Business Operations in Hong Kong (Portfolio 7152)

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Tax Management Portfolio, Business Operations in Hong Kong, outlines matters of interest to those involved in or contemplating establishing business operations in Hong Kong.

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The Portfolio discusses the political, economic and legal structure of Hong Kong and its investment climate. Forms of doing business, trade and commerce regulation, and business registration requirements are described. Particular emphasis is placed upon Hong Kong's tax system and the taxation of business profits. Estate duty and stamp duty considerations are also described.


Business Operations in Hong Kong was authored by the following experts.
Michael Olesnicky

Michael Olesnicky holds a BA and LLB from Adelaide University in Australia. He also holds an LLM from Columbia University in New York. He practiced from 1979–82 with Baker & McKenzie's office in Sydney. In 1988, he rejoined Baker & McKenzie's office in Hong Kong, and became a partner in 1989 in the International Tax Group.

His chief specialty is Hong Kong and regional tax advisory work as well as estate duty planning.

He is the Chairman of the Joint Liaison Committee on Taxation, which is a quasi-governmental committee that interfaces between tax practitioners and the Inland Revenue Department. He is a past chairman of the tax committee of the Australian Chamber of Commerce. He was a member of the Inland Revenue Board of Review (the lowest-level tax court in Hong Kong) between 1985 and 1994. He was Chief Editor of the Hong Kong Law Journal for five years. He writes and speaks frequently on Hong Kong tax matters.

Steven Sieker

Steven Sieker holds a BA (Honors) from the University of Alberta and an LLB from Dalhousie University (both in Canada). He is a former law clerk to the Supreme Court of Canada and joined Baker & McKenzie's office in Hong Kong in 1998. His specialties are Hong Kong and regional tax advisory work and litigation. He has been a member of the Inland Revenue Board of Review and a part-time lecturer in Revenue Law at City University and Hong Kong University. He is a member of the Joint Liaison Committee on Taxation and the Chairman of the Revenue Law Committee of the Hong Kong Law Society. He writes and speaks frequently on tax matters.

Table of Contents

Detailed Analysis

I. Hong Kong - The Territory, Its People and Economy

Introductory Material

A. Geography and Population

B. Historical Background

C. Government

D. Legal System

E. Economy

II. Operating a Business in Hong Kong

A. Foreign Investment Regulation

1. Opportunities

2. Incentives

3. Restrictions

B. Currency and Exchange Controls

C. Trade and Commerce Regulations

1. Imports and Exports

a. Licenses and Quotas

b. Customs Duties and Other Taxes

c. Documentation

2. General Regulation of Business

a. Monopolies

b. Mergers

c. Restrictive Trade Practices

d. Price Controls

e. Securities Regulation

3. Licensing and Franchising in Hong Kong

a. Patents

b. Trademarks and Trade Names

c. Industrial Know–how

d. Copyrights

e. Designs

D. Immigration Regulations

E. Labor Relations

1. Terms of Employment

2. Record-keeping Requirements

3. Deductions

4. End-of-the-Year Bonus

5. Rest Days, Holidays and Annual Leave

6. Maternity Leave

7. Sickness Allowance

8. Equal Opportunities Legislation

9. Personal Data and Privacy

F. Financing the Business

1. Shareholders' Funds

2. Financing from Third–Party Financial Institutions

3. The Capital Markets

III. Forms of Doing Business in Hong Kong

A. Principal Business Entities

B. Corporations

1. Formation

a. Purpose Clause

b. Corporate Name

c. Incorporators

d. Articles of Association

e. Capital Stock

f. Incorporation Procedure

g. Costs of Incorporation

2. Operation

a. License

b. Amendment of Articles

c. Increases and Reductions of Capital Stock

d. Acquisition of Own Stock

e. Corporate Officers

f. Shareholders' Meetings

g. Directors' Meetings

h. Books and Records

i. Financial Statements

j. Dividends and Other Distributions

k. Reserves

3. Statutory Merger

4. Dissolution

5. Liquidation

6. Reorganization

a. Scheme of Arrangement

b. Reconstruction and Amalgamation

C. Other Corporate Entities

D. Partnerships

1. Formation

2. Administration

3. Dissolution

E. Branch of a Foreign Corporation

1. Registration

2. Liability

3. Books and Records

F. Other Business Entities

1. Sole Proprietorships

2. Trusts

IV. General Scheme of Taxation

A. Introduction

B. Principal Taxes

1. Income Taxation

2. Estate and Gift Tax

3. Stamp Duty

4. Sales Tax

5. Capital Investment Tax

6. Payroll Tax

7. Trade Tax

8. Net Worth Tax

V. Income Taxation

A. Introduction

B. Property Tax

1. Net Assessable Value

2. Exemptions - Corporations Liable to Profits Tax

3. Provisional Property Tax

C. Salaries Tax

1. Source of Employment

2. Items Included in Income for Salaries Tax Purposes

3. Employee Housing

4. Assessable Income

5. Deductions and Charitable Contributions

6. Treatment of Losses

7. Net Chargeable Income and Personal Allowances

a. Basic Allowance

b. Married Person's Allowance

c. Dependent Parent/Grandparent Allowance

d. Child Allowance

e. Single Parent Allowance

f. Dependent Brother/Sister Allowance

g. Disabled Dependent Allowance

8. Salaries Tax Rates

9. Assessment and Payment of Salaries Tax

10. Provisional Salaries Tax

D. Profits Tax

1. Scope of Tax

a. Carrying on a Trade, Profession or Business

b. Source of Profits

2. Deemed Taxable Receipts

3. Nontaxable Profits

a. Income from a Foreign Source

b. Capital Gains

c. Dividend Income

d. Other Nontaxable Profits

4. Deductions

a. Business Expenses

b. Payments to Recognized Occupational Retirement Schemes

c. Expenditure on Scientific Research

d. Payments for Technical Education

e. Approved Charitable Donations

f. Purchase of Patent and Similar Rights

g. Amortization of Other Capital Expenditure

(1) Industrial Buildings

(2) Commercial Buildings and Structures

(3) Machinery and Plant

(4) Anti–Avoidance

(5) Special Rules Regarding the Leasing of Plant or Machinery

h. Treatment of Losses

(1) Corporations

(2) Individuals

(3) Partnerships

(4) Trusts

i. Apportionment of Outgoings and Expenses

j. Deductions Not Allowed

k. Tax Credits

5. Ceasing Business in Hong Kong

6. Tax Computation

a. Basis for Computing Profits

b. Change of Accounting Date

c. Tax Rates

7. Provisional Profits Tax

VI. Profits Tax - Special Considerations

A. Partnerships

1. Assessment of Partnerships

2. Ascertainment of Share of Partnership Profits and Losses

3. Loss Limitation for Limited Partners

B. Trusts

C. Insurance Corporations

D. Financial Institutions

E. Ship and Aircraft Owners

1. Ship Ownership

a. Resident Ship–Owners and Nonresident Ship–Owners

b. Calculation of Assessable Profits

c. Alternative Calculation of Assessable Profits

d. Tax Agreements

2. Aircraft Ownership

a. Resident Aircraft-Owners

b. Nonresident Aircraft-Owners

c. Alternative Computation of "Total Shipping Profits" and "Total Aircraft Profits"

d. Tax Agreements

F. Clubs and Trade Associations

G. Exempt Organizations

VII. Taxation of Nonresidents

Introductory Material

A. Agent Subject to Tax

B. Tax on Gross Proceeds from Sales in Hong Kong on Behalf of a Nonresident

C. Non-Arm's Length Pricing

D. Computation of Assessable Profits

VIII. Taxation of a Branch

IX. Personal Assessment

Introductory Material

A. Calculation of Total Income

B. Deductions

C. Allowances

D. Tax Rates

X. Assessment, Filing and Other Compliance Issues

A. Returns

B. Investigatory Powers

C. Maintenance of Records

D. Cessation of Business in and Departure from Hong Kong

E. Employers' Returns

F. Assessments

1. Statute of Limitations

2. Anti-Avoidance

G. Objections and Appeals

H. Payment and Recovery of Tax

I. Tax Refunds

J. Penalties and Offenses

1. Fraud

2. Additional Tax

XI. Stamp Duty

A. Instruments Subject to Stamp Duty

1. Real Estate Sales and Leases

2. Hong Kong Stock

3. Hong Kong Bearer Instruments

B. Effect of Failure to Stamp

C. General Exemptions

D. Rates of Stamp Duty

1. Immovable Property in Hong Kong

a. Assignments

b. Leases

2. Hong Kong Stock

3. Hong Kong Bearer Instruments

4. Duplicates and Counterparts

XII. Other Taxes

A. Excise Taxes

B. Betting Duty

C. Air Passenger Departure Tax

D. Embarkation and Berthing Fees

E. Entertainments Tax

F. Hotel Accommodation Tax

G. Capital Duty

H. Government Rates and Rent

I. Motor Vehicles First Registration Tax

J. Vehicle and Driving License Fees

K. Restricted License Bank and Deposit-Taking Company License and Registration Fees

L. Transfer of Vehicle Ownership Fee

XIII. Estate Duty

A. Abolition

B. Probate

XIV. Intercompany Pricing

XV. Special Provisions Relating to Multinationals

XVI. Avoidance of Double Taxation

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Standard Memorandum and Articles of Association

Worksheet 2 Application by an Individual for Registration of Business Carried on by Him in Hong Kong

Worksheet 3 Application by a Body Corporate for Registration

Worksheet 4 Application by a Partnership or by Other Body Unincorporate for Registration of Business Carried on by Such Body in Hong Kong

Worksheet 5 Application for Registration of Branch Business Carried on in Hong Kong

Worksheet 6 Property Tax Return - Corporations and Bodies of Persons

Worksheet 7 Property Tax Return - Property Jointly Owned or Co-Owned by Individuals

Worksheet 8 Inland Revenue Department: Guide to Tax Return - Individuals

Worksheet 9 Specimen on Completion - Employer's Return of Remuneration and Pensions (B.I.R. 56A)

Worksheet 10 Specimen on Completion - Employees Still Under Employment as at 31 March I.R. 56B

Worksheet 11 Election for Personal Assessment and Claim for Personal Allowances

Worksheet 12 Profits Tax Return - Corporations

Worksheet 13 Profits Tax Return - Persons Other Than Corporations

Worksheet 14 Profits Tax - Return of Sales of Goods Received on Consignment

Worksheet 15 Profits Tax Return in Respect of Non-Resident Persons

Worksheet 16 Specimen on Completion - For Commencement of Employment (I.R. 56E)

Worksheet 17 Specimen on Completion - For Cessation of Employment (I.R. 56F)

Worksheet 18 Specimen on Completion - For Employee who ceased Employment and is about to leave Hong Kong (I.R. 56G)

Worksheet 19 Certificate of Payment of Profits Tax

Worksheet 20 Departmental Interpretation and Practice Notes No. 16: Salaries Tax-Taxation of Fringe Benefits

Worksheet 21 Departmental Interpretation and Practice Notes No. 17: The Taxation of Persons Chargeable to Profits Tax on Behalf of Nonresidents

Worksheet 22 Departmental Interpretation and Practice Notes No. 18: Assessment of Individuals Under Salaries Tax and Personal Assessment

Worksheet 23 Departmental Interpretation and Practice Notes No. 21: Locality of Profits

Worksheet 24 Rates of Depreciation

Worksheet 25 Rates of Motor Vehicles First Registration Tax Under the Motor Vehicles (First Registration Tax) Ordinance CAP. 330






HONG KONG AT A GLANCE (HKSAR Government Website)

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