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 'sfastest growing
economy and biggest potential market.
In
September, 2005, Hong Kong Chief Executive,
Donald Tsang, feted mainland and international
investors whose firms have been crowding into
the city-state, boosting the total number of
regional and head offices to nearly 6,000 by
the end of 2004.
Welcoming
the guests, Mr Tsang said: “We are just one
week away from the opening of Hong Kong Disneyland,
thereby joining Tokyo and Paris as international
home for some of the world’s best loved characters.
In December we play host to the World Trade
Organization’s Sixth Ministerial Conference,
a clear illustration of the important role Hong
Kong plays in international trade. Just one
week later we will open AsiaWorld-Expo, our
new world class exhibition center at the airport.
That in turn will make it possible for us to
host ITU Telecom World in December 2006, the
first time the event will have been held outside
Geneva.”
According
to the results of the 2007 Annual Survey of
Regional Offices Representing Overseas Companies
in Hong Kong, conducted by the Census and Statistics
Department, there were 1,246 regional headquarters
(RHQs) and 2,644 regional offices (ROs) of companies
incorporated outside the territory located in
Hong Kong as of 1st June 2007. This compares
to 966 RHQs and 2,241 ROs at the same point
in 2003, the survey noted.
The United States topped the list of countries/territories
with companies that have RHQs in Hong Kong,
with a total of 298, followed by Japan with
232, UK with 124 and mainland China with 93
firms.
Companies
Registry statistics show that 316 new overseas
companies established a place of business in
Hong Kong and registered under Part XI of the
Companies Ordinance in the first half of 2007,
up 12.46% on the same period last year. The
total number of overseas companies stood at
7,854.
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.
A
clampdown on the offshore activities of Chinese
enterprises may come after data released by
the Ministry of Commerce of China showed that
between January and May 2007, Hong Kong topped
the capital investment table, followed by the
British Virgin Islands, Japan, South Korea,
Singapore, the USA, the Cayman Islands, Samoa,
Taiwan and Mauritius.
The
report stated that the figures reflect the actual
amount of foreign capital invested in the various
jurisdictions, which accounts for 86.16% of
China’s total foreign capital.
China
is currently in the process of overhauling its
tax laws, in part to reduce the incentive for
domestic companies to 'round trip' offshore
in order to qualify for generous tax incentives
currently afforded to foreign-backed enterprises
based in China. At present, domestic firms must
pay corporate tax at a rate of 33%, but foreign-owned
firms can 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.
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