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INTERNATIONAL BUSINESS
PRACTICES IN HONG KONG
BUSINESS ORGANIZATIONS
The primary forms of business organizations in Hong Kong are: sole
proprietorship, partnership, corporation and branch. All businesses
must register with the Inland Revenue Department and obtain a Business
Registration Certificate from the Registrar of Companies.
Corporations must have a minimum of two subscribers and may be
either private or public companies. Private companies may not have
more than 50 shareholders nor offer its shares or debentures to
the public, and the right to transfer shares in a private company
may require board approval or be subject to a right of pre-emption
by the other shareholders. Public companies, on the other hand,
are subject to minimum capitalization requirements and to regulation
in the issuance of prospectuses and stock offerings, and must file
annual statements with the Registrar of Companies.
Hong Kong companies, whether public or private, can have limited
or unlimited liability. In a "limited" company, the shareholders
are liable only for the amount unpaid on their shares or, alternatively,
for the amount that they have pledged to contribute. Companies in
which the shareholders have unlimited liability are rare. Most foreign
investors choose to establish private limited companies or branch
operations.
EXPORTING
Agents and Distributors: Exporting to Hong Kong is generally a
less complex process than exporting to many other Asian countries.
In many cases there are no more than two layers, usually an importer
or agent and a retailer or distributor, between the U.S. exporter
and the Hong Kong consumer. The three most common marketing channels
for selling in Hong Kong are the retail office, distributorships
and agencies, and direct sales. Direct sales may be most appropriate
for selected high-end industrial goods.
Import Restrictions: Imports of most products do not require a
license. Import licenses are generally intended to monitor imports
and to protect the health and safety of Hong Kong citizens. Licenses
are issued free of charge with the exception of a HK$ 15.00 fee
for textile products. Products needing licenses include: textiles,
pharmaceuticals, products regarded as dangerous to the public health,
and strategic goods. Imports of pharmaceuticals and medicines must
have the prior approval of the Poisons Control Board. Finally, Hong
Kong bans imports of firearms, gold coins and ivory.
Import Duties: Hong Kong classifies imports according to the Harmonized
System (HS). Only tobacco, cosmetics, certain alcoholic and non-alcoholic
beverages, including ethyl and methyl alcohol, and certain hydrocarbons
are dutiable. Hong Kong also imposes a "trade declaration charge"
of 0.05 percent on all imports. The trade declaration charge is
levied on the cost, insurance, and freight (c.i.f.) of each shipment.
This charge does not apply to foodstuffs, transshipment cargo, transit
cargo, personal effects and gifts of a personal nature, postal packets,
and advertising materials without commercial value.
Documentation: All goods imported into Hong Kong require a commercial
invoice (minimum of two copies) and a bill of lading or air waybill.
Shipments of textiles must be accompanied by a certificate of origin.
In other cases, the importer may ask for a certificate of origin
certified by the Chamber of Commerce. Hong Kong requires that shipments
of meat and poultry have health certificates issued by the recognized
authority of the exporting country (the Department of Agriculture
in the United States) and that a phytosanitary certificate accompany
shipments of live plants.
COMMERCIAL POLICIES
Free-Trade Zones: Hong Kong has no free-trade zones as the colony
itself is a duty-free port. Bonded warehouses are available for
transit goods and for products that are subject to import duties.
Exchange Controls: There are no exchange controls in Hong Kong.
Profits, royalties, interest, and capital can be freely converted
and repatriated. Only the interest tax (see below) is subject to
withholding.
FOREIGN INVESTMENT
Hong Kong welcomes foreign investment to diversify its industrial
base and to develop high-technology industries. This includes areas
such as radio, television, and selected telephone services, which
the Hong Kong government has privatized. There are no export performance
requirements, and no distinction is made based on the source of
the investment.
Hong Kong does not require local participation in ownership or
management or otherwise restrict foreign ownership. The government
permits 100 percent foreign ownership, and there is generally no
approval or screening procedure for foreign investment. However,
foreign companies must register with the Registrar of Companies
within one month of establishing a business within Hong Kong. In
registering a branch, the parent company must submit its articles
of incorporation.
Incentives: There are no special incentives to attract foreign
investment to Hong Kong because the low rate of corporate taxes
and minimal government regulation serve this purpose. The Industrial
Investment Unit within the Industry Department does provide assistance
to overseas companies interested in investing in the territory.
Foreign businesses are also advised to obtain a copy of the Companies
Ordinance as they will have to comply with many of its provisions.
INTELLECTUAL PROPERTY RIGHTS
Protection of intellectual property in Hong Kong is largely patterned
on the system used in the United Kingdom. Various laws, including
the Trade Descriptions Ordinance and the Copyright Ordinance, cover
trademarks, trade descriptions, copyrights, industrial designs and
patents, and provide stiff penalties for their infringement. Hong
Kong has acceded to the Paris Convention for the Protection of Industrial
Property, the Berne Convention for the Protection of Literary and
Artistic Works, and the Universal Copyright Convention.
Patents: Hong Kong does not grant original patents. However, pursuant
to the Registration of Patents Ordinance, patents issued in the
United Kingdom can be registered in Hong Kong within five years
of the date of issuance. Registration confers on the grantee the
same rights as if the patent had been issued in the United Kingdom
with an extension to Hong Kong. Registered patents are valid for
20 years from the date of issuance in the United Kingdom. Hong Kong
has no restrictions on the licensing of patents, and there is no
compulsory licensing.
Trademarks: Trademarks are registered under the Trademarks Ordinance,
which is based on the Trademarks Act of 1938 in the United Kingdom.
Unlike patents, trademark registration in Hong Kong is independent
of registration elsewhere. Registration is valid for seven years
from the date of application and may be renewed indefinitely for
periods of 14 years. Two types of registration are available: Type
A for distinctive marks, and Type B for marks not eligible for Type
A registration. Registration of a trademark may be refused if it
resembles, or can be confused with, a previously registered mark
unless the applicant has continuously used the trademark in Hong
Kong since before the registration of the conflicting mark in its
country of origin. On March 2, 1992, the Hong Kong government extended
similar protection to service marks.
Copyrights: Copyright protection in Hong Kong is provided under
the provisions of the United Kingdom Copyright Act of 1956, as amended
in 1968, and under the Hong Kong Copyright Ordinance, as amended
in 1973 and 1975. Copyright protection extends to all original literary,
musical, artistic and dramatic works. The Copyright Ordinance includes
provisions for the investigation and prosecution of copyright infringement.
Industrial Designs: Protection for industrial designs is covered
by the United Kingdom Registered Designs Act of 1949 and by the
Hong Kong Copyright Ordinance. In February 1991, the Hong Kong Law
Reform Commission published its recommendations on issues relating
to industrial designs as well as computers and related technology,
private copying of audio and video recordings, and performance rights.
These recommendations have not yet been implemented.
TAXATION
Corporate Tax: Hong Kong taxes all profits that "arise in
or are derived from" the conduct of a trade, profession or
business in the territory of Hong Kong. Non-residents in receipt
of such profits, including fees for the exhibition of films or television
programming and royalties for the use of a patent trademark, copyright,
know-how or other intellectual property, are also subject to taxation.
However, the profits tax does not apply to dividends received on
Hong Kong stock, and expenses incurred in generating taxable profits
are deductible. The profits tax in Hong Kong is among the lowest
in the Asia-Pacific region. Corporations are taxed at a rate of
18 percent while sole proprietorships, partnerships and other unincorporated
businesses are taxed at a rate of 16.5 percent.
Personal Income Tax: Individuals are taxed on income derived from
employment, offices and pensions in Hong Kong. Non-residents are
subject to the salaries tax if they reside in the colony for more
than 60 days in a tax year. The salaries tax is assessed on a progressive
scale from two to 25 percent of net income after deductions and
allowances, subject to a ceiling of 15 percent of gross income.
Interest Tax: A tax of 17 percent is charged on interest received
in or from Hong Kong. A number of exemptions apply. In particular,
interest on deposits placed by individuals with financial institutions
doing business in Hong Kong is exempt from the interest tax.
Property Tax: Hong Kong charges a property tax, computed at the
rate of 17 percent of the annual rental income derived from the
property, less 20 percent for repairs and maintenance, on land and
buildings situated in the colony. The property tax does not apply
to personal residences and property owned by a corporation carrying
on a business in Hong Kong.
Other Taxes: Currently, there is no capital gains tax or turnover
or sales taxes in Hong Kong. However, the government is considering
a sales tax, and its imposition in the next few years is a distinct
possibility. Additionally, there is a registration tax on automobiles,
motorcycles, trucks and buses.
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