Attitude toward Foreign Direct Investment
Hong Kong is the second biggest FDI recipient after Mainland China, according to the United Nations Conference on Trade and Development's (UNCTAD) World Investment Report 2015. The HKG’s Invest Hong Kong department encourages inward investment as a means of introducing new or improved products, processes, designs, and management techniques. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis. Hong Kong does not have laws or practices that discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.
Capital gains are not taxed, nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent. No preferential or discriminatory export and import policies affect foreign investors. Domestic industries receive no direct subsidies. Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.
According to HKG statistics, 3,798 regional operations of overseas companies were registered in Hong Kong in 2015. The U.S. has the largest number of regional headquarters and offices in Hong Kong (812 companies), followed by Japan (685 companies), and the United Kingdom (346 companies). The major lines of business of the regional headquarters include wholesale/retail; import/export; finance and banking; manufacturing; professional, business, and education services; information technology services; and transportation, storage and courier services.
Hong Kong has a free trade agreement (FTA) with Mainland China, called the Closer Economic Partnership Arrangement (CEPA), which provides tariff-free export to Mainland China of Hong Kong-origin goods and preferential access for specific services sectors. Signed in 2003, CEPA has gradually expanded every year thereafter. Following the 10th phase, announced in August 2013, service providers in 48 sectors (e.g., logistics, distribution) now enjoy preferential treatment on the Mainland. U.S. and other foreign firms engaged in substantive business operations in Hong Kong over the past three to five years are eligible to take advantage of most CEPA concessions to enter the Mainland market. Since March 2015, Hong Kong and China’s Guangdong Province have implemented an agreement signed in December 2014 on achieving basic liberalization of trade in services in Guangdong. The agreement has introduced for the first time under the CEPA framework the use of negative list that covers 134 service sectors for Hong Kong and granted national treatment to Hong Kong’s 62 service industries. In addition, this agreement has offered Hong Kong most-favored treatment -- any CEPA-plus liberalization measures included in the free trade agreements signed by the Mainland China with other countries will be automatically extended to Hong Kong. The framework and content of the agreement has set a model for basic liberalization of trade in services between Hong Kong and all of Mainland China by the end of 2015. With the PRC’s launch of Guangdong Free Trade Zone in March 2015, industry observers expect Hong Kong will deepen further its economic integration with Guangdong.
Hong Kong also has FTAs with New Zealand (2010); member states of the European Free Trade Association – Iceland, Liechtenstein, Norway and Switzerland (2011); and Chile (2012). These agreements are fully consistent with the provisions of the World Trade Organization. In November 2011, Hong Kong made a formal request to join the ASEAN-China FTA (ACFTA). However, in April 2013, the HKG announced that Hong Kong and ASEAN had agreed to pursue a bilateral FTA instead of making Hong Kong a member of the ACFTA. In July 2014, Hong Kong and ASEAN launched the negotiation of a FTA, which is expected to conclude by the end of 2016. Finally, Hong Kong is an Asia-Pacific Economic Co-operation (APEC) member economy and a participant in the APEC Business Travel Card (ABTC) Scheme, which grants qualified business travelers streamlined immigration clearance.
Other Investment Policy Reviews
Hong Kong conducted the Trade Policy Review in November 2014 through WTO. https://www.wto.org/english/tratop_e/tpr_e/g306_e.pdf
Laws/Regulations on Foreign Direct Investment
Hong Kong's extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system, which is independent of the government, provides for effective enforcement of contracts, dispute settlement, and protection of rights. Formalities are minimal in company incorporation and business registration. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.
The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.
Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions. For companies incorporated in jurisdictions other than Hong Kong, the relevant local company laws will apply.
Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares. It also regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct offences.
http://www.cr.gov.hk/en/home/index.htm links to the application for company incorporation and business registration site.
https://www.eregistry.gov.hk/icris-ext/apps/por01a/index links to the e-Registry, which is an online one-stop platform jointly provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration. Before using the e-Registry services, applicants have to register for user accounts. User registration is free of charge. Applicants for the e-Registry must present the original identification document (e.g. Hong Kong Identity Card or overseas passport), or attach a certified true copy of the identification document. If it is an application for company incorporation, the Companies Registry will normally issue the Business Registration Certificate and the Certificate of Incorporation within the same day. If it is an application for registration of a non-Hong Kong company, the Companies Registry will normally issue the Business Registration Certificate and the Certificate of Registration on the 14th working day after the submission date.
InvestHK is a government agency whose mission is to attract and retain foreign direct investment which is of strategic importance to the economic development of Hong Kong. InvestHK offers services to all investors applying the following core values: passion, integrity, professionalism, customer service, business friendliness and responsiveness.
In 2013, InvestHK launched a StartmeupHK Campaign to attract more innovative startups to Hong Kong and promote HK as a global hub for startups and entrepreneurs. The online portal provides startups with an information and exchange platform, connecting the startup community in Hong Kong with those from overseas.
The HKG defines the small and medium-sized enterprises (SMEs) as any manufacturing enterprises which employ fewer than 100 persons, or any non-manufacturing enterprises which employ fewer than 50 persons. The HKG has set up the SME Loan Guarantee Scheme, the SME Export Marketing Fund, the SME Financing Guarantee Scheme, etc., to assist enterprises in securing trade finance and business capital, expand market and enhance overall competitiveness. A Dedicated Fund on Branding, Upgrading and Domestic Sales was launched in 2012 to assist enterprises in exploring and developing the Mainland market. All these support measures are available to all enterprises in Hong Kong irrespective of their origin. In February 2016, the HKG announced a three-year Pilot Technology Voucher Program under the Innovation and Technology Fund to subsidize a maximum of USD 25,600 for each eligible SME for its use of technological services and solutions to improve productivity and upgrade or transform business processes.
The HKG plans to develop and promote location filming and film production services in Hong Kong and the Pearl River Delta Region with a view to attracting overseas production crews to shoot films in the region.
In order to leverage “re-industrialization” as an opportunity for Hong Kong’s economic growth, the HKG plans to promote smart manufacturing and attract high value added technology industries as well as high value-added production processes by developing high-efficiency multi-story buildings in industrial estates and recovering lands on which corporates have ceased operation.
The HKG has earmarked USD 256 million to set up the Innovation and Technology Venture Fund for co-investing with private funds on a matching basis to enhance investments in technology start-ups.
In January 2016, the HKG announced that it would, together with research and academic institutions as well as private organizations, examine the details of developing Hong Kong into a smart city.
The HKG will adopt a more proactive approach in promoting the modernization and sustainable development of local agriculture. One of its major measures is to establish a USD 64 million Sustainable Agricultural Development Fund for promoting research and development in agricultural production, enhancing manpower training, improving agricultural infrastructure and strengthening marketing and branding of local agricultural produce.
The HKG will run pilot measures over the next three years to boost promotion of local fashion design and brands, provide technical training and launch the Fashion Incubation Program.
In March 2016, the Hong Kong Monetary Authority (HKMA) announced that it has established a Fintech Facilitation Office to facilitate the healthy development of the financial technology (fintech) ecosystem in Hong Kong and to promote Hong Kong as a fintech hub in Asia.
These measures were announced by the Chief Executive or the Financial Secretary and promoted on the government’s websites as well as local media.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investors can invest in any business and can own up to 100 percent of equity. Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.
The HKG owns all land, granting long-term leases without transferring title. Local and foreign leaseholders are treated equally. The HKG plays a significant role in the housing market, with about 50 percent of homes in Hong Kong either rented from the Government or purchased with government assistance at below-market rates. In September 2012, in reaction to complaints about excessively high real estate prices for average Hong Kong residents, the HKG announced a pilot program to implement the “Hong Kong land for Hong Kong people” project to develop 1,100 new residential flats. These properties will be restricted to Hong Kong residents only. Furthermore, in October 2012 the HKG introduced a 15 percent Buyer's Stamp Duty on all non-permanent-resident and corporate buyers, which expatriates claim discriminates against them. In April 2014, the HKG announced that it had shelved the “Hong Kong land for Hong Kong people” policy because the property market had cooled down due to the dampening effect imposed by the stamp duties.
The main exceptions to the HKG’s open foreign investment policy are:
Broadcasting - Voting control of free-to-air television stations by non-residents is limited to 49 percent. There are also residency requirements for the directors of broadcasting companies.
Legal Services - Foreign lawyers at foreign law firms may only practice the law of their jurisdiction and are prohibited from practicing Hong Kong law. Foreign law firms may become “local” firms after satisfying certain residency and other requirements. Localized firms may thereafter hire local attorneys, but must do so on a 1:1 basis with foreign lawyers. Foreign law firms can also form associations with local law firms.
All major utilities in Hong Kong are owned and operated by private enterprises, with the exception of the water supply and airport. The HKG considered privatizing the Hong Kong International Airport in 2003, but concluded after a study that keeping the airport under full government ownership would ensure delivery of maximum benefit to the Hong Kong economy. The HKG has not, since then, indicated any interest in further privatization programs.
Screening of FDI
Hong Kong has no investment approval procedure directed specifically toward foreign investors.
The Competition Commission, an independent statutory body which has been set up since January 2013 under the competition law, investigates anti-competitive conduct that prevents, restricts or distorts competition in Hong Kong. The competition law has come into operation since December 2015. In March 2016, 12 trade and professional associations have indicated publicly that they had revised their conduct or were in the process of doing so to remove one or more price restrictions or fee scales. In addition, the Competition Commission has identified over 20 trade and professional associations whose public practices such as price recommendations appeared to place them at high risk of contravening the competition law.