Hong
Kong Headquarters Companies
Multinational
companies are attracted to Hong Kong by a combination
of the territory's English common law legal
system, its low tax regime and its historical
trading links and unique access to the People
Republic of China, the world's fastest growing
economy and biggest potential market.
According to the results
of an annual survey released in October 2011
by Invest Hong Kong (InvestHK) and the Census
and Statistics Department, the total number
of overseas and Mainland Chinese parent companies
running business operations in Hong Kong has
recorded its highest level to date, as, in particular,
did the number of those operating regional headquarters.
By
June 2011, the total number of foreign parent
companies with operations in Hong Kong had reached
6,948 companies, a 5.9% increase from 2010.
Within that total, the number of regional headquarters
was 1,340, an increase of 4.3%.
Director-General of Investment
Promotion, Simon Galpin, said: "Hong Kong
is the perfect base from which to access Mainland
China. At the same time, Mainland companies
are also using Hong Kong as a springboard from
which to go global."
"In the first half
of 2011,” he added, “InvestHK assisted
close to 200 overseas and Mainland companies
to set up business in Hong Kong. This level
of activity supports our experience on the ground
where we are seeing an increasing number of
smaller, high-growth companies from all over
the world choosing Hong Kong as the base for
their regional operations."
Furthermore, of the 6,948
companies in the survey, 24% indicated that
they plan to expand their business in Hong Kong
in the next three years. This was a 4% increase
compared with 2010.
With regard to the country
of origin, roughly half of the parent companies
come from four countries. The United States
(US) tops the list with a total of 1,328 businesses
operating in Hong Kong, followed by Japan with
1,150, Mainland China with 805 and the United
Kingdom with 562.
The major lines of business
were mainly import/export trade, wholesale and
retail; financing and banking; professional,
business and education services; and transportation,
storage and courier services.
Key
favourable factors affecting the choice of Hong
Kong as a location for regional headquarters,
regional and local offices for foreign or Mainland
companies include a simple tax system and low
tax rate; free flow of information; absence
of exchange controls; corruption–free
government; communication, transport and other
infrastructure; free port status; political
stability and security; geographical location;
rule of law and independent judiciary; and,
availability of business and professional support
services.
Articles
106-8 of the Basic Law guarantees that Hong
Kong can maintain an independent taxation system
free of Chinese interference until the year
2047 while article 116 guarantees that the territory
will remain a free port and a separate customs
area from the mainland. The continuation of
the SAR's common law legal system free of Chinese
interference is also guaranteed and there is
a memorandum of understanding with China under
which:
- Chinese
source income earned by Hong Kong based shipping,
aviation and land transport operations is
exempt from tax on the mainland;
- Hong
Kong enterprises are only taxable in China
if they have a permanent establishment there.
(A permanent establishment is defined as an
activity which continually lasts for more
than 6 out of 12 months);
- Hong
Kong resident individuals are not subject
to tax for services rendered in mainland China
so long as they do not reside more than 183
days in the country in any tax year;
- Hong
Kong will give a tax credit for any tax paid
in mainland China.
However,
China has overhauled its tax laws, in part to
reduce the incentive for domestic companies
to 'round trip' offshore in order to qualify
for generous tax incentives afforded to foreign-backed
enterprises based in China. Prior to corporate
tax reforms which were introduced in January
2008, domestic firms paid corporate tax at a
rate of 33%, but foreign-owned firms could reduce
their rate through various tax breaks down to
as low as 13% in some cases.
By round tripping, where Chinese groups set
up shelf companies in Hong Kong and elsewhere,
domestic firms can use them as mainland investment
vehicles in order to qualify for "foreign"
rates of tax. This practice has inflated China's
foreign direct investment figures for years.
Under
a 2008 reform, China has unified the income
tax treatment of domestic and foreign enterprises
with the new Enterprise Income Tax Law (the
“New Law”). The New Law, which became
effective January 1st 2008, provides for a 25%
statutory rate that applies to both domestic
and foreign-funded enterprises and, subject
to transition relief, enterprises that have
enjoyed preferential treatment. Many foreign-funded
enterprises will face higher rates due to the
new unified rate and the loss of tax holidays
and certain other incentives, but new and high-technology
enterprises may still benefit from a 15% rate.
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