svb country guide hong kong

8/11/2019 SVB Country Guide Hong Kong

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A GUIDE

TO BANKIN

AND

BUSINESS

HONG KON


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Contents

1 Introduction

1 Silicon Valley Bank and Hong Kong

3 DOING BUSINESS IN HONG KONG

3 General Business Climate

4 Climate for Foreign Entities

4 Forms of Investment in Hong Kong

4 Establishing Operations in Hong Kong

5 Foreign Exchange and Trade Restrictions

5 Taxation in Hong Kong

9 BANKING IN HONG KONG

9 Trade

11 Foreign Exchange

11 Accounts

13 Payments and Receivables

15 Liquidity Management and Investments

15 Financing

17 COUNTRY OVERVIEW

A GUIDE

TO BANKING

AND

BUSINESS

HONG KONG


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SI LIC ON VALL EY BAN K: Doing Business in Hong Kong

Introduction

This guide provides insight into key business and banking

considerations in Hong Kong. Whether you are evaluating

your first business opportunity in Hong Kong or already

have a well-established Asian operation and are looking to

the future, we hope this information serves as a valuable

resource for you.

In every country, there are challenges and opportunities.

The key is finding the right partnerone who understands

both the market and your business. Silicon Valley Bank

(SVB) focuses solely on emerging, growth and established

technology companies and the life science, venturecapital and premium wine markets. We also bring a deep

understanding of the global market, developed through

experience, and a level of expertise and advice that truly

differentiates us from other financial institutions.

Silicon Valley Bank and Hong Kong

SVB Financial Group has been involved in the Asianmarkets since the early 1990s. For almost two decades,Silicon Valley Bank has been building relationships with

technology companies, entrepreneurs and venture capitalists

to help our clients work with businesses in Asia and sell

into a variety of foreign markets. We recently established

a joint-venture bank in China with the Shanghai Pudong

Development Bank to continue our focus on buildingstrategic alliances with Asian partners, especially in the

technology and life science sectors.


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2 SIL ICO N VALL EY BAN K: Doing Business in Hong K

Our Capabilities

Silicon Valley Bank provides expertise and a comprehensive

suite of services to support your business operationsin Hong Kong, including cross-border and in-country

payments, foreign exchange, trade finance and working-

capital financing. Your accounts, both domestic andforeign, can be managed through SVBeConnect, ouronline banking platform.

Cash management. Make cross-border paymentsthrough wires in Hong Kong dollar (HKD) or US dollar

(USD) denominat ions.

Hong Kong dollar accounts.Maintain Hong Kong dollar

deposits in the United States with our Multi-CurrencyAccount or through a local Hong Kong dollar accountprovided through our partner bank network. All of these

accounts can be managed through SVBeConnect.

Foreign exchange.Manage your companys foreign-exchange exposure through spot and forward contracts,

swaps and options.

Trade services.Accelerate cash flow and minimize risks

of nonpayment through the use of import letters of credit,

export letters of credit, documents against payment and

documents against acceptance.

Financing.Silicon Valley Bank offers multiple sources

of diverse debt capital, such as venture debt, acquisitionfinancing, working capital, capital call lines, growth capital

and capital expenditure financing.

Most importantly, working with Silicon Valley Bank means

access to expert global treasury advisors, who can provide

you with strategic advice and support as your businessgrows. As you identify new opportunities in the region,

please contact any member of your Silicon Valley Bank

team. We look forward to working with you and providing

the right solutions that help your business succeed in HongKong and throughout Asia.


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General Business Climate

Economic and Political Overview

An emphasis on non-interventionist government policies,

low taxes and free-market economics has facilitated growthin Hong Kongs economy over the past decade despite some

setbacks caused by the SARS outbreak of 2003 and the

global economic recession of 2008. Hong Kong today is

one of the worlds major economies.

A series of economic stimulus packages introduced byHong Kongs government since 2008 has resulted ingrowth to most areas of the economy since the second half

of 2009. Government economic stimulus measures since

2008 totaling approximately HKD 87.6 billion enabledthe economy to grow by about 7 percent during 2010 and

5 percent during 2011. The economy slowed again in 2012,

with the government estimating growth of just 1.4 percent

for the year, although it is expected to rise during 2013.

As a special administrative region (SAR) of the Peoples

Republic of China, Hong Kong maintains its political and

economic independence through a policy of one country,

two systems. Executive power is held by the chief executive

of the Hong Kong SAR, who heads the Executive Council.

The chief executive is appointed by an 800-member electoral

committee every five years.

Political power in Hong Kong is divided between theExecutive Council and the Legislative Council under the

terms of Hong Kongs basic law, which is the countrysconstitution. The Executive Councils 15 principal officials

and 14 nonofficial members are appointed by the chiefexecutive; the council has responsibility for introducing

legislation to Hong Kongs Legislative Council, which

drafts legislation, approves budgets and debates HongKongs policies. he Legislative Councils 70 members are

elected every four years, 40 by popular vote and 30 from

functional constituencies. In 2012 the Legislative Council

membership was expanded from 60 members, alongside the

electoral committee that elects the chief executive, which

was expanded from 800 to 1,200 seats.

Doing Business in Hong Kong

A dominant economic and political issue for Hong Ko

since its handover to Chinese sovereignty in 1997 is

relationship with China. Despite Chinas guaranteeiHong Kong a high degree of autonomy on most issueexcept defense and foreign policy, China has enforcanti-subversive legislation, which has prevented univer

suffrage in Hong Kong and restricted rights on the freedo

of speech. There has been growing pressure for politic

reforms since mass protests in Hong Kong in 2003. In Ju

2010, the Chinese government permitted some reformto be passed, allowing for an increase in direct electio

for legislative seats. Pro-democracy supporters in Ho

Kong have said, however, that the reforms do not go fenough and serve to delay the progress toward univers

suffrage. In legislative elections in September 2012, howev

pro-democracy candidates lost seats, although they retasufficient seats to maintain a veto in the Legislative Counc

Recent Developments

Hong Kong has signed a Closer Economic PartnershAgreement with China, giving Hong Kongbased busines

greater access to certain markets in China by allowintariff-free trade in some sectors. Since the inception of t

agreement in 2003, the sectors it covers have been regula

expanded, with the agreement currently accounting fapproximately 300 different liberalization measures acro

a total of 47 industry sectors.

Since 2009 a pilot project allowing cross-border trasettlement of Chinese domestic currency, the renmin(RMB), has seen the emergence of an offshore renmin

market in Hong Kong. There are now regular RMdenominated bond issues in Hong Kong.

Hong Kong has established a real-time gross settleme

payment system for processing renminbi paymendomestically.


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Foreign entities can also establish branches or representat

offices in Hong Kong. Branches are not subject to alimitations on the scope of their activities.

Representative offices are not permitted to engage in prof

making activities and cannot enter into any contracts Hong Kong.

Establishing Operations in Hong Kong

here are few constraints on foreign investors establishi

a legal entity in Hong Kong. Because Hong Kong donot impose any local resident requirements, all types

business structures can be accessed by foreign investo

and 100 percent foreign share ownership is permitted. A

businesses incorporated in Hong Kong must have a Ho

Kong resident as company secretary and must be register

in Hong Kong.

Foreign entities wishing to establish operations in HoKong must use a professional services firm to register th

company, and registration requires a completed incorporati

form and the memorandum and articles of association f

the subsidiary. Documents from the parent company a

also required, such as the certificate of incorporation an

the memorandum and articles of association.

All business being established in Hong Kong must regis

with the Business Registration Office of the Inland RevenDepartment within the first month of commencing busine

Hong Kong imposes no minimum or maximum restrictio

on share capital.

Foreign companies are permitted to establish branches an

representative offices in Hong Kong.

Branch.A branch is considered part of the entitys he

office and is not classed as a separate legal entity. Branch

can engage in all types of business activity in Hong Kon

Representative office.A representative office is npermitted to directly engage in profit-making activity. Th

definition includes a prohibition on signing contracts on t

foreign entitys behalf. The prime role of a representati

office is to support marketing and liaison activities in Ho

Kong on behalf of the foreign entity.

Climate for Foreign Entities

Incentives for Direct Foreign Investment

Hong Kong provides few specific incentives for directforeign investment. It has one of the lowest tax rates inthe world, however, as well as status as a free port, offering

tariff-free trade. Hong Kong also benefits from low levels of

government intervention, making it an attractive location

for direct foreign investment.

Forms of Investment in Hong Kong

Foreign entities may invest in Hong Kong in two mainways: by establishing a legal entity and by setting up abranch or representative off ice.

There are a number of forms of legal entity available toforeign investors:

{ Limited company.Forming a limited company is the most common

means of establishing a legal entity. Limited companies in Hong

Kong benefit from the same tax concessions and benefits offered

to a business fully incorporated in Hong Kong. There are no local

resident requirements, meaning foreign entities are permitted to

act as sole directors or shareholders. Limited companies must

have a local registered address in Hong Kong, however, and

maintain a local resident as company secretary. Limited companies

established by foreign entities in Hong Kong can be either public

or private limited companies. Private limited structures tend to be

used by small and medium-sized businesses, as they are limited

to 50 shareholders, whereas public limited structures are more

popular with midsized and large companies and have no

shareholder limit. A public company limited by guarantee is another

type of public limited company available to foreign entities. These

companies have no share capital and are usually used to

incorporate not-for-profit companies in Hong Kong.

{ Unlimited company.Unlimited companies can be established

by foreign investors, although these are rarely used because they

are not treated as separate entities from their parent company

and therefore do not limit the exposure to risk for investors.

Other forms of legal entity that can be used by foreigninvestors include joint-venture companies, general and limited

partnerships and sole proprietorships. Partnerships are not

often used by foreign investors because they are harder to raise

capital for and have greater risk. With the exception of some

professions, partnerships are restricted to 20 shareholders.


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Specific legal advice should be taken before establishing a

presence in Hong Kong.

Foreign Exchange and Trade Restrictions

Funding Operations

Foreign investors are permitted to open foreign-currency

bank accounts in Hong Kong. Accounts can be used tohold foreign currency for the purposes of direct investment

in Hong Kong.

Foreign-invested companies are able to borrow foreign

currency and can borrow funds from outside Hong Kong.

Repatriation

There are no restrictions on the repatriation of profitsgenerated by foreign entities in Hong Kong.

Taxation in Hong Kong

Resident/Nonresident

Hong Kong adopts the territorial source principlein charging profits tax. Both resident and nonresidentcompanies pay tax on profits sourced in Hong Kong. he

concept of residence is not defined by tax legislation, and

generally a companys residence status does not affect its

tax liability in Hong Kong.

Tax Year

The tax year runs from April 1 to March 31. Taxable profits

are assessed based on the companys accounting year that

ended in the tax year. Normally, the corporate profits tax

return is issued on the first working day in April following

the tax year.

Companies are required to file the tax return within aprescribed period, and the final tax assessment is thenissued. During the tax year, companies are required to pay

a provisional amount of tax for that year based on estimated

profits. The provisional tax paid will then be deducted from

the final tax assessment.

Corporate Taxation

The corporate profits tax rate is 16.5 percent. Unincorporat

businesses are taxed at a standard rate of 15 percent.

Financial Instruments

The tax treatment of gains and losses depends on the natu

of the financial instrument. Gains and losses arising fro

capital instruments are non-taxable and non-deductible.

is a question of fact and degree whether an instrument

of a capital or a revenue nature, and all of the surroundi

circumstances (generally with reference to the badgof trade), including the accounting treatment, must

considered.

Trading gains and losses on financial instruments agenerally taxable and deductible, and tax has generafollowed the accounting treatment. The Inland Reven

Department will generally look at the merits of each ca

before issuing assessment notices. A judgment in a Ju2011 court case, however, determined that unrealizprofits derived from trading assets (except foreign currenc

described below) are not assessable, but unrealized loss

may be deductible. Previously, any gain or loss would

taxed in the year it is recognized in the income statemen

The Inland Revenue Department has not yet appealed t

case to a higher court, and the likelihood that it will chan

its existing assessing practice is uncertain.


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Foreign-Currency Conversion

For tax purposes, exchange gains and losses are treated

intrinsic to and embedded in the underlying transactio

They are taxed in the year in which the gain or loss recognized in the profit-and-loss accounts (regardless

whether it is realized or unrealized).

Offshore Funds

Generally, a company centrally managed and controll

outside Hong Kong is exempt from Hong Kong prof

tax on specified transactions carried out by a HoKong Securities and Futures Commissionlicensperson, provided certain conditions are met. Specifi

transactions include transactions in securities, futurcontracts, foreign-exchange contracts, foreign currenci

exchange-traded commodities and those consisting the making of a deposit other than by way of a mone

lending business. ransactions in private equities are n

considered specified transactions.

Stock Borrowing and Lending Transactions

Provided certain conditions are met, stock borrowing an

lending transactions are treated for Hong Kong profits tpurposes as though no stock had been borrowed or lent. T

borrowing fee is treated as service income and is taxable

the hands of the lender.

Advance Tax Ruling Availability

Companies may apply to the Commissioner of the InlanRevenue Department for an advance tax ruling regardin

transactions, operations or arrangements that are und

serious consideration. he application can determine ho

the provisions of the Inland Revenue Ordinance apply

a specific scenario. Full details must be provided before

advance ruling can be given.

Capital Gains Tax

here is no capital gains tax in Hong Kong.

Withholding Tax (Subject to Tax Treaties)

Payments to Interest Dividends Royalties Other Inc

Resident

companies 0% 0% 0% 0%

Nonresident

companies0% 0% 4.5%14.95% See bel

Gains and losses arising from financial instruments used

for hedging purposes would generally follow the treatment

of the underlying hedged asset or liability.

Deductibility of costs and expenses associated with financial

instruments is generally determined based on the general

deduction rule. In other words, they are deductible tothe extent that the gain arising from the related financial

instruments is taxable.

Debt Instruments

Interest received or receivable on the provision of a medium-

or short-term qualifying debt instrument and any gain or

profit on the sale, disposal, redemption on maturity orpresentment of the medium- or short-term debt instrument

are chargeable to tax at half of the normal tax rate.

Interest received or receivable on the provision of a long-

term qualifying debt instrument and any gain or profit onthe sale, disposal, redemption on maturity or presentment

of a long-term debt instrument are exempt from tax.

See Thin Capitalization on the following page for further

rules on deductibility of interest expenses.


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There is no withholding tax on interest and dividends paid

to resident or nonresident companies.

There are no requirements to withhold tax on royaltiespaid to Hong Kong companies. Royalties received by or

accrued to nonresidents are subject to profits tax at a deemed

profit rate of 30 percent. Applying the corporate tax rate of

16.5 percent, the amount of tax withheld by the Hong Kong

company is normally 4.95 percent of royalties paid. TheHong Kong company paying royalties to the nonresident

company is required to withhold a suff icient amount from

the payment to meet the tax liability of the nonresident.

he deemed profit rate on royalties paid by a Hong Kong

company to a closely connected nonresident company is

100 percent, where the intellectual property was once owned

by any person conducting business in Hong Kong. In this

case, the withholding rate is 16.5 percent of royalties paid.

The trading profits derived by a nonresident companytrading through an agent in Hong Kong are also subject

to withholding tax. A Hong Kong agent who sells any goods

in Hong Kong on behalf of a nonresident is required to pay

to the Commissioner a sum equal to 1 percent of the sale

proceeds (or a lesser sum agreed to by the Commissioner)

on a quarterly basis.

Tax Treaties/Tax Information Exchange Agreements

Hong Kong has concluded 23 tax agreements with its

trading partners, including Belgium, Brunei, Ireland,Luxembourg, Thailand, the United Kingdom, Vietnam

and more recently Portugal, Spain and the Czech Republic

(subject to formal ratification procedures). A memorandum

on tax arrangements with mainland China for the avoidance

of double taxation was made in 1998 and was revised in

2006 as a comprehensive double-taxation arrangement.A second protocol was issued in 2008.

Hong Kong has not signed Tax Information Exchange

Agreements with other countries.

Thin Capitalization

There are no thin capitalization rules in Hong Kong, althou

there are rules relating to the deduction of interest expense

{ Interest paid to non-financial institutions is deductible only wh

the interest is subject to Hong Kong profits tax in the hands

the recipients.

{ To fulfill the secured-loan test, the borrowing must not

secured by a non-taxable income-generating loan or depo

that is made by associates.

{ The interest flow-back test requires that the interest paid

the borrowing will not flow back to an associate of the borrow

If any of these conditions is not met, the interest paid

not deductible. An exception to the interest flow-ba

test is when the recipient of the interest is subject to Ho

Kong profits tax.

Interest paid on debentures or other financial instrumen

marketed in Hong Kong or in a major financial centeralso subject to the interest f low-back test. If the associathat receives the interest is a registered securities dealer

can be excluded from the interest f low-back test to allo

genuine commercial external f inancing situations.

The above interest deduction rules do not apply financial institutions.

Transfer Pricing

For transactions between a Hong Kong company ana closely connected nonresident, where the transactioresult in no profit or less than a normal profit for the Ho

Kong company, the nonresident is deemed to be conducti

business in Hong Kong through the Hong Kong compan

Other than the specific transfer-pricing rule that deawith transactions between Hong Kong companies annonresidents, general anti-avoidance provisions are us

by the Commissioner to challenge transactions not ma

at arms length. The Inland Revenue Department issu

the Departmental Interpretation and Practice Notes N46 in December 2009, which says that the transfer-prici

guidelines of the Organisation for Economic Co-operati

and Development are generally acceptable.


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Payroll and Social Security Taxes

Hong Kong has no payroll tax other than contributions

the Mandatory Provident Fund (see Contributions to t

Mandatory Provident Fund at left).

Employers are required to make monthly contributions

registered provident funds with respect to every employother than casual employees or workers who are employed f

fewer than 60 days. The amount of mandatory contributi

payable by the employer is the lower of 5 percent the total monthly relevant income of the employee HKD 1,000 per month. The employee is required to ma

the same mandatory contribution.

The employers mandatory contribution is deductible f

profits tax purposes.

All tax information supplied by Deloitte Touche Tohmat

(www.deloitte.com). Data are as of March 15, 2012, and m

be subject to change.

Stamp Duty

Stamp duty is imposed on the conveyance of Hong Kong

property, the agreement for sale of Hong Kong residential

property, the lease of immovable property in Hong Kong,

the bought and sold notes of Hong Kong shares and the

instrument of transfer of Hong Kong shares.

Relief is provided for the transfer of shares or properties

between certain group companies.

Provided certain conditions are met, stock borrowing and

lending transactions are not subject to stamp duty.

Cash Pooling

There are no specific tax rules that apply to cash-pooling

arrangements.

Sales Taxes/Value-Added Tax (Including Financial Services)

here is no sales tax or value-added tax in Hong Kong.

Financial Transactions/Banking Services Tax

Hong Kong does not have specific taxes applying to financial

transactions and banking services, including loans, money

transfers, letters of credit and foreign exchange.

Contributions to the Mandatory Provident Fund

Employers are required to make monthly contributions to

registered provident funds with respect to every employee,

other than casual employees or workers who are employed forfewer than 60 days. The amount of mandatory contribution

payable by the employer is the lower of 5 percent ofthe total monthly relevant income of the employee orHKD 1,250 per month.

For employees whose monthly income is HKD 6,500 or

more, the employer is required to deduct 5 percent asthe employees contribution to the Mandatory Provident

Fund scheme.

The employers mandatory contribution is deductible forprofits tax purposes.


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Trade

Trade Finance

Factoring

Factoring is widely available in Hong Kong. Although it isnot a frequently used technique by Hong Kong companies,

its use is increasing.

Bills of Exchange

Bills of exchange are available in Hong Kong, anddiscounted bills are available as a form of finance.

Supplier Credit

Supplier credit is commonly available in Hong Kong,

usually for terms of 30 days.

Bankers Acceptances

Bankers acceptances are offered in US dollars as a source

of finance to support trade.

Trade Rules

General Rules

Hong Kongs status as a free port means that it does not

place tariffs on imports or exports. Controls are placed on

trade only to protect national security.

Hong Kong joined the Asia-Pacific Economic Cooperation

in 1991 and the World Trade Organization in 1995, where

it has had the status of Hong Kong, China, since 1997.

As part of the Closer Economic Partnership Arrangement

with China, Hong Kong companies have tariff-free access

to certain markets in China.

Prohibited Imports

Items can be prohibited for reasons of public health, national

security or environmental protection. Prohibited itemsare placed on a negative list distributed by Hong Kongs

Customs and Excise Department.

Banking in Hong KongProhibited Exports

Items such as endangered species, dangerous drugchemicals and explosives are prohibited for reasons public health, national security or environmental protectio

Prohibited items are placed on a negative list distributed Hong Kongs Customs and Excise Department.



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Importing

Taxes and Tariffs

Import tariffs apply only on alcohol, methyl alcohol, tobacco

and hydrocarbon oils.

Licenses

Various government agencies in Hong Kong issue licenses

for specific goods, usually with regard to goods thathave an impact on the Hong Kong SARs internationaltrade obligations or public health, safety, security andenvironmental protection.

Financing Requirements

here are no f inancing requirements on imports.

Documentary Requirements

The following documents are required to import goods

into Hong Kong:

{ Customs declaration

{ Commercial invoice

{ Bill of lading

{ Packing list

Risk Mitigation

None.

Exporting

Taxes

None.

Licenses

Various government agencies in Hong Kong issue licenses

for specific goods, usually with regard to goods thathave an impact on the Hong Kong SARs international

trade obligations or public health, safety, security andenvironmental protection. Goods include some clothing

and textile products, rice, rough diamonds, strategiccommodities and ozone-depleting substances.

Financing Requirements

None.

Documentary Requirements

The following documents are required to export goods fro

Hong Kong:

{ Customs declaration

{ Commercial invoice

{ Bill of lading

{ Packing list

Risk Mitigation

Export credit insurance contracts through the Hong Ko

Export Credit Insurance Corporation are guaranteed the Hong Kong government. Export credit programs a

also offered privately by commercial banks against bocommercial and political risks.

Insurance of up to 90 percent is available for commerc

and political risks.


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Foreign Exchange

Central Bank and Bank Supervision

The Hong Kong Monetary Authority (HKMA) reports to

Hong Kongs Office of the Financial Secretary and derives

its authority from the Exchange Fund Ordinance and the

Banking Ordinance. The HKMA has a number of keyroles, including managing Hong Kongs official monetaryreservesthe Exchange Fundand giving authorization

to three note-issuing banks to issue Hong Kongs currency:

the Hong Kong and Shanghai Banking Corporation Ltd.

(HSBC), the Standard Chartered Bank (Hong Kong) and

the Bank of China (Hong Kong) Ltd.

The HKMA is responsible for developing Hong Kongs

financial infrastructure and upholding the stability ofthe Hong Kong dollar through a linked exchange ratemechanism.

The HKMA is also responsible for supervising banks and other

authorized institutions in Hong Kong. (www.info.gov.hk/hkma)

Hong Kongs Census and Statistics Department (C&SD) is

responsible for collecting balance of payments data; it also

surveys companies through the Survey of External Claims,

Liabilities and Income. (www.censtatd.gov.hk)

Central Bank Reporting Requirements

Payments relating to external claims, liabilities and incomes

of residents must be reported to the Commissioner ofthe C&SD on an annual, quarterly or monthly basis.The C&SD contacts individual companies to carry out

statistical surveys, but responsibility for the transmission of

the required information to the Commissioner ultimately

lies with the resident entity.

Exchange Controls

None.

Accounts

Bank Account Availability

Regulations

Local-currency accounts (HKD) can be held by reside

and nonresident entities within Hong Kong. Accounts a

fully convertible. Residents and nonresidents can also ho

local-currency accounts outside Hong Kong.

Foreign-currency accounts can be held by resident entit

within and outside Hong Kong and by nonresidents Hong Kong.

Electronic Banking

Electronic banking services are widely available individuals and businesses in Hong Kong and are provid

by most banks via their own proprietary services. Nearly

banks offer some sort of Internet-banking service. There

no electronic banking standard in Hong Kong.

How to Open a Bank Account

To open bank accounts in Hong Kong, entities are requir

to supply a list of principal shareholders and authoriz

signatories, copies of incorporation/registration documen

and the appropriate account-opening documentatioDocumentation can be completed in English.


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Anti-Money Laundering Rules

{ Hong Kong has implemented antimoney laundering legislation:

the Drug Trafficking (Recovery of Proceeds) Ordinance of 1997,

amended in 2003; the Organized and Serious Crime Ordinance

of 2000, amended in 2003; and the United Nations (Anti-Terrorism

Measures) Ordinance of 2002, amended in 2004. The Hong Kong

Monetary Authority has also issued a series of guidance notes

and supplements on the prevention of money laundering.

{ A Financial Action Task Force (FATF) member, Hong Kong

observes most of the FATF-49 standards. Hong Kong is also a

member of the Asia/Pacific Group on Money Laundering and the

Group of International Finance Centre Supervisors.

{ Hong Kong has established a financial intelligence unitthe

Joint Financial Intelligence Unitwhich is a member of the

Egmont Group.

{ Financial institutions must apply customer due diligence

measures when establishing a business relationship. Ongoing

monitoring of accounts and transactions is required, taking a

risk-based approach.

{ Beneficial owners must also be identified.

{ Individuals carrying out a single or series of linked transactions

exceeding HKD 120,000 or its equivalent in any currency must

be identified. For wire transfers, the threshold is HKD 8,000 or

its equivalent in any currency.

{ Financial institutions in the broadest sense must record and report

suspicious transactions to the Joint Financial Intelligence Unit.

{ Financial institutions must maintain records for six years following

the termination of the business relationship.

Anti-money laundering information supplied by BCLBurton Copeland (www.bcl.com). Data are as of February

2013 and may be subject to change.


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Payments and Receivables

Payments

Payment Volumes and Values

Transactions (million) % Change

2011/2010

Traffic (value) HKD billion % Change

2011/20102010 2011 2010 2011

Checks NA NA NA NA NA

Debit cards 105.4 109.7 4.1 188.0 207.7 1

Credit cards 363.9 391.5 7.6 354.6 408.3 1

Credit transfers NA NA NA NA NA

Direct debits NA NA NA NA NA

Total NA NA NA NA NA

Payment Systems

Hong Kong has six main interbank payment clearing systems:{ HKD Clearing House Automated Transfer System.This is a

real-time gross settlement system for all HKD-denominated

payments. It is also linked to some of Hong Kongs other payment

systems to process foreign-exchange transactions. Its settlement

institution is the HKMA. Payments that are processed by the

system are settled across accounts held at the HKMA.

{ USD Clearing House Automated Transfer System (USD

CHATS).This is a real-time gross settlement system for all USD-

denominated payments. It is also linked to some of Hong Kongs

other payment systems to process foreign-exchange transactions.

Its settlement bank is the HSBC. Payments that are processedby the system are settled across accounts held at the HSBC.

{ EUR Clearing House Automated Transfer System (EUR

CHATS).This is a real-time gross settlement system for all EUR-

denominated payments. It also settles euro/US dollar and euro/

Hong Kong dollar foreign-exchange transactions on a payment-

versus-payment basis. Its settlement bank is the Standard

Chartered Bank (Hong Kong). Payments that are processed by

the system are settled across accounts held at the Standard

Chartered Bank.

{ RMB Clearing House Automated Transfer System (RMB

CHATS).This is a real-time gross settlement system thatprocesses RMB-denominated interbank fund transfer payments,

RMB-denominated local checks and paper-based items, RMB-

denominated cross-border joint check payments and RMB-

denominated funds from the issuance of renminbi bonds. Its

settlement bank is the Bank of China (Hong Kong). Payments

that are processed by the system are settled across accounts

held at the Bank of China. The Bank of China maintains a

settlement account with the Peoples Bank of China and is a

member of Chinas National Automated Payment System.

{ Electronic Clearing (ECG). This system processes bu

electronic low-value USD- and HKD-denominated paymen

Payments processed by the ECG system are settled on a nex

day basis, with the exception of autodebit payments, which a

settled on Mondays after being cleared the previous Friday.

{ Paper Check Clearing (CLG).This system processes all typ

of USD- and HKD-denominated paper-based payment inst

ments. Checks processed by the system are settled on a next-d

basis.

All of Hong Kongs various real-time gross settlemesystems have been able to clear payment transactions usi

the SWIF message format since May 2009.

A cross-border payment arrangement between Hong Ko

and mainland China has been in operation since Mar

2009, providing a payment mechanism operating in t

same time zone to increase efficiency and reduce risk. T

system processes Hong Kong dollars, US dollars, eur

and British pound sterling though the respective real-tim

gross settlement systems in Hong Kong and the Domes

Foreign Currency Payment System in China.

Source: CPSS Red Book statistical update, January 2013.


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2011. hey accounted for the majority of the volume an

the value of payment card transactions in 2011, howev

being used for 391.5 million transactions worth a total

HKD 408.3 billion. This represents an increase of 7.6 p

cent in volume and 15.1 percent in value from 2010.

Credit card payments in Hong Kong dollars are process

via a bulk settlement system that was introduced in 20

for transactions between participants, including VISInternational, MasterCard International and ChinUnionPay. Separate settlement times are in operatiofor each company using the system, which runs Mond

through Friday.

ATM/POS

At the end of 2011, there were approximately 3,1automated teller machines (ATMs) and 182,000 point

sale (POS) terminals in Hong Kong.

Electronic Wallet

There are currently about 20 million e-money cards circulation in Hong Kong, the most common of which

the Octopus card.

Octopus cards are carried by about 95 percent of 1to 65-year-olds in Hong Kong and are used for rettransactions and for payments for transportation, at leisu

facilities and at schools. Octopus cards can be both A

and stored-money cards as well as stored-money payme

cards. There is a dedicated payment clearing system process Octopus card transactions.

Receivables (Collections)

Direct Debits

Direct debits are available in Hong Kong, although th

are used much less than credit transfers. Both busines

and individuals in Hong Kong use direct debits for low

value regular payments.

Direct debits in Hong Kong dollars are processed throu

the ECG system.

Lockbox

Lockbox services are offered by commercial banks

Hong Kong.

Checks

Checks are a common method of payment for goods and

services by individuals and companies in Hong Kong. They

are a popular method of high-value retail payments.

Checks in Hong Kong are processed through the Paper

Check Clearing system after being truncated into electronic

items. Checks with a value greater than HKD 100,000 are

also presented physically to the paying banks.

Checks in Hong Kong dollars drawn on a Hong Kongbank and presented in Guangdong province in China, orchecks drawn on a Guangdong bank and presented in Hong

Kong, are subject to a joint clearing process operated at the

Guangzhou Electronic Banking Settlement Centre or the

Shenzhen Financial Electronic Settlement Centre. These

checks are cleared in two working days.

Credit TransfersElectronic credit transfers are the most common method

of credit transfer in Hong Kong. hese are generally used

by companies to make direct payments, such as treasury,

supplier and salary transfers.

High-value credit transfers in Hong Kong dollars areprocessed by the HKD Clearing House Automated Transfer

System, whereas low-value and bulk payments are processed

by the ECG system.

Depending on the currency, foreign-currency credit transferscan be processed by Hong Kongs dedicated paymentsystems (USD CHATS, EUR CHATS and RMB CHATS).

Payment Cards

Payment cards are increasing in popularity, especiallyamong retail consumers, and they are now widely used in

Hong Kong.

Most payment cards in Hong Kong are debit cards, with

16.1 million in circulation at the end of 2011. These aregenerally used for low-value retail transactions. In 2011

debit cards accounted for 109.7 million transactions, with

a value of HKD 207.7 billion, up 4.1 percent in volume

and 15.1 percent in value from 2010.

There are slightly fewer credit cards in Hong Kong, with

approximately 15.1 million in circulation at the end of


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Liquidity Management and Investments

Liquidity Management

There are few restrictions on intragroup liquiditymanagement in Hong Kong.

Cash Concentration

Cash concentration is widely available in Hong Kong,with zero-balancing being the most common technique.

Both residents and nonresidents can participate in cashconcentration and cross-border structures.

Notional Pooling

Notional cash pooling is available in Hong Kong for resident

and nonresident entities. Notional-pooling structures are

offered to both residents and nonresidents in local andforeign currencies.

Investments

Interest-Bearing Checking andDemand Deposit Accounts

Interest-bearing checking and demand deposit accounts

are offered to residents and nonresidents.

Time Deposits

Fixed-term deposit accounts are available in both local and

foreign currencies. Terms typically last from one day to

more than one year, but licensed banks can offer accounts

of any size or maturity. Restrictions apply to time depositsoffered by other types of banks, with most deposit-takingcompanies able to offer time deposits with an HKD 100,000

minimum investment and at least a three-month minimum

maturity. Restricted-license banks can offer time deposits

with a minimum investment of HKD 500,000.

Certificates of Deposit

Certificates of deposit (CDs) are available with bothfloating and fixed rates, usually with terms of three to

five years.

Treasury Bills

The HKMA issues tax-free, low-risk Exchange Fund Bills,

which are widely used in Hong Kong. Bills usually have

maturities of between one week and one year and have a

minimum investment of HKD 500,000.

Commercial Paper

Commercial paper is not generally used in Hong Kong d

to the popularity of HKMA Exchange Fund Bills.

Repurchase Agreements

Repurchase agreements are available in Hong Kong, b

their use is generally limited to the interbank market.

Money Market Funds

Money market funds are available.

Financing

Overdrafts

Overdraft facilities are available to residents and nonresiden

from domestic and foreign banks.

Bank Lines of Credit/Loans

Short-TermShort-term bank financing is available to residents annonresidents in both local and foreign currencies. Inter

is charged by banks on an individual basis, although ban

typically will change rates according to the Base Lendin

Rate (BLR) or the Hong Kong Interbank Offered Ra(HIBOR). The London Interbank Offered Rate is also us

as the base rate for loans denominated in a foreign curren

provided by foreign banks.

Long-TermLong-term bank loans are available in both local and forei

currencies from Hong Kong and international bankFunding can be negotiated bilaterally by large compan

but usually takes the form of syndicated loans. Domest

currency long-term bank loans are usually arranged a

margin to BLR or HIBOR, but the exact margin depen

on the creditworthiness of the borrower, the nature of a

guarantees and general market conditions.

Commercial PaperCommercial paper use has declined in Hong Kong in fav

of Exchange Fund Bills, and most issuers no longer off

commercial paper programs.


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19/24

Country Information

Capital: Hong Kong includes Hong Kong Island(Victoria), the Kowloon Peninsula, Lantau Island and

the New erritories

Area: 1,104 km2

Population: 7.15 million

International dialing code: 852

Monetary Unit

Hong Kong dollar (SWIF code: HKD)

The value of the currency is linked to the US dollarthrough a currency board system. This system requires

Hong Kongs monetary base (composed of notes and coins

issued, the aggregate balance of banks clearing accounts

held at the HKMA and outstanding Exchange Fund Bills

and notes) to be matched by US dollar reserves at a fixed

exchange rate of USD 7.80 per HKD 1. he Hong Kong

dollar trades within a band of between USD 7.75 andUSD 7.85 per HKD 1.

Government

Head of state: President Xi Jinping (since March 15, 2013)

Head of government: Chief Executive Leung Chun-ying

(since July 1, 2012)

Hong Kongs Executive Council is headed by thechief executive, who is elected for a f ive-year term by a1,200-member electoral committee. The Legislative Council

is elected every four years.

Hong Kong is a special administrative region of China.

Bank Holidays

2013: April 1, 5, May 1, 17,* June 12,* July 1, Septemb

20, October 1, 14,* December 25, 26

2014: January 1, 31, February 1, 2, 3, April 5, 18, 19, 2

May 1, 6,* June 2,* July 1, September 9,* October 1, 2

December 25, 26

2015: January 1, February 19, 20, 21, April 3, 4, 6, 7, M

1, 25,* June 20,* July 1, September 28,* October 1, 21

December 25, 26

*The date, which may vary by plus or minus one day, is derived by converting from a nGregorian calendar to the Gregorian calendar. The date cannot be determined in advawith absolute accuracy. Also some feast days are determined by the actual sighting of a nor full moon and cannot be confirmed until close to the actual date. The rules around

practice vary, making it dif ficult to predict holiday observances with complete accura

Source: www.goodbusinessday.com.

Country Overview



20/24


Economic Statistics

2006 2007 2008 2009 2010 20112012

Q1 Q2 Q3 Q

General Unit

Population m 6.8 6.9 6.9 7.0 7.1 7.1

Unemployment rate % 4.8 4.0 3.5 5.2 4.3 3.4 3.3 3.3 NA

Consumer price (year-on-year) % +2.1 +2.0 +4.2 +0.6 +2.3 +5.3 +5.3 +4.1 +3.0

Interest rate* % 3.94 1.88 0.23 0.13 0.13 0.13 0.13 0.06 0.06 0

Gross Domestic Product (GDP)

Gross national income, local currency bn (HKD) 1,475 1,616 1,707 1,659 1,778 1,935

GDP (USD) bn (USD) 190 207 219 214 229 249

GDP per capita USD 27,801 30,153 31,632 30,616 32,462 34,914

GDP volume growth (year-on-year) % +7.0 +6.4 +2.1 2.5 +6.8 +4.9 +0.7 +1.2 +1.3

Trade

Exchange rate** (HKD/USD) 7.768 7.801 7.787 7.752 7.769 7.784 7.760 7.761 7.755 7.

Current account bn (USD) 23 26 33 20 15 16

Current account as % of GDP % 12.1 12.3 15.0 9.5 6.5 6.5

Total reserves*** bn (USD) 133 153 183 256 269 285 294 295 301

Source: International Financial Statistics, IMF February 2013.

*Money market rate

**Period average

***Total reserves minus gold


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Trade Statistics

Major Expor t Markets Major Impor t Sources

Country % Country %

China 52.4 China

USA 9.9 Japan

Japan 4.0 Taiwan

Country Credit Rating

Fitch Ratings last rated Hong Kong on September 24, 2012,

for issuer default as:

Term Local-Currency Rat ing Foreign-Currency Rating

Short F1+

Long AA+ AA+

Long-term rating outlook Stable

Source: www.fitchratings.com, February 2013.


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