Turning old factories to office space in Hong Kong

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In Hong Kong more and more old factories and warehouses are being turned into offices to cope with the huge demand for office space in the city with the world’s second-highest rents. The Pamfleet Group and Gaw Capital Partners have bought over US$7 billion of Hong Kong’s industrial properties in the year ended June 30. The investment will create about 74,300 square meters of new office space in 2013. Hong Kong’s government has implemented policy changes since the 1980s to support the transformation of unused commercial properties after manufacturing moved to more cost-efficient locations in mainland China and Southeast Asia.

Hong Kong Double Taxation Agreements

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Double taxation arises when two or more tax jurisdictions overlap, such that the same item of income or profit is subject to tax in each.

  • Hong Kong adopts the territoriality basis of taxation. That means only income / profit sourced in Hong Kong is subject to tax and that derived from a source outside Hong Kong by a local resident is in most cases not taxed in Hong Kong.
  • Various countries which tax their residents on a worldwide basis provide their residents operating businesses in Hong Kong with unilateral tax credit relief for any Hong Kong tax paid on income / profit derived from Hong Kong.
  • Hong Kong allows a deduction for foreign tax paid on turnover basis in respect of an income which is also subject to tax in Hong Kong. Businesses operating in Hong Kong therefore do not generally have problems with double taxation of income.
  • Hong Kong Special Administrative Region Government (HKSARG) has been concluding double taxation agreements (DTAs) trading partners.
  • These DTAs provide certainty to investors on the taxing rights of the contracting parties; helps investors to better assess their potential tax liabilities on economic activities; and provides an added incentive for overseas companies to do business in Hong Kong, and likewise, for Hong Kong companies to do business overseas.

Concluded Double Taxation Agreements:

  • Austria
  • Belgium
  • Brunei
  • Canada
  • Czech
  • France
  • Hungary
  • Indonesia
  • Ireland
  • Japan
  • Jersey
  • Kuwait
  • Lichtenstein
  • Luxembourg
  • Mainland of China
  • Malaysia
  • Malta
  • Mexico
  • Netherlands
  • New Zealand
  • Portugal
  • Spain
  • Switzerland
  • Thailand
  • United Kingdom
  • Vietnam

Negotiations of DTAs in progress:

  • Bangladesh
  • Bahrain
  • Finnland
  • Guernsey
  • India
  • Italy
  • South Korea
  • Macao SAR
  • Qatar
  • Saudi Arabia
  • South Africa
  • United Arab Emirates

[source: Hong Kong Inland Revenue Department]

Strong Growth for Hong Kong’s Economy

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Hong Kong’s economy grew by 4.3% in the first quarter of 2017. This is the fastest pace in six years.

Retail sales, in nominal terms, dropped by 1.3% year-on-year in January-March 2017. The adjusted unemployment rate was at 3.2% and consumer prices grew by 0.5% in the same period.

A strong growth could be observed in the export as merchandise exports increased by 10.3% and an increase in imports by 10.7% year-on-year for the first quarter of 2017.

In general the growth rate was well above the forecast of 3.7 per cent by analysts. Nomura has upgraded its Hong Kong growth forecast by 0.5 per cent to 2.7 per cent for 2017. Economists expect the growth momentum will continue in the second quarter of 2017.

SMATRA Group expanding the network to Japan

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SMATRA Group made the next step in early 2017 and started the preparation of expanding the business activities to Japan for opening a representative office in Sapporo which is in the prefecture of Hokkaido.

SMATRA Group targets to connect to Japanese companies for supporting their business expansion within the existing business network and selected markets. It is an exciting step as Hokkaido is well known to the founder of SMATRA Group and the cooperation with local experts will support the internationalization process of Japanese companies.

Further details will follow soon…

Hong Kong’s changing Business District

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According to a report by JLL more Chinese companies are relocating in the prime business district Central while multinational corporations are increasingly moving to outer suburbs of Hong Kong.

Many multinational corporations explain their decision by looking for modern buildings as IT facilities are critical and being closer to their clients. Lower costs and the modern infrastructure of those districts such as the South Island Line and the Central-Wan Chai Bypass motivate multinational companies to leave the Central Business district.

In contrast companies from China keep expanding in Hong Kong and also focus on the world’s most expensive office market. After a record year of mainland enterprises snapping up 43 per cent of all new lettings in the city’s Central financial district according to JLL.

The opening of China’s capital market and the improved access between Hong Kong and China has led to this development.

The majority of Chinese companies see their opportunity of growing their business outside of China and improving their brand image by setting up their business in Hong Kong, which remains one of the leading business centers in the world.

Easier access to Free Trade Zones

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The government in China has further relaxed restrictions on foreign investment in the mainland’s four free trade zones (FTZ) in Shanghai, Guangdong, Tianjin and Fujian .

Companies will now have easier access in various manufacturing and service sectors, including steel, auto batteries and shipping industry.

The bureaucratic process for foreign direct investments in FTZ has been simplified.  Overseas funded projects can go through a registration process for starting up instead of a long approval process. Additionally profits from existing businesses on mainland can be used to reinvest in FTZ-based operations without any additional approval.

For more information on this particular update you can contact us under info(at)smatra.com.hk.

 

 

Double Taxation Agreement – Germany & Hong Kong

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Various countries already have a Double Taxation Agreement (DTA) in place with Hong Kong. A DTA is an agreement between two countries that reduces the tax bill for an individual who is a resident in one country but  has citzenship in another country.

At the moment Hong Kong and Germany do not have a DTA but the second round of the double taxation agreement negotiations were coccluded on March 6, 2015. Hong Kong is taking efforts to find an agreement with Germany and catching up with latest global tax standards.

Germany and Hong Kong already have already several agreements in place. The Air Services Income Agreement and a Shipping Income Agreement have been in force since 1998 and 2005. These agreements avoid the double taxation from income generated from air transport and shipping.

Germany and Hong Kong are now one step further in closing a potential DTA and the benefits would be positive for both locations.

  • Germany would become more competitive as other European countries already have a DTA with Hong Kong.
  • As Hong Kong is an investment hub and head quarter for many international companies already, investments between  Hong Kong and Germany would potentially increase.

 

Tax Standards of Hong Kong under Review

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The Financial Services and the Treasury Bureau in Hong Kong is discussing the latest standard published by the Organisation for Economic Cooperation and Development (OECD) on automatic exchange of financial account information in tax matters.

Standard according to OECD:

  • According to the new standard by the OECD, jurisdictions are required to collect from financial institutions account information of non-domestic tax residents and exchange the information with jurisdictions of residence of the account holders on an annual basis.
  • In general, a person will be resident for tax purposes in a jurisdiction if he pays or should be paying tax required under the law. As the tax residence of account holders may change and the tax laws may differ among jurisdictions, account holders will have to verify and update their tax residence.

 

Hong Kong has signed so far 32 comprehensive avoidance of double taxation agreements and seven tax information exchange agreements with other jurisdictions. Those agreements define the exchange of information. An automatic exchange of information (according do OECD standard) does currently not comply with Hong Kong’s policy and legal framework at the moment.

Being one of the world’s most important financial centre, Hong Kong indicated in September, 2014 that it will support for implementing the new standard on a reciprocal basis with appropriate partners. The city targets the first information exchange by the end of 2018 and the necessary legislation has to be put in place by 2017 prior to the information exchange.

Below is a current overview of Hong Kong’s Tax Information Exchange Agreements and comments by the Inland Revenue Department.

Tax Information Exchange Agreements

According to the Inland Revenue Department Tax Information Exchange Agreements (TIEAs) are an important tool in Hong Kong’s efforts to combat tax evasion. The agreements:

  • provide for the effective exchange of information between Hong Kong and its TIEA partners;
  • enhance Hong Kong’s ability to administer and enforce its domestic tax laws.

Tax Information Exchange Agreements concluded

Here readers can see the current agreements.

Exchange of Information

Hong Kong is committed to enhancing tax transparency and preventing tax evasion. There are two types of exchange of information instruments: the exchange of information article incorporated in the Comprehensive Double Taxation Agreements / Arrangement (DTAs) and Tax Information Exchange Agreements (TIEAs).

Hong Kong’s treaty partners may make a request for exchange of information to the Hong Kong competent authority under the Exchange of Information article in the DTAs or TIEAs.

Mechanism to Exchange Information

Under the current mechanism, Hong Kong will:

  • supply information upon receipt of a specific request from the competent authority of a treaty partner;
  • authorise the exchange of information in relation to taxes covered by the DTA / TIEA;
  • disclose information which relates to a period after the DTA / TIEA came into operation
  • give prior notification to the subject person before the information is exchanged unless exceptional circumstances exist; and
  • endeavour to furnish a reply to the treaty partner within 90 days after receipt of a request for exchange of information.

The subject person concerned will have the right to request a copy of the information and to amend factual errors. The person can appeal to the Financial Secretary if the amendment request is refused by the Commissioner of Inland Revenue.

List of references:

http://www.scmp.com/business/money/ article/1819414/hong-kong-needs-catch-latest-global-tax-standards [Hong Kong needs to catch up with latest global tax standards, SCMP, Professor Chan Ka-keung, 09.06.2015]

http://www.ird.gov.hk/eng/tax/dta_tiea.htm [Tax Information Exchange Agreements, Inland Revenue Department, 22.06.2015]

http://www.ird.gov.hk/eng/tax/ dta_tiea_agreement.htm [Tax Information Exchange Agreements concluded, Inland Revenue Department, 22.06.2015]

http://www.ird.gov.hk/eng/tax/dta_eoi.htm [Exchange of Information, Inland Revenue Department, 22.06.2015]

 

Reduced import duties on consumer goods in China

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China reduced import duties on some consumer goods ranging from shoes to cosmetics. According to the Ministry of Finance the duties will be:

  • cut by half on average on imports suits, fur garments and shoes
  • reduced on cosmetics to 2% from 5% and on diapers to 2% from 7.5%

China’s government targets to encourage consumer’s domestically spending. Currently:

  • Chinese tourists travel abroad to buy goods in order to avoid import and consumer taxes. Chinese duties can make some luxury goods about 20% more expensive than they are overseas.
  • Additionally the strong yuan contributes to the spending overseas.

“This would be good news for international players in China, as the lower tariff would entitle the imported products to apply relatively more competitive prices in China than before,” said Linda Li, a senior research analyst at market-research firm Mintel Group Ltd.

According to Erwan Rambourg, head of consumer and retail research at HSBC the new policies should boost Chinese stores that have lost customers to French and South Korean cosmetics counters.

“It is understandable that instead of losing business to Galeries Lafayette in Paris, Harrods in London, or shopping malls in Hong Kong, China’s administration may want to tap into the power of domestic consumption,” Mr. Rambourg said. For Hong Kong’s retail market the duties cut might be negative as the city has traditionally been a tax-free shopping destination for mainland Chinese consumers.

Source: www.wsj.com 

Alibaba’s 128 Mio USD investment in Hong Kong

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Alibaba announced that it will launch a 1 billion HK$ not-for-profit foundation in order to support Hong Kong startups.  According to the company this is its first entrepreneur-support initiative for Hong Kong.

The foundation will be managed by professional investment managers and all profits of Alibaba’s foundation will be re-invested into startups.

Additionally Alibaba will select 200 university students from Hong Kong each year for internships at Alibaba in mainland China. Overall this project should increase the opportunities to expand internet based business models to the Chinese market.

Just like Alibaba other Chinese companies have expressed interest in increasing their business actitivies in Hong Kong.

Happy New Year of Sheep to all our business partners

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SMATRA had a great year and wish to continue this way in the new year of sheep. Our team wishes all the best to our clients and business partners in the year of sheep. May it bring the best of luck to all of you and we thank you for your continuous support.

Haribo expanding in Chinese Market

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Haribo sweets manufacturer from Bonn, Germany planning further market activities in China by 2015. The company has plans to invest double-digit millions in order to “bring our products through a distributor in the supermarkets,” said CEO Michael Phiesel the “Business Week”. The group has already an established company in Shanghai to prepare to enter the market.

Besides the opportunities the company fears that there could be rapidly fake gold bears as well other intellectual property infringements according to the CEO Hans Guido Riegel. The Shanghai team of Haribo had its main focus on the trademark protection during the first stage of the market entry.

Haribo supplies 83 countries from its 17 factories at home and abroad and with a share of nearly 50 percent, Germany is still the company’s most important market. Further Haribo has plans to move in 2017 with its headquarters and a manufacturing facility of Bonn from Rhineland-Palatinate county.