Why is Hong Kong Good for Business?

13 January 2015
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TL: Why are secretarial services essential to both overseas and local clients, and what type of support do these services provide?
BW: When clients wish to conduct business, they need to decide where and how to set up an entity to do it.  Our role is to help clients pick the appropriate legal jurisdictions and to set up the proper corporate structure for them to move forward with their business plans.  In Hong Kong (“HK”), companies are, at a minimum, subject to the corporate law, business registration rules and Inland Revenue Ordinance.  We are here to make sure that clients navigate effortlessly through all these legal and tax compliance requirements.  
TL: What are the benefits of doing business in (and through) Hong Kong?
BW: HK is a low tax regime with current corporate tax rate at 16.5%.  Tax is only levied on profits derived from Hong Kong.  Profits derived outside of HK are not subject to corporate tax payment but expenses incurred related thereto are not tax deductible.  The offshore profits have to be agreed with the Inland Revenue Department.  Apart from the low tax rate, doing business in HK is quite easy.  Incorporation of a company here only takes a few days and even within 24 hours if incorporation is done online.  There is no residency requirement for the director and / or shareholder.  The registered office address and corporate secretarial services can be provided by service providers at an agreed fee.  Various government departments are doing what they can to create a business environment conducive to the growth of entrepreneurial spirits and startups.  Assistance is always at hand.
TL: What are the most common reasons people/ companies currently choose Hong Kong for business, particularly in terms of taxation, capital and foreign exchange control?
BW: People choose HK for business not only because of its low tax rate but also for the benefits and convenience they could enjoy.  There is no minimum paid up capital nor working capital requirement.  Working capital can be in the form of shareholder loan.  Thin capitalization rule does not exist. Clients can start with 1 share issued at a price of HK$1 or any other currency.    Money can go in and out of HK freely.  It is often used as a gateway to other Asian cities in a tax efficient group structure.
TL: What are the main differences in shareholders’ rights in Hong Kong and Mainland China?
BW: HK is one of the Special Administrative Regions of Mainland China.  However, the legal and tax systems are entirely different. Members of both jurisdictions have the right to attend general meetings as well as to approve audited financial statements and have a decision on the appointment of auditors and such material matters such as winding up of the companies, changing the corporate name, re-organisation  etc.
However, in HK, management lies in the hands of the board of directors. In Mainland China, the members have the right to approve the budget, operational guidelines etc. which are at the sole direction of the directors in HK.  In comparison, members in Mainland China have a wider power and control over the operation of their companies.
TL: What has been the most significant impact of the Hong Kong New Companies Ordinance so far, and do you predict any other impact in the near future for Hong Kong companies?
BW: The new Companies Ordinance (“CO”) is re-written in plain English.  It is easier to be understood by market practitioners.  Furthermore, it has formalised some practices which one could not find in the former Ordinance.  An example is the conversion of the denomination of shares from one currency into another. 
HK companies are now more transparent than in the past because even private companies limited by shares, being the most popular form of type of companies, must have at least one natural person being appointed as a director, whereas in the past, this type of companies can have another company appointed as a director.  It will be more attractive to multi-national companies using HK within their group structures.
The next impact on HK will be the introduction of competition law which is expected to be implemented sometime in the year 2015.  The legislation has been passed and the practice guidelines are being drafted and reviewed.  The aim of this new legislation is to create a level playing field for small-to-medium size enterprises.  This should encourage more entrepreneurs to set up companies here.