University of Mississippi eGrove Touche Ross Publications Deloitte Collection 1977 Hong Kong Touche Ross International Follow this and additional works at: https://egrove.olemiss.edu/dl_tr Part of the Accounting Commons, and the Taxation Commons Recommended Citation Touche Ross International, "Hong Kong" (1977). Touche Ross Publications. 738. https://egrove.olemiss.edu/dl_tr/738 This Article is brought to you for free and open access by the Deloitte Collection at eGrove. It has been accepted for inclusion in Touche Ross Publications by an authorized administrator of eGrove. For more information, please contact [email protected]. business study hong kong Touche Ross International business study hong kong Contents I. HONG KONG IN BRIEF II. INVESTMENT FACTORS III. TRADING IN HONG KONG IV. LABOUR CONDITIONS V. BUSINESS PRACTICES AND INFORMATION VI. FORMS OF BUSINESS ENTITIES VII. ACCOUNTING AND AUDITING VIII. TAXATION IN HONG KONG Touche Ross International Preface This study is one of a series of Business Studies designed for the use of Touche Ross professional staff in all countries and for interested clients. Users of the study should ascertain whether the information given here has been superseded by later developments. Specific business questions or problems may have legal and tax ramifications that are beyond the scope of this Business Study and the assistance of professional advisers is recommended. Sugges- tions for revisions should be sent to the Touche Ross International Executive Office. The amounts quoted in this Business Study are in Hong Kong dollars (HK$). At the time of writing, the approximate Hong Kong dollar exchange rates with other currencies were: US $ 0.20 £ Sterling 0.11 Australian $ 0.16 Japanese Yen 59.00 French Francs 0.96 Swiss Francs 0.51 Deutsche Marks 0.51 Readers should check in the financial press for subsequent varia- tions in these rates. April 1977 © 1977 Touche Ross & Co., all rights reserved Printed in the United States of America Introduction An inhospitable, small, barren island in the course of a brief 200-year life span has emerged as a major trading, manufacturing and financial centre of Southeast Asia. Hong Kong, which derives its name from a Chinese term meaning 'Fragrant Harbour', owes much of its promi- nence to a highly successful blend of Chinese business acumen and liberal British administration. Close to 4.5 million people now live within an area of approximately 1,000 square kilometres (400 square miles), with 80,000 living afloat on boats in Colony waters. Thus Hong Kong cannot help but make a dramatic impact—sampans and junks, while jostling ocean liners for right of way, add colour of hulk and sail to the thronged whirlpool of dervish activity which is Victoria Harbour; and clambering up steep, rocky hill- sides are skyscrapers and great blocks of flats housing both the low- salaried and the affluent. The development of Hong Kong as a manufacturing centre, although of very modest beginnings, was prompted by economic necessity. Its his- toric dependence on the entrepot trade between China and the Western world had been severely affected by the establishment of the People's Republic of China, the Korean War and the subsequent United Nations embargo on the export of strategic goods to the People's Republic of China. These factors compelled Hong Kong to look inward and to assess its resources. The Colony had never been subsidized by the United Kingdom, and although not self-sufficient, its people were self-reliant. With the manufacturing expertise, experience and capital brought in by Shanghainese manufacturers and thousands of Chinese immigrants willing to work long and hard, Hong Kong began to produce low-priced goods. In the beginning, the main markets for Hong Kong's merchandise were neighbouring Asian countries and the United Kingdom. As Hong Kong began to import more modern and sophisticated machinery and equip- ment and to develop a skilled work force, output rapidly increased and higher-quality products followed, enabling it to capture a wide con- sumer market in the developed nations. Hong Kong's trading pattern was thus drastically changed. From serving solely as a trading centre for the re-export of other countries' products, it has become a major ex- porter of its own domestically-manufactured goods—no small feat for a community so lacking in natural resources that it has to import food and water to meet its basic needs. The economy's high rate of expansion since the 1950's suffered a major setback during the global recession of 1974 and 1975. Although labour activity decreased, wages were held to a minimum, operating and con- struction costs remained flat, and spiraling inflation was curbed. Hong Kong was thus ready to take full advantage of the recovery in the econ- omies of its major trading partners and the ensuing resurgence of its trade activities has been nothing short of remarkable. The information provided in this Business Study was compiled by our office in Hong Kong. Linda S. Avelar Director of International Publications April 1977 Table of Contents CHAPTER I HONG KONG IN BRIEF 1 The Country 1 Location and area 1 Natural features 2 Climate 2 Natural resources 2 The People 2 Population 3 Labour force 3 Language 3 Education 4 Religion 4 History 5 Life in Hong Kong 6 Executive Living Index 6 Government and the Economy 6 Executive and legislative powers 7 The judiciary 7 Foreign relations 8 Economic development 8 Economic recovery 9 Consumer Price Index 10 Gross domestic product CHAPTER II INVESTMENT FACTORS 11 Foreign Investment 11 Attitude to foreign investment 11 Foreign investment guidelines 11 Extent of foreign investment 13 Investment CIimate 15 Investment Incentives 16 Finance 16 Currency 17 Banking 17 Finance companies and merchant banks 18 Money changers 18 Types of bank finance i 18 Hong Kong Export Credit Insurance Corporation 19 Stock exchanges 20 Exchange Control Regulations CHAPTER III TRADING IN HONG KONG 21 External Trade 21 Domestic exports 23 Imports 23 Re-Exports 24 Trade balance 24 Trade Development Council 25 Sino-Hong Kong Trade 26 Foreign Trade Regulations 26 Trade licencing 26 Documentation: Certificate of Hong Kong Origin 27 Commonwealth Preference Certificates 27 Generalized Preference Certificates 27 Textile quota controls 28 Customs controls 28 General Agreement on Tariffs and Trade (G ATT) 28 Industries 28 Tourism 29 Insurance 29 Airlines and shipping 30 Patents, Designs, Trademarks, and Copyrights 30 Patents 30 Designs 30 Trademarks 30 Copyrights CHAPTER IV LABOUR CONDITIONS 31 Labour Force 31 Availability 31 Structure of labour market 32 Recruitment of staff 33 Industrial and professional training ii 34 Terms and Conditions of Employment 34 Labour legislation 35 Wage rates 37 Holidays and working hours 38 Workmen's Compensation Ordinance 38 Contract of employment 39 Employers' offences and penalties 39 Labour-Management Relations 40 Trade unions 40 Trade union activities 41 Employment of Foreign Nationals 41 Documents required CHAPTERI V BUSINESS PRACTICES AND INFORMATION 43 Information for Visitors 43 Best travel months 43 Entry requirements 44 Currency and gold 44 Communications and transportation 45 Hotels and restaurants 46 Tipping 46 Business Hours and Holidays 46 Time factors 47 Business Practices 47 Business cards 47 Dates 47 Weights and measures CHAPTER VI FORMS OF BUSINESS ENTITIES 49 Principal Business Entities 49 Corporate Entities 50 Private companies 51 Incorporation procedures 51 Cost of incorporation 52 Company name 52 Rules concerning shares iii 53 Directors 53 Qualifications of directors 53 Duties of directors 54 Meetings of directors 54 Shareholders 55 Resolutions 56 Capital, Reserves and Dividends 56 Capital 56 Loan capital 56 Reserves 57 Dividends 57 Registration and publication requirements 58 Dissolution 58 Finance and shipping companies 59 Branches 59 59 Advantages and disadvantages Formalities to be observed 59 Partnerships and Other Entities 60 General partnerships 60 Limited partnerships 60 Joint ventures 60 Sole proprietorships CHAPTER VII ACCOUNTING AND AUDITING 61 Form of Financial Statements 61 Legal requirements as to layout and content 62 Summary of disclosure requirements 63 Financial statements of groups 64 Modifications for private companies 64 Publication requirements 64 Accounting Principles and Practices 64 Sources of Hong Kong Principles 65 Specific accounting practices 65 Audit Requirements and Practices 65 Legal requirements concerning auditors 65 Appointment 66 Eligibility 66 Audit reports 68 Changes of auditors 68 Audit standards iv 68 The Accounting and Auditing Profession 68 Entitlement to practise 69 Code of ethics 69 Books and Records 69 Legal requirements 70 Management accounts 70 Specimen Financial Statements CHAPTER VIII TAXATION IN HONG KONG 79 Tax Structure 80 Taxable Entities 80 Source of income 80 Law precedents and practice 81 Tax incentives 81 Double taxation agreements 82 Tax rates 82 Tax collection 82 Penalties 83 Basic tax terminology 84 Profits Tax 84 Business income 84 Deductions from business income 85 Nondeductions from business income 86 Other income 87 Royalties 87 Service fees 87 Branch operations 87 Corporate income 88 Professional practitioners 88 Losses 88 Nonresidents and agents dealing with nonresidents 88 Basis of assessment 89 Tax rates 89 Collection of tax 90 Salaries Tax 90 Scope of tax 91 Deductions 92 Basis of assessment V 92 Tax returns 92 Tax rates 93 Tax payments 93 Interest Tax 94 Source of interest 94 Exemptions 94 Tax rate 95 Property Tax 95 Miscellaneous Levies 95 Business registration 95 Estate duty 95 Stamp duty 96 Entertainment tax 96 Betting duty 96 Hotel accommodation tax 96 Gift duty vi CHAPTER I Hong Kong in Brief • THE COUNTRY • THE PEOPLE • GOVERNMENT AND THE ECONOMY THE COUNTRY Location and Area The British Crown Colony of Hong Kong is a small enclave within the South China Sea coast of the People's Republic of China. It is situated 145 kilometres (90 miles) southeast of Canton and across the waters of the Pearl River estuary from the Portuguese colony of Macau.