HONG KONG

Hong Kong – The Economy

The economy of Hong Kong is a highly developed free-market economy. It is characterized by low taxation, almost free port trade and a well-established international financial market.

Its currency, called the Hong Kong dollar, is legally issued by three major international commercial banks, and is pegged to the US dollar. Interest rates are determined by the individual banks in Hong Kong to ensure that they are market driven. There is no officially recognized central banking system, although the Hong Kong Monetary Authority functions as a financial regulatory authority.

Its economy is governed under positive non-interventionism and is highly dependent on international trade and finance. For this reason, it is regarded as among the most favorable places to start a company.

Hong Kong’s economic strengths include a sound banking system, virtually no public debt, a strong legal system, ample foreign exchange reserves at around US $408 billion as of mid-2017, rigorous anti-corruption measures and close ties with mainland China.

The Hong Kong Stock Exchange is a favorable destination for international firms and firms from mainland China to be listed, due to Hong Kong’s highly internationalized and modernized financial industry. Additional advantages include the city’s capital market in Asia, its size, regulations, and available financial tools, which are comparable to London and New York City.

Hong Kong has also had an abundant supply of labor from the regions nearby. A skilled labor force coupled with the adoption of modern British/Western business methods and technology ensured that opportunities for external trade, investment, and recruitment were maximized. Prices and wages in Hong Kong are relatively flexible, depending on the performance and stability of the economy of Hong Kong. Hong Kong raises revenues from the sale and taxation of land and through attracting international businesses to provide capital for its public finance, due to its low tax policy. According to Healy Consultants, Hong Kong has the most attractive business environment within East Asia, in terms of attracting foreign direct investment (FDI). In 2013, Hong Kong was the third largest recipient of FDI in the world.

Small and Medium-Sized Companies

As of March 2021, there were over 340 000 SMEs in Hong Kong. They accounted for more than 98% of the total number of enterprises and provided job opportunities to more than 1.2 million persons, about 45% of total employment (excluding civil services).

Most of the SMEs were in the import/export trade and wholesale industries, followed by the professional and business services industry. They accounted for about 46% of the SMEs in Hong Kong and represented about 44% of the SME employment.

In Hong Kong, SMEs are defined as manufacturing enterprises which employ fewer than 100 persons and non-manufacturing enterprises which employ fewer than 50 persons are regarded as SMEs in Hong Kong.

Compliance Highlights

• Inland Revenue Department (IRD) – the Hong Kong government department responsible for collecting taxes and duties. The IRD is responsible for the administration of Hong Kong ordinances on taxes and duties and the related rules and regulations. They also carry out the following duties:
  • collecting revenue efficiently and cost-effectively
  • providing courteous and effective service to the taxpaying public
  • promoting compliance through rigorous enforcement of law, education, and publicity programs
  • enabling staff to acquire the necessary knowledge, skills, and attitude so that they can contribute their best to the achievement of our vision
• The Labor Department – The Labor Department is the principal government agency responsible for the execution and coordination of labor administration functions in Hong Kong SAR. Since 2003, the Department has also had a strengthened role in labor policy formulation.
  
  In addition to providing comprehensive employment services, the Department enforces labor laws, improves employees’ rights and benefits, fosters harmonious labor relations, and promotes safety and health at the workplace. It also provides services and information to both workers and employers and educates them on labor laws.

Labor Contracts Law

Labor law in Hong Kong is based on both employer and employee protection. The Employment Ordinance is the governing law of employment, and also includes the influence of trade unions and work councils. However, this may vary according to the industry and sector, and it is best to confirm with the Labor Department on what regulation applies.

In Hong Kong, it is common practice for employment contracts to be presented to employees in writing. There are two contract types to choose from – with the main differences between them being the contract length and benefits entitlement.

There is no requirement for an employment contract to be in writing, but it is strongly encouraged by the Labor Department and is common practice. Upon the employee’s request, however, the employer must provide a written document with the terms and conditions of the employment in writing.

If an employment contract is to be in writing, the employee is to be provided with a copy of the signed employment contract, with the following information to be included – wages, the wage period, the length of notice for termination of the employment contract, and any end-of-year payments.

There are two types of employment contracts:

• An employment contract – Employment contracts provide employees with basic protection under the Ordinance, which includes wage payments, wage deduction restrictions, statutory leave, etc.
  
  Every employment contract is implied to be valid for one month and is renewable from month to month until it is deemed a continuous contract.
  
• A continuous employment contract – Continuous employment contracts, however, entitle employees to all statutory benefits under the Employment Ordinance – rest days, paid annual leave, sickness allowance, severance payments, etc.
  
  A continuous contract of employment is the standard contract for most employment cases and can be defined as a contract under which an employee works for the same employer for 4 weeks or more for at least 18 hours every week.
  
  For a continuous contract, all benefits are offered to employees – including rest days, paid annual leave, sick allowance, severance payments, long service payments, and extra benefits.

Payroll – Tax Contributions and Benefits

Income Tax: Any individual earning an income from Hong Kong must pay local taxes, regardless of their residential status. Income tax is not imposed on an individual’s total income. Instead, there are 3 types of income tax an individual can contribute to:

• Salaries Tax – income from employment, office, or pensions
• Profits Tax – income from business or trading profits
• Property Tax – rental income from immovable property

All individuals are subject to pay Income Tax, the most common being salaries tax. Income tax is to be paid by the individual in an annual tax return.

Income Tax is worked out progressively, according to the employee’s income. Employees are responsible for making their own payments to the tax authorities. Individuals must file an annual tax return, which is issued on the first working day of May and must be submitted within a month from the date of issue.