originally filed in China, the United Kingdom or the European Community (designating the United Kingdom) may be protected in Hong Kong. The resulting Hong Kong patent is completely independent. It may, therefore, be amended or revoked in Hong Kong independently of the basic patent. A separate utility model or &quot;short-term patent&quot; system has also been established in Hong Kong. Such applications are filed directly in Hong Kong.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Semiconductor topography protection</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana"><font size="2">The layout of semiconductor circuitry is protected by the <em>Layout-Design (Topography) of Integrated Circuits Ordinance</em>, which was enacted in 1994. This provides a copyright-like protection for integrated circuits created after the coming into force of the Ordinance.</font></font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Registered designs</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">The <em>Registered Designs Ordinance</em> 1997 came into force on 27 June 1997 and ushered in a new era in Hong Kong's intellectual properly administration. It replaced the regime which was based on the United Kingdom <em>Designs (Protection) Ordinance</em> and introduced an independent design regime to Hong Kong for the first time. The substantive law of the Ordinance generally follows the steps of the United Kingdom's <em>Registered Design Act 1949</em>. The main differences are that the Hong Kong Ordinance allows for protection of multiple designs under a single application and worldwide novelty is required. A Hong Kong registered design has a maximum life of 25 years from filing, subject to the payment of renewal fees every five years.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><u><font face="Verdana" size="2">Conclusion</font></u></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong is generally regarded as having a comprehensive system for the protection of intellectual property rights. The government has put considerable effort into ensuring that this perception is maintained. In this context, all of Hong Kong's major intellectual property legislation has been overhauled within the last few years and, as a result, Hong Kong's laws are, for the most part, consistent with internationally accepted standards.</font></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><b><font face="Verdana" size="2">Franchising</font></b></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><font face="Verdana" size="2">Hong Kong has no regulatory regime applicable to franchising, thereby enabling overseas franchisors to enter the Hong Kong market with minimum formalities and regulatory compliance. Franchise agreements are, however, subject to various consumer protection rules, including restrictions that apply to contracts generally, such as restrictions on exemption clauses, unconscionable provisions and restrictions on unreasonable restraints of trade.</font></p> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="5"><b> <font face="Verdana" SIZE="2"> FOREIGN INVESTMENT POLICY </font> </b></a></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Investment possibilities generally</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Foreign investment plays a key role in the Hong Kong economy. Various sources of foreign investment like China, Japan, the United States and the United Kingdom have substantial amounts of inward direct investment in Hong Kong. On the one hand, no industries in Hong Kong are closed to foreign investment. On the other hand, it is not only permitted but quite common to have 100% foreign investment in most industries. As at 1 June 2006, 3,845 companies had set up their headquarters or regional offices in Hong Kong compared with 3,798 in 2005.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Government attitude</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The Hong Kong government upholds a free and open market policy which generally applies to all trade and investment, with very few restrictions on foreign investment. Whilst there are no specially enacted incentives for foreign investment, all foreign companies benefit from the government's policy of providing an appealing climate for investment through its physical infrastructure including good communications, efficient port and airport facilities, its simple tax structure with low rates of tax, and its legal and administrative system. It promotes fair competition and does not discriminate between foreign and domestic investors.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">In terms of international recognition, Hong Kong is consistently described as the world's freest economy by highly reputable international institutions.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Gateway to mainland China</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The fast expanding China market, especially after China's accession to the World Trade Organisation (<strong>WTO</strong>) and its continued reduction in administrative barriers to trade, has been highly attractive to foreign investors. Given the geographic proximity and business synergies between Hong Kong and mainland China, many foreign companies find it advantageous to choose Hong Kong as their base and a service platform for investment in China. What makes Hong Kong an even easier route into and out of China recently is the mainland China Hong Kong Closer Economic Partnership Arrangement (<strong>CEPA</strong>) of June 2003. It came into effect on 1 January 2004 and grants easier access to mainland markets for Hong Kong-made products and Hong Kong-based companies in various sectors. The measures in CEPA are above and beyond China's WTO commitments, which phase in tariff cuts and market liberalisation measures in their entirety three to six years after WTO accession.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2"> An overseas manufacturer is not required to establish itself a presence in Hong Kong to take advantage of CEPA but must enter into a joint venture with, or outsource production to, a Hong Kong manufacturer. An overseas service company may also be eligible for CEPA benefits one year after its merging with, or acquisition of at least 50% of, a Hong Kong service supplier. CEPA will therefore strengthen the appeal to foreign companies of Hong Kong's position as a service hub and global platform for China business, and in turn an incentive for foreign investment in Hong Kong.</font></p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" size="2"> Foreign investment restrictions</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The Hong Kong government in general makes no distinction between local and foreign companies, and welcomes investment from both. Hong Kong does not subject foreign investments to special regulatory regimes or requirements. Foreign companies setting up operations in Hong Kong do not face any special approval procedures and the procedural requirements are not materially different from those for the local counterparts. Funds from profit or capital accounts may be freely repatriated and remitted overseas and there is no foreign exchange control.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">100% foreign ownership of companies is generally permitted and common in Hong Kong, with very few foreign investment restrictions. The table below sets out the business sectors where foreign investment restrictions or limitations are in place:</font></p> <table border="1" width="100%" cellpadding="2"> <tr> <td width="20%" valign="top" align="left"><b><font size="2" face="Verdana">Sector&nbsp;</font></b></td> <td width="80%" valign="top" align="left"><b> <font size="2" face="Verdana"> Foreign investment restriction related regulations/situation</font></b></td> </tr> <tr> <td width="20%" valign="top" align="left"><font size="2" face="Verdana">Banking</font></td> <td width="80%" valign="top" align="left"><font size="2" face="Verdana">Foreign banks in Hong Kong are common and free to operate with limited restrictions. They have been allowed to establish as many branches as they wish to since November 2001. A number of market entry criteria have been relaxed in May 2002 - the lowering of the minimum asset size and the lifting of the requirement to have maintained a local representative office for a period of one to two years before its authorisation request are examples.</font></td> </tr> <tr> <td width="20%" valign="top" align="left"><font size="2" face="Verdana">Civil Aviation</font></td> <td width="80%" valign="top" align="left"><font size="2" face="Verdana">Generally no foreign ownership restrictions. Control over international airlines serving Hong Kong is shared with the Chinese government. Arrangements for air services between Hong Kong and other parts of mainland China are made by the Chinese government in consultation with the Hong Kong government.</font></td> </tr> <tr> <td width="20%" valign="top" align="left"><font size="2" face="Verdana">Television Broadcasting</font></td> <td width="80%" valign="top" align="left"><font size="2" face="Verdana">Control over the licensees of domestic free TV programme services by foreign investors may not exceed 49%. Prior approval is required for the holding, acquisition or exercise of voting control by foreign investors of 2% or more of a television licensee.</font></td> </tr> <tr> <td width="20%" valign="top" align="left"><font size="2" face="Verdana">Sound Broadcasting</font></td> <td width="80%" valign="top" align="left"><font size="2" face="Verdana">Control over sound broadcasting licensees by foreign investors may not exceed 49%.</font></td> </tr> </table> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="6"><b> <font face="Verdana" SIZE="2"> GOVERNMENT INITIATIVES AND INCENTIVES </font> </b></a></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">General</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Given the tax environment in Hong Kong and in particular:</font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">generally lower rates of tax than most other Asian jurisdictions;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">no tax on capital gains;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">no tax on profits arising or derived from outside Hong Kong;&nbsp;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">no tax on dividends; and</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">abolition of estate duty.</font></li> </ol> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Hong Kong does not have an extensive regime of tax incentives designed to attract foreign investment. There are, however, a number of exemptions from tax or allowances designed to stimulate particular industries or new investments in existing businesses.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Exemptions</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Important exemptions include:</font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">deposit interest from bank deposits paid to corporations (other than financial institutions) and individuals carrying on business in Hong Kong;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">interest income and trading profits derived from qualifying debt instruments are subject to a concessionary tax rate of half of the normal rate or are exempt. Qualifying debt instruments must be cleared through the Hong Kong Monetary Authority, have a suitable credit rating, a maturity period of three years or more and be of a minimum denomination of HK$50,000;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">profits on all debt instruments with a maturity period of seven years or more are exempt; and</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">exemption of offshore funds from profits tax.</font></li> </ol> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Allowances</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Important allowances include:&nbsp;</font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">an initial allowance of 20% of the cost (excluding land cost) of an industrial building for the purpose of a qualifying trade (which includes mills, factories or similar premises, certain utility undertakings, manufacturing, storage, farming and scientific research). An annual allowance of 4% of the original capital expenditure is also given. Balancing allowances or balancing charges may be made in the tax year in which the building is sold;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">an annual allowance of 4% is available for commercial buildings or structures used other than for industrial purposes;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">capital expenditure on the renovation or refurbishment of a building other than a domestic building is deductible at the rate of 20% a year over a five year period; and</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">an initial allowance of 60% of the capital expenditure on machinery or plant is available in the year in which the expenditure is incurred. Annual allowances at prescribed rates are available in subsequent years on the reducing value.</font></li> </ol> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">A more generous 100% allowance of capital expenditure on prescribed fixed assets is allowed. This covers certain machinery or plant used specifically and directly for any manufacturing process, computer hardware, computer software and computer systems. It does not apply to leased assets.</font></p> <p ALIGN="RIGHT" style="margin-right: .98"><a HREF="#contents"><font face="Verdana" SIZE="1">Back to Top</font></a></p> <p ALIGN="JUSTIFY" style="margin-right: .98"><a name="7"><b> <font face="Verdana" SIZE="2"> TAXATION </font> </b></a></p> <p style="margin-right: .98" align="justify"><font face="Verdana"><b><font size="2">General</font></b><font face="Arial" size="2"><br> <br> The principal sources of revenue to the Hong Kong Government (apart from revenue from the sale of government land) are:</font></font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">salaries tax;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">profits tax;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">property tax; and</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">stamp duty.</font></li> </ol> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Tax is charged according to the nature of the relevant income and is on a territorial basis. Income not covered by any of the above taxes is not subject to tax in Hong Kong. In particular, Hong Kong does not impose any payroll, turnover, sales, value added, gift or capital gains taxes or any estate duty or inheritance tax.<br> <br> There are various indirect taxes. The most significant of these are duties on hydrocarbons, tobacco and liquor, and fees for vehicle registration and licensing.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Salaries Tax</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">A person is subject to salaries tax on his or her Hong Kong sourced employment income, income from an office in Hong Kong or a Hong Kong pension. If the employment is a Hong Kong employment, all income derived from it will normally be subject to salaries tax even if some services are performed outside Hong Kong.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Income from a non-Hong Kong employment is only taxed to the extent of income derived from services rendered in Hong Kong. In determining whether an employment is a Hong Kong employment or a non-Hong Kong employment, the practice of the Inland Revenue Department is to take into account all of the relevant facts with particular emphasis on where the employment contract was negotiated and entered into and where it is enforceable, where the employer is resident and where the employee's remuneration is paid to him.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">No account is taken of visits to Hong Kong by persons with a non-Hong Kong employment not exceeding 60 days in any fiscal year.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Perquisites are generally taxable but where the employer has the primary liability for payment of benefits they may not be. Perquisites by way of educational allowance or vacation allowance are taxable.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Housing which is provided by an employer is taxable but on a concessionary basis.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2"> An employer is not required to withhold salaries tax (with limited exceptions in relation to persons about to leave Hong Kong) but he or she must make an annual return of remuneration paid to employees and must make various other returns e.g. on commencement or termination of employment or departure of the employee from Hong Kong</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Collection of tax is by way of provisional assessment based on the previous year's salary and final assessment on filing of the tax return for the year in question. The provisional tax is credited against final tax payable, with any over payment being refunded or under payment being charged.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The basic rate of tax is 16%. However, tax payable is calculated with various personal allowances and tranches of income at different rates of up to 17%, but if on calculating the tax payable based on these allowances and tranches the amount charged would exceed 16% of total income liable to salaries tax, then the tax will be charged at 16% of income liable to salaries tax.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Profits Tax</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">A person who carries on a trade, profession or business in Hong Kong is chargeable to profits tax on the profits which arise in, or derive from, Hong Kong from that trade, profession or business other than profits from the sale of capital assets. Profits sourced outside Hong Kong are not taxed in Hong Kong even if remitted to Hong Kong. Residence of the taxpayer is irrelevant for profits tax purposes.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Whether profits are sourced in Hong Kong is a question of fact. The courts apply an operations test to determine this. They look to the operations of the taxpayer which gave rise to the profit and where those operations took place.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Dividends are not subject to profits tax, nor is any tax required to be withheld from them.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Certain kinds of profit are deemed to be taxable in Hong Kong. These include:</font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">fees for exhibition or use in Hong Kong of films or tapes or sound recordings;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">royalties for use of intellectual property rights in Hong Kong and, in some circumstances, outside Hong Kong;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">grants, subsidies or financial assistance to a business carried on in Hong Kong;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">rentals for use of property in Hong Kong;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">interest accruing to a financial institution through, or from its business in, Hong Kong and profits made by a financial institution on sale or redemption of certain commercial paper;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">interest received in respect of the funds of a business carried on in Hong Kong not being otherwise exempt;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">Hong Kong sourced profits on sale or redemption of certain commercial paper, except in a non-business context; and</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">consideration for the transfer of certain rights to receive income from property.</font></li> </ol> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Expenses incurred in production of taxable profits are allowed irrespective of source. Certain specific types of deductible and non-deductible expenses are set out in the <em>Inland Revenue Ordinance</em>.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Tax losses are deductible from profits arising in the year of assessment and may be carried forward to future years to the extent not used. Group tax relief is not permitted.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Tax paid by financial institutions, insurance companies, shipowners and aircraft operators are subject to special rules.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Tax is collected by way of provisional assessment based on the previous year's profits and final assessment on filing of the tax return for the year in question. The provisional tax is credited against final tax payable, with any over payment being refunded or under payment being charged.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The rate of profits tax is 17.5% for corporations and 16% for taxpayers other than corporations.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Property Tax</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Property tax is charged at the rate of 16% of the assessable value of any land or buildings in Hong Kong.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">The assessable value is the rent receivable less any rent which has become irrecoverable, less rates paid and less a fixed allowance of 20% for repairs.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2"> Corporations carrying on business in Hong Kong can elect to be exempted from property tax and subject instead to profits tax.</font></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Collection is by way of provisional assessment based on the previous year's rent and final assessment on the filing of the tax return for the year in question. The provisional tax is credited against final tax, with any over payment being refunded or under payment being charged.</font></p> <p style="margin-right: .98" align="justify"><b><font face="Verdana" size="2">Estate Duty</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Estate duty has now been abolished. Although complete abolition came into effect for deaths on and after 11 February 2006, a maximum of HK$100 of estate duty was payable on the estates of persons dying on or after 14 July 2005.</font></p> <p style="margin-right: .98" align="justify"><b> <font face="Verdana" size="2"> Stamp Duty</font></b></p> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">Stamp duty is charged on the following documents:</font></p> <ol style="font-family: arial; font-size: 10pt"> <li> <p style="margin-right: .98" align="justify"><font face="Verdana" size="2">conveyances on sale of property - 3.75% of the consideration payable (with lower rates applicable to a consideration of HK$6,000,000 or below), unless duty was paid on the agreement for sale and purchase;</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">agreements for sale and purchase of residential property - 3.75% of the consideration (with lower rates applicable to a consideration of HK$6,000,000 or below);</font></li> <li> <p style="margin-right: .98" align="justify"><font face="Verdana">leases of property exceeding one year - 0.5% of the average yearly rent;</font></