Hong Kong is on the south east coast of China and consists of a large number of islands and a part of the mainland totalling approximately 1,064 sq km. On 1 July 1997 all of Hong Kong reverted from British Control back to China and became a Special Administration Region 'SAR' within the People's Republic of China (PRC).
Approximately 7 million.
Hong Kong elects its own legislature and maintains its own court structure.
The Future of Hong Kong
Under the 'one country - two systems' philosophy, the SAR has executive, legislative and independent judicial power. The capitalist system, legal structure and lifestyle remain unchanged. Hong Kong remains a free port with a free flow of capital and a freely convertible Hong Kong dollar.
With China pushing forward with the modernisation of its own economy, the PRC has expressed the wish that Hong Kong should assist in this endeavour. It has stated that its future development will be based on market led reforms with socialist characteristics and this has led to the opening up of its economy to foreign investments. It is widely recognised that Hong Kong is and will continue to be a significant gateway to China.
Operating from 2004, Hong Kong and Mainland China has been developing the Closer Economic Partnership Arrangement (CEPA). The Arrangement is to ensure Hong Kong is "economically interlocked" with the Mainland and that CEPA has offer lower entry thresholds for smaller players (capital/trading history requirements) in Hong Kong and 100% ownership of many China ventures. It makes Hong Kong the simplest, most profitable route into/out of Mainland China. CEPA offers preferential access to China’s markets, commitments made by China under WTO. It adds to the long list of reasons why international businesses choose Hong Kong as a base for their China and Asia operations nowadays.
Infrastructure and Economy
Hong Kong has excellent communication facilities. From 2001 to 2012, Hong Kong International Airport achieved the top-3 and it continued to be highly regarded among passengers in annual survey by Skytrax, a London-based air transport research organisation, as one of the World's Best Airports.
Hong Kong has been ranked first in terms of economic freedom for 18 consecutive years (1995 – 2012) by the Heritage Foundation of its Economic Freedom study. Solid external net assets held by banks and deposit-taking institutions make Hong Kong one of the largest banking centres in the world.
The official languages are English and Chinese, with English being used in the commercial and political context and Cantonese Chinese used widely in industry and domestic trade.
The Hong Kong Dollar, which is officially pegged to the US Dollar. (approx: 1US$ = HK$7.74 to HK$7.68).
Type of Law
Common Law based on English Common Law.
Hong Kong is one of the few countries in the world that tax on a territorial basis. Many countries levy tax on a different basis and they tax the world-wide profits of a business, including profits derived from an offshore source. Hong Kong profits tax is ONLY charged on profits derived from a trade, profession or business carried on in Hong Kong. Consequently, this means that a company which carries on a business in Hong Kong, but derives profits from another place, is not required to pay tax in Hong Kong on those profits. Hong Kong sourced income is currently subject to a rate of taxation of 16.5%. There is no tax in Hong Kong on capital gains, dividends and interest earned.
The principle of Hong Kong profits tax is that it is a tax on profits that has its source in Hong Kong rather than a tax based on residence. Income sourced elsewhere, even remitted to Hong Kong, is not subject to Hong Kong profits tax at all. Consequently, if a Hong Kong company's trading or business activities are based outside Hong Kong no taxation will be levied.
A factor that determines the locality of profits from trading in goods and commodities is generally the place where the contracts for purchase and sale are effected. 'Effected' does not only mean that the contracts are legally executed. It also covers the negotiation, conclusion and execution of the terms of the contracts.
If a business earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission income is the arrangement of the business to be transacted between the principals. The source of the income is the place where the activities of the commission agent are performed. If such activities are performed through an office in Hong Kong, the income has a source in Hong Kong.
Certain sums, like royalties, paid or payable to non-resident persons for use of or right to use certain intellectual property are subject to withholding tax. The payer who claims deduction for the use of the intellectual property against its assessable income is required to withhold a prescribed percentage from the payment while that recipient is not subject to Hong Kong profits tax. The prescribed percentage is 4.95% on the gross payment if the payer and the recipient are not related, but 16.5% if the payer and recipient are related. The recipients of the royalties may enjoy different treaty rates under double taxation agreements.
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