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Practical Business Solutions for Your Global Expansion: Risk Management Hong Kong Advantages Stephen Hung Council Member Law Society of Hong Kong Facts about Hong Kong World Recognition GDP per capita Legal Taxation Japanese connection A Livable City Freest and Most Competitive Economy, Top Financial Hub, World’s Largest IPO Market… US$34,300 (HK 2011), US$5,555 (China 2011) US$42,863 (Japan 2010) ~8,000 lawyers in HK, 72 foreign law firms & ~1,500 foreign lawyers in HK from 28 jurisdictions. More than 200,000 lawyers in the PRC. HK: ~1 lawyer per 1,000p; PRC: ~1 lawyer per 5,000p Japan: ~1 lawyer per 4,119p Corporate: 16.5% (max), Salaries: 15% (max), nil VAT/GST, no tax on offshore income, no estate duty 1,085 Japanese branch offices/subsidiaries, over 21,000 Japanese residing in HK as at 2011 out of approx. 7 million population, largest Japanese food export to Hong Kong A truly cosmopolitan city, expatriates from all over the world Expanding your business globally: what are the risks? 1. ADJUSTMENT 8. FINANCIAL 7. FOREIGN EXCHANGE 2. IMMIGRATION / VISA SME 6. OPPORTUNITY 5. POLITICAL 3. LABOUR & EMPLOYMENT 4. LEGAL Expanding your business globally: what are the Hong Kong advantages? 1. Adjustment 2. Immigration / visa 3. Labour & employment 4. Legal • Multi-lingual; cultural difference • Familiar with PRC environment • Close connection with PRC • Largest foreign investment to PRC • 4 hours from all of Asia’s key markets • Visa-free visits for 170 countries/territories • Easy to get working visa • International business hub • Multi-lingual professionals with wide international connections • Skilled work force • HK lawyers familiar with PRC laws • HK Law Society – close connection with law associations in PRC; many MoUs signed • Employment law is not complicated • Fast and efficient to set up company • Good at commercial contracts, direct foreign investments etc. Expanding your business globally: what are the Hong Kong advantages? 5. Political 6. Opportunity 7. Foreign exchange 8. Financial • Open, transparent and anti-corrupted government • High level of disclosure, good corporate governance • Little restrictions on business fields • Easy access and close connections with PRC and other parts of Asia e.g. Myanmar, Vietnam etc. • Easy to meet business people, via HKTDC • HK$ is stable and freely convertible • Separate from RMB; linked to US$ • HK serves as PRC’s biggest offshore RMB market • Low risk and cost of doing business • Free flow of capital • Simple tax system • Offshore company can be tax exempt • Good financial market • Loans, listing, debt restructuring Case Study 1 Ms Toshi runs a business selling chocolates in Tokyo for many years. She plans to expand her business to Zhuhai, Hong Kong, Macao, Guangzhou and Shenzhen. Initially, she intends to stay in Zhuhai with her 10 year-old daughter to explore her options, but… Risks: Hong Kong Advantages: Adjustment • Multi-lingual city with a sizable Japanese community • Japanese International Schools in HK • Got her work permit easily • Easy to find skilled work force to help out her business Transportation / infrastructure & opportunity • Guangzhou-Shenzhen-HK Express Rail (by 2015) • HK-Zhuhai-Macao Bridge (by 2016) • 1 or 2 hours away; close proximity Case Study 1 Risks: In person or as a company? Governing law Setting up business complicated? Hong Kong Advantages: • Fast, efficient, simple, low-cost formation of HK company • Limited liability companies have separate legal entity, will not be held personally liable • Easy to trade and invest in PRC • Sale and Purchase Agreements made in HK • HK law as governing law and use HK as jurisdiction • Strong legal protection for contracts • HK Law Society (~ 8,000 lawyers) and HKTDC are more than happy to provide services • CEPA – import products of ‘HK origin’ free of tariff to Mainland • Profits could be brought back to HK – offshore RMB centre Case Study 2 Mr Suzuki (Japan) and Mr Chan (HK) are each 50% of a HK company. HK company invests in an equity joint venture (EJV) with a PRC company to set up a factory in Dongguan. HK company has 60%. PRC company suggests: 1) Appoint their staff to be legal representative for EJV; and 2) Risks: Deadlock? Legal representative? Oral promise? They will deal with all licensing but demand a fee. Hong Kong Advantages: • 50 – 50 shareholdings in HK company • Prepare Shareholders’ agreement • Under PRC Company law, legal representative has wide power • Presumption that they can represent the company using the Seal • Legal representative out of control?! • Must choose a trustworthy legal representative • Cultural difference between Japan and PRC • Due diligence - must incorporate everything in legal documents; do not rely on oral representations