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Geographical proximity to China and the greater bay area

Hong Kong, as a Special Administrative Region (SAR) of China, enjoys a highly active and cooperative business relationship with the mainland. It is both the country’s leading conduit for foreign investment and its primary offshore capital raising center – the city, as one of the world’s largest IPO markets, is expected to attract more Chinese companies to list amid tensions between the US and China.

Hong Kong’s geographic position enables businesses to easily to tap into the various opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and the mainland market.

[video file="https://www.chrisdevonshire-ellis.com/wp-content/uploads/2021/07/China's%20Greater%20Bay%20Area_%20Exploring%20Key%20Sectors%20for%20Direct%20Investment%20and%20M&A.mp4" image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_1.jpg' title="China's Greater Bay Area: Exploring Key Sectors for Direct Investment and M&A"]

The Mainland and Hong Kong Closer Economic Partnership Agreement (CPEA) allows Hong Kong products and services easier access to the vast mainland market. The CPEA goes beyond China’s WTO commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors. Overseas companies can also benefit from CEPA. For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin (ROO) requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA as long as they satisfy eligibility criteria of a “Hong Kong Service Supplier”.

Further, the Guangdong-Hong Kong-Macao GBA – now the largest and most populated bay area in the world – will strengthen Hong Kong’s geographical and economic ties with the mainland.

Financial sector-wise, Hong Kong and Mainland China has made remarkable progress in opening new channels to enhance their financial connectivity, include the establishment of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect, Mainland-Hong Kong Mutual Recognition of Funds arrangement, and the most recent two-way cross-boundary Wealth Management Connect in the GBA. Hong Kong’s status as an international financial hub is expected to be further strengthened under the GBA development plan.

Simple and low tax regime

Hong Kong offers one of the most tax-friendly systems in the world. It imposes only three kinds of direct taxes – profits tax (for incorporated body), salaries tax (for personal income), and property tax (for income sources from Hong Kong property). There are also generous allowances and deductions to reduce the burden of taxpayers.

[tips title="Did You Know"]Hong Kong does not have any turnover taxes, including sales tax or value added tax, making it a favorable location for profit shifting and conducting re-invoicing.[/tips]

Different from many other jurisdictions, the city adopts territorial basis of taxation – only incomes sources from Hong Kong are taxable. There is therefore no distinction made between residents and non-residents. A resident of Hong Kong can therefore receive profits from abroad without incurring tax in Hong Kong even if they are remitted to Hong Kong.

One of the world’s freest economies

Hong Kong had been the world’s freest economy for 25 years in a row until 2019 (it was ranked as the world’s second freest economy among 186 economies in the 2020 Index of Economic Freedom) and one of the easiest places in the world to do business.

As one of the most Laissez-faire economies in the world, the government’s policy is strictly non-interventionist. The absence of exchange controls, corruption-free government, and free flow of information, capital, and talents has enabled Hong Kong to maintain a free and efficient business environment for business activities and commerce.

Further, Hong Kong is well perceived as its status of “free port” and straightforward customs clearing. The city has no tariffs on imported goods, no import quotas, no dumping tax laws, and applies excise duties to only four commodities – hard alcohol, tobacco, oil, and methyl alcohol.

Excellent legal and dispute resolution services under rule of law

Hong Kong is the only common law jurisdiction within China and has built well-established commercial case law.

In respect of arbitration-related matters, Hong Kong’s arbitration ordinance is based on the United Nations Commission on International Trade Law Model Law which reflects international best practice. The Hong Kong courts have a specialist arbitration list containing judges with extensive experience in arbitration. They have long been renowned for their pro-arbitration stance and neutrality in their decision-making process.

Arbitral institutions operating in Hong Kong such as the Hong Kong International Arbitration Centre (HKIAC) and International Chamber of Arbitration are renowned globally for their independence, integrity, and transparency. The HKIAC was rated the most preferred seat of arbitration outside Europe.

Hong Kong is also home to some 850 local solicitor firms and more than 70 global law firms. Legal advisors based in Hong Kong are familiar with the legal and regulatory landscape of different countries around the world. Benefiting from a sound and independent legal system, Hong Kong has long been a regional hub for dispute resolution.

Data privacy protection

Like other major economies, Hong Kong has been ramping up efforts on improving data privacy protection within the jurisdiction.

In Hong Kong, the Personal Data (Privacy) Ordinance, Cap 486 of the Laws of Hong Kong (PDPO) protects the privacy of individuals in relation to personal data, and was recently amended in 2021 to cope with new privacy challenges and address public concerns.

When the PDPO was drafted, reference was made to the relevant requirements under the 1980 OECD Privacy Guidelines and the European Union (EU) Directive 95/46/EC. It may be noted that the EU’s GDPR, in effect 2018, contains significant new regulatory provisions impacting data protection that are major changes to its 1995 Directive. However, these new requirements are not found under the PDPO.

 

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