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Geography & People
Hong Kong is situated at the south-eastern tip of the mainland of China. A total area of just under 1,100 square kilometers covers Hong Kong Island, Kowloon and the New Territories and Islands. Its population is around 6.8 million.
Business Environment
Hong Kong is famous for its open economy system and it is one of the world's premiere financial centres. Its freedom of capital movement, sound legal system, efficient transportation system, state-of-art telecommunication backbones and the wide use of English in business have contributed to its success.
Legal System
Hong Kong was ruled by the British Government but it became the Special Administrative Region of the People's Republic of China (PRC) on 1 July 1997. The British introduced the English legal system to Hong Kong. As a result, English common law and rules of equity apply. Laws in Hong Kong have also developed through the Legislative Council enacting its own statute law (i.e. Ordinance). After 1997, the laws in Hong Kong remain basically unchanged and Basic Law serves as the constitutional legislation.
Companies incorporated or registered in Hong Kong are governed by the Companies Ordinance (Chapter 32 of the Laws of Hong Kong).
Government Structure
Hong Kong is headed by the Chief Executive. The executive arm of the Government, the Administration, is organised into the Government Secretariat and departments. Bureaux in Government Secretariat formulate policies and initiate legislative proposals while departments implement laws and policies and provide direct services to the community.
Taxes
There are several distinctive features of the Hong Kong tax system. Income taxes (salaries tax, profits tax and property tax) are charged on income which has a Hong Kong source (territorial source concept), i.e. offshore profits are tax free. Estate duty is charged on the principal value of property located in Hong Kong passing on the death of the deceased. Stamp duty is charged on instruments which relate to Hong Kong assets.
There is no capital gains tax and dividend income tax. The unincorporated businesses profit tax rate is 16% and corporation profits tax rate of 17.5% are relatively low compared with other developed countries.
Currency
Banknotes in Hong Kong are issued in denominations of HK$10, HK$20, HK$50, HK$100, HK$500 and HK$1,000. Coins are issued in denominations of HK$10, HK$5, HK$1, 50 cents, 20 cents and 10 cents.
Exchange Rates
Since 1983, the Hong Kong dollar has been tied to the US dollar at the rate of US$1=HK$7.80.
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Hong Kong's corporate law is strongly based on British common law. Local businesses are regulated and Hong Kong regards itself as a low tax center rather than a tax haven. Taxes are levied on profits, salaries and property with vary rates. Only profits derived in Hong Kong are assessable for taxation and genuine offshore transactions are not subject to Hong Kong tax, although the Inland Revenue Department ("IRD") is extremely diligent in its determination of onshore and offshore profits.
Due to Hong Kong's role as a major trading and entry point to the mainland and Asia generally, the bulk of companies formed in Hong Kong are for trading purposes. In addition, the corporation profits tax rate of 17.5% and for individual salary tax rate will be at maximum 15%. There will be no capital gain tax in Hong Kong.
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| a) |
Companies Ordinance
Companies incorporated or registered in Hong Kong are governed by the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). |
| b) |
Memorandum & Articles of Association
The memorandum and articles are the primary legal document of a company. Memorandum contains the name of the company, authorized share capital, initial members and object clause (if any). Articles are a set of internal regulations that governs the day to day operations of the company. Both memorandum and articles have to be filed to Companies Registry at the time of incorporation or if there is any changes thereafter. At least one subscriber (shareholder) is required in the memorandum and each of the subscribers must subscribe to at least one share in the company.
From 13 February 2004, it permits only one subscriber in the memorandum, i.e. a private company can have only one shareholder. A private company can also have only one director.
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| c) |
Directors
Minimum one director is required, of which 0 must be resident. Corporate directors are permitted.
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| d) |
Secretaries
Minimum of one secretary is required, who must be resident. Corporate secretary is permitted. There is no requirement for secretaries to hold any professional qualifications.
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| e) |
Shareholders
Minimum one shareholder is required. Corporate shareholder is permitted.
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| f) |
Share Capital
Shares must be expressed in a fixed amount. "No par value" or "bearer" shares are not permitted. While it is usual for the share capital to be expressed in Hong Kong dollars, it can be expressed in any currency. A multiple currency share capital is also permissible. |
| g) |
Directors Meetings
A directors meeting can be held regularly or when in need. |
| h) |
Annual Meetings
An annual general meeting (AGM) must be held once in every calendar year and not more than 15 months after the last preceding AGM. However, a company must hold its first AGM within 18 months from its date of incorporation incorporation. A company can dispense with the holding of AGM if everything that is required or intended to be done at the meeting is done by resolutions. |
| i) |
Public Filings
The names and personal particulars of the directors and secretary, register of charges, share capital, registered office address, etc, must be filed with the Companies Registry for public inspection upon incorporation and if there is any changes thereafter. A private company does not need to file its accounts for public inspection, but proper books of accounts are to be kept and audited. |
| j) |
Accounts & Auditors
Every company is required to appoint an auditor each year at its AGM. An auditor must be qualified by virtue of the Hong Kong Professional Accountants Ordinance and completely independent of the company. In case of private company, its audited accounts must be laid before its AGM not more than nine months from its financial year end. |
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