Doing business in Hong Kong

A Q&A guide to doing business in Hong Kong.

This Q&A gives an overview of key recent developments affecting doing business in Hong Kong as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.

To compare answers across multiple jurisdictions, visit the Doing business in... Country Q&A Tool.

This article is part of the global guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-guide.

Contents

Overview

1. What are the key recent developments affecting doing business in your jurisdiction?

The Competition Ordinance was enacted in 2012 and came into full effect on 14 December 2015. It covers all business sectors, although the provisions relating to mergers only apply to telecommunications carrier licence holders. Businesses operating in Hong Kong must familiarise themselves with the new law which does have extra-territorial reach.

The Competition Ordinance provides for three main competition rules:

  • First Conduct Rule. This prohibits anti-competitive agreements, decisions and concerted practices.

  • Second Conduct Rule. This prohibits abuse of market power.

  • Merger Rule. This prohibits mergers that substantially lessen competition.

The Contracts (Rights of Third Parties) Ordinance was passed in December 2014. It came into effect on 1 January 2016 and applies only to contracts entered into on or after. This Ordinance enables a third party to enforce and benefit from a contract to which he is not a party in specified circumstances. Certain types of contracts are excluded, including:

  • Bills of exchange.

  • Promissory notes.

  • Negotiable instruments.

  • Deeds of mutual covenant.

  • Contracts for the carriage of goods by sea and by air.

  • A letter of credit.

  • Company's articles of association.

The Ordinance allows "contract out" on a proper construction of a contract, that is the parties to a contract can expressly state that the terms of that contract are not intended to be enforceable by any third party.

 

Legal system

2. What is the legal system based on (for example, civil law, common law or a mixture of both)?

Hong Kong has a common law legal system.

 

Foreign investment

3. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

Apart from certain narrow areas (for example, broadcasting), 100% foreign ownership of a company is generally permitted and there is no requirement on the nationality (or place of incorporation for corporations) of the shareholder. There are no restrictions on foreign shareholders (for example, there is no requirement that a shareholder be resident in Hong Kong) except in certain narrow circumstances.

Recently, additional stamp duties have been imposed on purchasers of real estate in Hong Kong where such purchasers are not individual Hong Kong permanent residents.

 
4. Are there any restrictions on doing business with certain countries or jurisdictions?

Hong Kong gives effect to various United Nations sanctions. Dealings with the following countries are subject to regulations issued under the United Nations Sanctions Ordinance:

  • Afghanistan.

  • Central African Republic.

  • Democratic Republic of the Congo.

  • Eritrea.

  • Iran.

  • Iraq.

  • Lebanon.

  • Libya.

  • North Korea.

  • Somalia.

  • South Sudan.

  • Sudan.

  • Yemen.

A complete list of the regulations is available on the Department of Justice website (see box, Online resources) by referring to the United Nations Sanctions Ordinance (Chapter 537) of the Laws of Hong Kong.

 
5. Are there any exchange control or currency regulations?

Funds from profit or capital accounts can be freely repatriated and remitted overseas, and there is no foreign exchange control. However, Hong Kong has stringent anti-money laundering legislation, largely derived from the UK model.

 
6. What grants or incentives are available to investors?

Hong Kong has an increasingly sophisticated and extensive system of targeted tax incentives, designed to attract foreign investment and focus the allocation of capital in certain areas that are regarded as strategic for the city's economy. Broad exemptions from profits tax are available to certain offshore collective investment schemes and private equity funds. There are specific tax incentive codes (among others) for:

  • Research and development.

  • Knowledge-based industries.

  • Environmentally-friendly industries.

  • Corporate treasury centres.

Generally, the fiscal and tax administration regimes in Hong Kong are regarded as favourable to foreign investment (see Questions 16 to 25).

 

Business vehicles

7. What are the most common forms of business vehicle used in your jurisdiction?

A private limited liability company is probably the most common form of business vehicle used by foreign investors for the following reasons:

  • No withholding tax when the Hong Kong subsidiary declares and pays dividends.

  • Double tax treaties.

  • Separate legal entity. Liabilities of the company do not flow through to shareholders, except for cases where lifting of corporate veil is legally possible.

  • It is a relatively simple and efficient process to incorporate a private limited liability company.

  • Affordable costs and expenses for incorporation and annual maintenance.

The other common forms of business vehicle used in Hong Kong by foreign companies are:

  • Representative offices.

  • Branches of parent companies.

  • Partnerships.

  • Joint ventures.

  • Trusts.

 
8. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, what are the main registration and reporting requirements?

Registration and formation

A private company is incorporated and registered in Hong Kong by filing an incorporation form together with the articles of association of the company with the Registrar of Companies (Registrar).

After filing, the Registrar issues a certificate of incorporation certifying the name and the date of incorporation of the company. This process takes about four working days.

Further information about the incorporation of a private company in Hong Kong is available on the Companies Registry website (www.cr.gov.hk/en/home/index.htm).

The Business Registration Ordinance also requires every person who carries on a business in Hong Kong to apply for business registration within one month from the date of commencement of the business.

Reporting requirements

A profit and loss account and a balance sheet for the company must be audited by Hong Kong registered auditors and laid before the shareholders at a general meeting within 18 months of incorporation, and then at least once every calendar year. Generally, Hong Kong private companies limited by shares are not required to file their accounts with the Registrar.

In addition, companies must file their annual returns with the Registrar at least once a year.

A company must also notify the Registrar of certain changes concerning the company, for example:

  • Any appointment or cessation of directors or secretary, or a change in the filed particulars of any existing directors or secretary.

  • Any change of address of registered office.

  • Details of charges (mortgages) over certain types of property.

Share capital

Apart from certain regulated companies (for example, banking, securities and insurance), there is no required minimum or maximum share capital.

Non-cash consideration

Shares can be allotted for cash, services or other consideration such as the transfer of property. If a company's articles of association permit, shares can also be issued as redeemable shares.

Annual General Meeting

A private company incorporated in Hong Kong is required to hold annual general meetings (AGM). "Annual" means a financial year instead of calendar year.

An AGM of a private company must be held at least once within nine months after the end of its accounting reference period to which the financial year is to be determined. Shareholders are entitled to receive the annual audited accounts and directors' report, which must be presented before them at an AGM. A company can dispense with the holding of an AGM if certain conditions are met.

 
9. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, outline the management structure and key liability issues.

Management structure

A private company must have at least one director who is a natural person (at least 18 years of age). Other directors of a private company can either be natural persons or corporations. There is no maximum number of directors. Companies listed on the Stock Exchange of Hong Kong (whether incorporated in Hong Kong or in other jurisdictions) are subject to more detailed requirements on the composition of their boards of directors and checks and controls on the powers of directors and senior management for good corporate governance.

A company must also have a company secretary who ordinary resides in Hong Kong (for natural persons) or have its registered office or a place of business in Hong Kong (for corporations). Company secretaries can be provided by law firms, company secretarial companies and professional firms.

Management restrictions

There are no restrictions on foreign managers.

Directors' and officers' liability

If a director does not comply with his duties he may be liable to civil or criminal proceedings and may be disqualified from acting as a director. The Companies Ordinance codifies directors' duties of care, which are based mainly on existing case law, and sets out a mixed objective and subjective test for the standard of a director's duty to exercise reasonable care, skill and diligence. Civil consequences for breach of directors' duties remain uncodified.

Parent company liability

The parent company is not liable for the debts of its subsidiary (except if it is possible to pierce the corporate veil in exceptional circumstances). Its legal liability is limited to the amount of any unpaid issued share capital.

 

Employment

Laws, contracts and permits

10. What are the main laws regulating employment relationships?

The main legislation prescribing the minimum rights, benefits and protections for employers and employees in Hong Kong are the:

  • Employment Ordinance.

  • Minimum Wage Ordinance.

  • Mandatory Provident Fund Schemes Ordinance.

  • Employees' Compensation Ordinance.

The parties cannot contract out of these Ordinances. The Ordinances cover all employees in Hong Kong, with limited exceptions. They generally also apply to expatriates working in Hong Kong and employees with an employment contract from Hong Kong who are working abroad.

The parties can choose the governing law of the employment contract but it must have sufficient connection with the employment or it may be deemed to be an attempt to contract out of the Employment Ordinance. A recent case provided that if a foreign law is chosen, the benefits provided cannot be less than the minimum legal requirements under Hong Kong law (Cantor Fitzgerald Europe v Boyer [2012] HKCU 478).

 
11. Is a written contract of employment required? If so, what main terms must be included in it? Do any implied terms and/or collective agreements apply to the employment relationship?

Although not required, a written contract is usually entered into. In addition to the express terms which are included in writing in the contract or agreed verbally, a contract of employment also consists of a number of terms implied by legislation (which parties cannot exclude) or by common law (which parties may be able to vary or exclude by express agreement). For example, for employees who fall within the scope of the Employment Ordinance, its mandatory provisions must be observed.

Depending on the particular industry or employer, there are also trade unions that negotiate workplace agreements between employers and employees.

 
12. Do foreign employees require work permits and/or residency permits?

Foreign employees must obtain a proper Hong Kong visa (for example, employment visa, certain kinds of dependant visa, investment visa, and so on) to work in Hong Kong. To qualify for an employment visa, a person must possess skills, knowledge or experience relevant to the job that is unavailable locally. This test can generally be satisfied in the case of an intra-company or intra-group transfer. The applicant also needs to nominate a sponsor, which must be a Hong Kong company or a foreign company registered in Hong Kong. The sponsor is usually the employer company.

It normally takes six weeks for the application to be processed. The government charges a nominal fee for the visa if the application is approved.

Termination and redundancy

13. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

There is no statutory provision covering management representation or the right of employees to be consulted regarding corporate transactions. However, if an employer has entered into an applicable industrial agreement with a trade union, then the employer should observe its consultation/management representation obligations (if any) under the relevant agreement.

 
14. How is the termination of individual employment contracts regulated?

Under Hong Kong law, it is unlawful for an employer to dismiss:

  • An employee who has been confirmed pregnant and has served a notice of pregnancy (up until and including the day she is due to return to work on the expiry of her maternity leave or the date her pregnancy ends).

  • An employee due to being absent on a day in which a sickness allowance is paid.

  • An employee due to having given evidence or information in any proceedings or inquiry.

  • An employee for trade union membership and activities.

  • An injured employee before entering into an agreement with the employee for employees' compensation or before the issue of a certificate of assessment.

It is also unlawful to dismiss an employee in contravention of any of the various ordinances on discrimination (currently there are four different ordinances regulating discrimination in the areas of sex, race, disability, marital status, pregnancy and family status).

An employer can terminate an employee's employment at any time by giving notice or payment in lieu (unless prohibited by any of the reasons stated above). However employers must ensure that employees are terminated only for valid reasons as set out in the Employment Ordinance and that the minimum notice periods are observed.

In cases of serious misconduct, an employer may terminate an employee without notice or payment in lieu of notice (summary dismissal). However, if the summary dismissal was not justified, the termination would amount to wrongful termination and the employer will be liable to pay the employee his entitlements had he been lawfully terminated (that is, with notice).

 
15. Are redundancies and mass layoffs regulated?

The Employment Ordinance sets out a statutory regime governing an employer's obligations in situations of layoff and redundancy. Unless summarily dismissed for good cause, an employee is entitled to notice (or a specific payment in lieu of notice).

In addition, employees whose positions have been made redundant or who are laid off are entitled to severance pay if they have been employed for two years or more.

 

Tax

Taxes on employment

16. In what circumstances is an employee taxed in your jurisdiction and what criteria are used?

Hong Kong has a territorial system of taxation, which means that an employee is charged salaries tax in Hong Kong on income that arises in or is derived from Hong Kong from an office, employment or pension. The tax residence of the employee is therefore of limited relevance in terms of domestic taxation.

Generally, if the employment is regarded as Hong Kong employment, all income derived from it is normally subject to salaries tax, even if some services are rendered outside Hong Kong. However, if the employment is regarded as non-Hong Kong employment, only income that is regarded as arising in or derived from Hong Kong is subject to salaries tax.

There is a general exemption from salaries tax where an employee is not in Hong Kong employment and visits Hong Kong for not more than 60 days in a given year of assessment.

Whether an employment is a Hong Kong employment depends on the specific employment contract, but is usually established by reference to:

  • The place where the contract of employment was negotiated and effected.

  • The jurisdiction where the employer is resident.

There is no general income tax in Hong Kong.

 
17. What income tax and social security contributions must be paid by the employee and the employer during the employment relationship?

Employees

Salaries tax is charged at progressive rates of up to 17% or at a flat rate of 15%, whichever is lower.

An employee must make pension contributions under the Mandatory Provident Fund Schemes Ordinance. This requires employees to contribute 5% of their relevant income to a mandatory provident fund scheme (which is in effect a pension scheme). The current maximum monthly contribution required is HK$1,500. An employee can make additional voluntary contributions to the scheme. The employee is entitled to tax deductions for his mandatory contributions subject to an annual cap.

The tax year runs from 1 April to 31 March in the following year. An employee is required to file a tax return at the beginning of each tax year in respect of his/her taxable income in the previous tax year. Salaries tax payments are generally made with respect to the final tax determined for the previous year of assessment, and provisional tax for the following year of assessment, which is computed on an estimated basis.

Employers

An employer is required to file an employer's return with the Inland Revenue Department for each employee that is subject to salaries tax:

  • At the start of employment.

  • At the end of employment.

  • In respect of benefits paid or otherwise granted to an employee during each tax year, including any bonus or perquisites or taxable benefits, such as cash bonuses, housing allowance, and gains realised under employment related share schemes.

An employer can be required to undertake additional reporting upon the occurrence of certain material changes in an employee's conditions of employment.

An employer must make mandatory contributions under the Mandatory Provident Fund Schemes Ordinance at the same rate as the employee (see above). The employer also has the option of making voluntary contributions to the scheme. The employer can claim tax deductions for the mandatory and voluntary contributions made in respect of its employees, provided they do not exceed 15% of the employee's total emoluments.

Business vehicles

18. When is a business vehicle subject to tax in your jurisdiction?

Hong Kong has a territorial tax system. This means that a business vehicle is charged to profits tax if:

  • It carries on a trade, profession or business in Hong Kong.

  • Has profits which arise in or are derived from such trade, profession or business carried on in Hong Kong.

Whether profits are Hong Kong-sourced is a matter of fact. One looks to what the taxpayer has done to earn its profits and where it has done it, discounting antecedent or incidental matters. However, the case law governing the source of profits is complex and at times inconsistent. Therefore, each case will turn on its own facts.

Certain receipts are deemed to be chargeable to profits tax. There is no general income tax for corporations or unincorporated businesses in Hong Kong.

 
19. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?

Profits tax

The rate of profits tax is 16.5% for corporations and 15% for other taxpayers. This is charged on Hong Kong-sourced profits from a trade, profession or business carried on in Hong Kong, or sums that are deemed chargeable to profits tax by operation of statute. Capital gains are generally not taxable in Hong Kong.

Property tax

Property tax is charged at the rate of 15% on the assessable value of any land or buildings in Hong Kong. The net assessable value is the rent receivable less:

  • Any rent that has become irrecoverable.

  • Rates paid.

  • A fixed allowance of 20% of adjusted rental income for repairs.

Companies carrying on a trade or business in Hong Kong can elect to be exempted from property tax and be subject instead to profits tax (see above).

Stamp duty

Ad valorem stamp duty

Stamp duty is charged on the following instruments:

  • Conveyances or agreements for the sale and purchase of immovable property in Hong Kong: up to 8.5% of the consideration payable or value if higher (with lower rates from 1.5% to 7.5% applicable to a consideration of HK$21,739,130 or less). The buyer and the seller will be jointly and severally liable to account for stamp duty. Lower rates of stamp duty apply either if the:

    • related agreement for sale or conveyance was executed before 23 February 2013; or

    • buyer/transferee in the agreement/conveyance of a residential property is a permanent resident in Hong Kong, acting on his own behalf and not owning any residential property in Hong Kong at the time of acquisition (rates range from a HK$100 flat rate to 4.25%).

  • Leases of property not exceeding one year: 0.25% of the total rent payable over the term of the lease.

  • Leases of property exceeding one year but not exceeding three years: 0.5% of the average annual rent.

  • Leases of property exceeding three years: 1% of the average annual rent.

  • Transfers of Hong Kong shares: 0.2% of the consideration or the value of the shares, whichever is higher, with 0.1% being borne by each of the transferor and transferee.

  • Hong Kong bearer instruments: 3% of the market value.

An exemption is available for transfers of immovable property or shares between associated companies. Generally, companies are associated if they have a 90% shareholding link, that is, one is the 90% beneficial owner of the issued share capital of the other, or both are 90% beneficially owned by the same third company.

Stamp duty relief is generally available on the transfer of property by virtue of a corporate merger or amalgamation, or on the distribution of property to beneficiaries under a trust.

Special stamp duty

Special stamp duty is charged on agreements for sale or conveyance on sale of residential property disposed of within 36 months from the date of acquisition by that seller/transferor. This is in addition to any other stamp duty chargeable on such agreements. The seller/transferor and buyer/transferee are jointly and severally liable to pay special stamp duty.

Special stamp duty is currently charged at the following rates on the higher of the transfer consideration or the property value:

  • 20% where the property is disposed of within a period of 6 months starting on the date the seller/transferor acquired the property.

  • 15% where the property is disposed of within a period between 6 to 12 months after the date the seller/transferor acquired the property.

  • 10% where the property is disposed of within a period between 12 to 36 months after the date the seller/transferor acquired the property.

Certain agreements for sale of residential property are not chargeable with special stamp duty, including:

  • Transfer to the seller’s parent, spouse, child, sibling.

  • Sale pursuant to a court order.

  • Sale by a mortgagee.

Buyer's stamp duty

Buyer's stamp duty is charged on agreements for sale or conveyance on the sale of residential property, in addition to any other stamp duty chargeable on such instruments, at 15% of the consideration payable or property value if higher, where the buyer is not a Hong Kong permanent resident. The buyer/transferee is liable to pay the buyer’s stamp duty.

Dividends, interest and IP royalties

20. How are the following taxed:
  • Dividends paid to foreign corporate shareholders?

  • Dividends received from foreign companies?

  • Interest paid to foreign corporate shareholders?

  • Intellectual property (IP) royalties paid to foreign corporate shareholders?

Dividends paid

There is no withholding tax on dividends.

Dividends received

Generally, no tax is charged on dividends received.

Interest paid

There is no withholding tax on interest. Generally, interest paid is not taxable unless it accrues to or is received by a person in connection with a trade or business carried on in Hong Kong. There are certain exemptions, such as interest from bank deposits paid to corporations (other than financial institutions) and individuals. Concessionary rates of profits tax on interest income are available to income paid or payable on certain qualifying debt instruments, or accruing to or received by qualifying corporate treasury centres.

IP royalties paid

Generally, profits tax is chargeable on payments to non-Hong Kong residents for the use in Hong Kong of certain IP rights. The domestic withholding tax rate is 4.95% for corporations and 4.5% for unincorporated businesses on the gross amount of the IP royalties. Higher rates of 16.5% and 15% respectively apply to royalties derived from associated persons.

Groups, affiliates and related parties

21. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

Hong Kong generally does not have any thin capitalisation rules. Entities in certain regulated industries are subject to regulatory capital requirements.

 
22. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

Hong Kong does not have a controlled foreign company regime. Certain intra-group arrangements (including the attribution of profits to different members of the same corporate group) can be subject to re-characterisation under general or specific anti-avoidance provisions.

 
23. Are there any transfer pricing rules?

Limited statutory rules apply specially to associated enterprise payments. Generally, the Inland Revenue Department expects payments between associated enterprises to be on an arm's length basis. In the absence of arm's length dealing, it can seek to apply anti-avoidance rules to deem payments between associated persons to be on an arm's length terms for domestic tax purposes.

The Government of Hong Kong is committed to the adoption of the Organisation for Economic Co-operation and Development (OECD) Base erosion and profit shifting (BEPS) initiative and has identified the introduction of an expanded, comprehensive transfer pricing regime as an area of particular legislative priority.

Customs duties

24. How are imports and exports taxed?

Imports

Imports of the following items are taxed (the rate of taxation varies depending on the specific good concerned):

  • Liquor with an alcoholic strength of more than 30% by volume measured at a temperature of 20 degrees Celsius.

  • Tobacco.

  • Hydrocarbon oil.

  • Methyl alcohol and any mixture containing methyl alcohol.

  • Motor vehicles.

Exports

Hong Kong does not impose export tax.

Double tax treaties

25. Is there a wide network of double tax treaties?

Hong Kong has comprehensive double tax treaties with Austria, Belgium, Brunei, Canada, Czech Republic, France, Guernsey, Hungary, Indonesia, Ireland, Italy, Japan, Jersey, South Korea, Kuwait, Liechtenstein, Luxembourg, Mainland China, Malaysia, Malta, Mexico, The Netherlands, New Zealand, Portugal, Qatar, Romania (not yet in force), Russian Federation, South Africa, Spain, Switzerland, Thailand, the UAE, the UK, and Vietnam.

 

Competition

26. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?

Competition authority

This is the Competition Commission established under the Competition Ordinance. The Competition Ordinance came into full effect on 14 December 2015.

Restrictive agreements and practices

The Competition Ordinance provides that a person or entity engaged in economic activity (an undertaking) must not make or give effect to an agreement, concerted practice or decision of an association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong. This is known as the First Conduct Rule.

Unilateral conduct

An undertaking that has a substantial degree of market power in a market must not abuse that power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong. This is known as the Second Conduct Rule.

Extra-territorial reach

Both the First Conduct Rule and the Second Conduct Rule have extra-territorial reach. They apply to activities conducted outside Hong Kong, if they have the object or effect of preventing, restricting or distorting competition in Hong Kong.

Breach of the First Conduct Rule and the Second Conduct Rule does not give rise to criminal penalties, although very substantial civil penalties can be imposed relating to the turnover of the breaching party or parties at the time of the breach. A wide range of other civil penalties are also available. Criminal sanctions are available in respect of obstructing the Competition Commission in exercising its enforcement powers.

 
27. Are mergers and acquisitions subject to merger control?

Under the Competition Ordinance, the Merger Rule prohibits anti-competitive mergers and acquisitions. The Merger Rule is currently limited to where the relevant undertakings are holders of telecommunications carrier licences (and does not apply outside this narrow area) although it may be extended in scope later.

The Merger Rule applies to direct or indirect mergers, so it may apply to transactions outside Hong Kong if they have the effect of substantially lessening competition in Hong Kong. No specific exemptions are provided for foreign acquisitions.

 

Intellectual property

28. Outline the main IP rights in your jurisdiction.

Patents

Definition and legal requirements. A patent protects certain new products, substances, methods or processes. To obtain a patent, an invention must be:

  • New in comparison to everything available to the public anywhere in the world as at the patent filing date.

  • Involve an inventive step or advance that is not obvious to a person skilled in the invention's field.

  • Be capable of industrial application.

  • Not be excluded from patent protection.

Registration. The registration of a Hong Kong standard patent is based on the re-registration of a designated patent already granted in the UK, the European Patent Office (designating the UK) and the PRC. International applications under the Patent Co-operation Treaty covering those countries also qualify. The process involves two steps:

  • Filing a request at the Hong Kong Patents Registry to record a pending application in the UK, Europe or the PRC. This must be done within six months of the publication of the designated overseas application.

  • Once the overseas application has been granted, an application for registration and grant must be filed in Hong Kong within six months of the grant of the designated patent application.

Alternatively, an applicant can apply for a short-term patent (for products or processes that only have a short commercial life). Such an application:

  • Can claim priority to an earlier filed patent application or be filed as a stand-alone patent application without a priority claim at the Hong Kong Patents Registry.

  • Can be for the same subject matter as for a standard patent, and the requirements for novelty and inventive step are the same.

  • Does not require a substantive search and examination, although the application must be accompanied by a search report from a prescribed searching authority.

Enforcement and remedies. A patent allows the patent owner to stop others from using a patented process or using, manufacturing or selling the patented invention without his consent. The remedies available for patent infringement are the same as for trade mark infringement (see below, Trade marks: Enforcement and remedies), except that the patent owner can also ask for a declaration that the patent is valid and has been infringed.

Length of protection. A short-term patent confers a maximum term of eight years. Standard patents confer a maximum term of 20 years from the filing date. However, if the Designated Patent is revoked on substantive grounds, then the Hong Kong Standard Patent must be similarly revoked within the prescribed time period.

Patent reform.In recent years, there have been calls to reform Hong Kong's patent system as this is seen as an important component of the next stage of Hong Kong's political and economic development. Following a report by the Advisory Committee on Review of the Patent System appointed by the Secretary for Commerce and Economic Development, published in 2013, it was proposed to introduce an original grant patent system (OGP) in Hong Kong, with substantive examination outsourced to other patent offices in the initial stages. The idea is that Hong Kong will gradually build up an indigenous substantive patent examination capacity. The current standard patent re-registration system will be retained, but there will not be any expansion of the designated patent offices. While users have the choice between the two, they will be encouraged to take advantage of the OGP route. The Patents (Amendment) Ordinance 2016 was passed by the Legislative Council of Hong Kong on 10 June 2016. The passage of the Ordinance marked the culmination of the five-year review of the patent law in Hong Kong intended to ensure that the system continues to meet the needs of the territory and to align the system with the government's vision to develop Hong Kong into a regional and technology hub. The Ordinance is due to come into operation after relevant subsidiary legislation has been drafted. The Intellectual Property Department is also working on providing the technical support, training and manpower needed to implement the new system, including the recruitment of new patent examiners. Practitioners will also need to be consulted on the draft rules. Subject to the progress of these implementation projects, the OGP system is expected to be rolled out in 2018, at the earliest.

Key amendments include:

  • The introduction of an OGP system for direct filing of standard patent applications in Hong Kong.

  • Introducing a substantive examination procedure for Hong Kong short-term patents.

  • Prohibiting the use of certain titles and descriptions in providing patent agency services which may imply endorsement by the government, or recognition by law.

  • An Original Grant Patent system is to be introduced in Hong Kong, with substantive examination outsourced to other patent offices in the initial stages. Hong Kong will gradually build up an indigenous substantive patent examination capacity.

  • The present standard patent re-registration system is to be retained, but there will not be any expansion of the designated patent offices.

Further information about patent registration is set out on the website of the Intellectual Property Department www.ipd.gov.hk/eng/patents.htm).

Trade marks

Definition and legal requirements. To be registered as a trade mark, a sign must:

  • Be capable of being represented graphically.

  • Distinguish the goods and services of one trader from those of another.

A trade mark can consist of words, personal names, designs, letters, characters, numerals or any combination of these (distinctiveness is a key requirement for registration). Sounds, smells or the shape of goods or their packaging can be trade marks.

Protection. An application to register a trade mark is filed at the Hong Kong Trade Marks Registry. Registration of a mark is not essential but it is generally advisable to make enforcement easier.

Further information about trade mark registration is set out on the website of the Intellectual Property Department (www.ipd.gov.hk/eng/trademarks.htm).

Enforcement and remedies. The owner of a trade mark registration can prevent unauthorised use of a mark that is identical or similar to the registered mark in relation to the same or similar goods or services covered by the registration. The main remedies available for trade mark infringement are:

  • An interlocutory or permanent injunction.

  • Damages.

  • Account of profits.

  • Delivery up or disposal of the infringing products.

  • Disclosure of relevant information or documents relating to dealings with the infringing products.

  • Legal costs.

If the trade mark is not registered, a trade mark owner may still be able to bring a passing off action to prevent third parties from using a conflicting mark if the trade mark owner has built up reputation and goodwill in the mark.

Length of protection and renewability. A trade mark registration is valid from the date of application for ten years. Registration can be renewed indefinitely for successive ten-year periods.

Trade mark law reform. Hong Kong is not a member of the Madrid System although China has been a contracting party to the WIPO Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks 1989 (Madrid Protocol) since 1995. Following the return of sovereignty over Hong Kong to China in 1997, China gave notice to WIPO that the extension of the Madrid System to the Hong Kong Special Administrative Region would be deferred pending a study and until further notice. In November 2014, the Hong Kong Government issued a consultation paper on the proposed application of the Madrid Protocol to Hong Kong. The consultation process is still on-going and the implementation of the Madrid Protocol in Hong Kong is not expected until 2019.

Registered designs

Definition. A registered design protects the outward visual appearance of a product applied to an article by an industrial process.

To be registered, the design must:

  • Be new. Any prior public disclosure or use of the design anywhere in the world before the priority date of the registration application will invalidate the application.

  • Have eye-appeal, in that the appearance of the article must relate to a customer's decision to buy the product. Features of a design that are dictated solely by the function that the article must perform, or that depend on the appearance of another article, cannot be protected by registration.

Registration. Applications are filed with the Hong Kong Designs Registry and only undergo a formalities examination before registration. Substantive requirements such as novelty are not considered before grant. A design registration may be challenged if third parties can find the same or similar designs in the public domain before the application date.

Further information about design registration is set out on the website of the Intellectual Property Department (www.ipd.gov.hk/eng/designs.htm).

Enforcement and remedies. The owner of a design registration can prevent the unauthorised manufacture, import, use, sale or hiring of items that look the same as the registered design in Hong Kong. In deciding whether there has been infringement, consideration must be given to whether the substance of the registered design has been taken. The remedies available are the same as for trade marks (see above, Trade marks: Enforcement and remedies).

Length of protection and renewability. A design registration is valid for an initial period of five years from the date of filing of the application. On the payment of renewal fees, the registration can be renewed for four further periods of five years, for a total of 25 years.

Unregistered designs

Definition and legal requirements. For unregistered designs, copyright protection is often available as an artistic work, provided the requirements for copyright protection are met (see below, Copyright).

Enforcement and remedies. See below, Copyright: Enforcement and remedies.

Length of protection. See below, Copyright: Length of protection and renewability.

Copyright

Definition and legal requirements. Copyright arises automatically when an original work is created and fixed in a material form, and can subsist in:

  • Literary works, musical works, dramatic works, artistic works, sound recordings, films, broadcasts and cable programmes.

  • The typographical arrangement of published editions of literary, dramatic or musical works.

  • Performers' performances.

  • Computer software.

  • Lists of information or data and databases.

  • Copyright works made available on the internet.

Protection. Copyright arises automatically when a work is created and fixed in a material form. It is not necessary or possible to register a copyright work in Hong Kong.

However, for copyright to be enforced it is important to show all of the following:

  • A clear chain of title of copyright from the original author to the current owner. If a design work is by an employee, it should be owned by the employer. If the author is an independent contractor, it is important to have an explicit assignment or agreement to transfer copyright.

  • Original two-dimensional drawings of the design work.

  • Date and place of creation of the drawing work.

  • Details of the author and his place of residence.

Copyright protection for designs. Copyright protects a registered design for 25 years. It starts from the end of the calendar year in which the articles incorporating the registered design are first marketed, but only if the design has been registered in Hong Kong.

If the design is unregistered, copyright is available for 15 years, starting from the end of the calendar year in which the articles incorporating the unregistered design are first marketed.

It is not necessary to register copyright in Hong Kong and copyright exists automatically at the time of creation of the artistic design drawing.

Enforcement and remedies. Protection for a copyright owner varies according to the type of copyright work. In general, protection is available against acts of:

  • Primary infringement, including copying a work, issuing copies of a work or making copies of a work available to the public.

  • Secondary infringement. This is when the infringer knows or has reason to believe that the copies are infringing, and engages in acts such as importing, exporting, distributing or selling infringing copies of a work, or possessing infringing copies of certain works (such as computer software) for use in business.

Such acts can attract both civil and criminal liability.

Hong Kong has wide-ranging and complex provisions for criminal enforcement of copyright, which carry personal criminal liability for directors and partners. The offences include a business end-user offence of possessing an infringing copy of a computer program, movie, television drama, or musical sound or visual recording, with a view to it being used in the business.

There are also controversial provisions concerning the copying and distribution of certain printed materials in the course of business. The offence applies only to books, magazines, periodicals and newspapers. It is subject to certain safe harbours, which are prescribed numeric limits for the number of copies that can be made without incurring criminal liability. The formula for calculating the safe harbours is complex.

Criminal penalties for copyright infringement can be up to four years' imprisonment and a fine of HK$50,000 per infringing copy, or a fine of HK$500,000 and imprisonment for eight years, depending on the offence.

Length of protection and renewability. The general rule is that copyright lasts for the life of the author plus 50 years. There are variations depending on the type of work.

Copyright reform. Copyright law in Hong Kong has been under review since 2006 when amendments to improve protection in the digital environment were first proposed. The intention was to introduce a technology-neutral electronic communication right for copyright owners and safe harbour provisions for online service providers. A Bill was proposed in 2011 but was not passed due to concern over the legal position relating to parody works on the internet. The Government introduced a new amendment Bill in 2014 taking into account the results of a public consultation on the introduction of a parody exception under copyright law. The Bill proposed to:

  • Introduce a technology-neutral exclusive right for copyright owners to communicate their works through any mode of electronic transmission.

  • Introduce criminal sanctions against unauthorised communication of copyright works to the public.

  • Introduce new "fair dealing" exemptions for certain uses including:

  • parody, satire, caricature and pastiche;

  • commenting on current events;

  • quotation.

  • Establish a statutory "safe harbour" to limit the potential liability of online service providers (OSPs) for copyright infringement occurring on their service platforms. This would be subject to meeting certain prescribed conditions. The safe harbour is to be underpinned by a non-statutory Code of Practice which sets out practical guidelines and procedures for OSPs.

  • Introduce a copyright exception for temporary reproduction of copyright works by OSPs, which is technically required for the digital transmission process to function efficiently.

  • Introduce a copyright exception for media shifting of sound recordings for private and domestic use under prescribed conditions.

  • Prescribe additional factors to assist the court in considering the award of additional damages in civil proceedings in online infringement cases.

However, it has been decided not to proceed with this Bill yet. It is currently unclear when the proposed amendments to the law will be introduced.

Passing off

Passing off is a common law action available to protect a wide range of rights including trade marks (registered or unregistered), trade names, product or packaging designs or other acts of misrepresentation. The requirements are goodwill, misrepresentation, and damage. The remedies available are similar to those for trade mark infringement (see above, Trade marks: Enforcement and remedies).

 

Marketing agreements

29. Are marketing agreements regulated?

Agency

There are currently no specific laws in force regulating agency, distribution or franchising arrangements in Hong Kong.

Distribution

See above, Agency.

Franchising

See above, Agency.

 
30. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

The Electronic Transactions Ordinance provides a legal framework for the conduct of electronic transactions, and gives recognition to contracts in digital form and digital signatures, provided they have been issued by a recognised certification authority.

The Unsolicited Electronic Messages Ordinance regulates the sending of unsolicited commercial electronic messages with a Hong Kong link. It is aimed at stopping spam e-mails, text messages, pre-recorded calls and so on from businesses advertising, promoting or sponsoring goods or services. Criminal liability applies for certain illicit or fraudulent activities. However, person-to-person telemarketing calls are not prohibited.

 

Advertising

31. Outline the regulation of advertising in your jurisdiction.

Advertising in Hong Kong is regulated by the common law, intellectual property laws and consumer protection laws. In addition, certain business sectors are regulated by specific ordinances, regulations and industry codes of practice, including the advertising industry.

Common law

Advertising is subject to regulation by the law on misrepresentation, where a party makes a false statement of fact to another party with the object of inducing them into a contract or a legally binding transaction.

A party may be liable for the tort of deceit if it makes a false statement (knowing it to be untrue, or being reckless as to its accuracy), intending another party to act in reliance of it and the other party does rely on it and suffers loss.

Advertisers must also be aware of the potential legal risks under defamation or malicious falsehood laws, if an advertisement contains any material that may be regarded as damaging to the reputation of another.

Intellectual property

Trade marks and copyright in Hong Kong are protected under the Copyright Ordinance (Chapter 528 of the Laws of Hong Kong) (CO) and the Trade Marks Ordinance (Chapter 559 of the Laws of Hong Kong) (TMO) as well as the common law tort of passing off.

Copyright Ordinance. The acts of copyright infringement are defined in the CO and include the following offences that may be relevant to advertising:

  • Unauthorised reproduction.

  • Issuing or making available infringing copies to the public.

  • Making an adaptation (which includes a translation).

  • Broadcasting, or exhibiting and distributing infringing copies in the course of, or in connection with any trade or business.

Trade Marks Ordinance. Under the TMO, a trade mark owner will be entitled to prevent other traders from using a mark which is identical or similar to his registered mark, in relation to the same or similar goods or services covered by the registration (where, in the case of a similar mark or goods/services, such use results in a likelihood of confusion), without his consent.

There are certain exceptions to trade mark infringement under the TMO. This includes use for the purpose of identifying a competitor’s goods or services provided such use is in accordance with honest practice in industrial and commercial matters.

The common law tort of passing off can be used to protect both registered and unregistered trade marks, trade names, an individual's name or reputation and the design or look of a product, including its packaging. In order to establish passing off, it is necessary for the claimant to show that it has a reputation in Hong Kong and a misrepresentation has been made by the defendant causing confusion that results in damage or the likelihood of damage to the business or reputation of the claimant.

Consumer protection

The main piece of legislation is the Trade Descriptions Ordinance (Chapter 362 of the Laws of Hong Kong) (TDO) which prohibits false and misleading trade descriptions of goods including in advertising. An amendment to the law came into force on 19 July 2013 and extended the application of the TDO. It created new offences relating to advertising, including:

  • False trade descriptions relating to services.

  • Misleading omissions.

  • Certain aggressive or unfair commercial practices.

The Unconscionable Contracts Ordinance (Chapter 458 of the Laws of Hong Kong) protects consumers by allowing a court to refuse to enforce, revise, or limit the application of a contract found to be unconscionable, provided at least one of the contracting parties is dealing as a consumer. In determining whether a contract is unconscionable, the court can consider certain matters including whether unfair tactics have been used (which may cover misleading advertising).

Industry regulation

Certain industries or products may be subject to specific ordinances or regulations, such as the:

  • Undesirable Medical Advertisements Ordinance.

  • Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation.

  • Banking Ordinance.

Certain business sectors have formulated their own codes of practice, such as the beauty and pharmaceutical industries in Hong Kong.

Advertising codes of practice

There are also numerous codes of practices which specifically regulate or recommend best practice regarding the contents of advertisements in Hong Kong. These include the:

  • Generic Code of Practice on Television Advertising Standards.

  • Radio Code of Practice on Advertising Standards.

  • Radio Code of Practice on Advertising Standards of Ancillary Visual Service.

The Association of Accredited Advertising Agents of Hong Kong has its own code of practice to regulate the conduct of its members in advertising. Any member found in contravention or non-compliance with the standards will be penalised in accordance with the relevant rules of the association.

 

Data protection

32. Are there specific statutory data protection laws? If not, are there laws providing equivalent protection?

The Personal Data (Privacy) Ordinance (PDPO) sets out the legal principles applicable to the collection of personal data and the processing and retention of such data. There are six main legal principles that a data user must comply with:

  • Personal data must be collected by lawful and fair means for a lawful purpose directly related to a function or activity of the data user who is to use the data, and be necessary and not excessive for that purpose. The data subject must be informed of the purpose of the collection of the data and of his rights to request access to and the correction of the data (see below).

  • Personal data must be accurate and cannot be kept longer than is necessary for the purpose for which it is used.

  • Personal data can only be used for the purposes for which it was collected or for directly related purposes.

  • All practical steps must be taken to ensure that personal data held by a data user is protected against unauthorised or accidental access, processing, erasure, loss or use.

  • All practical steps must be taken to ensure that a person can:

    • ascertain a data user's policies and practices in relation to personal data;

    • be informed of the kind of personal data held by a data user;

    • be informed of the main purposes for which personal data held by a data user is used.

  • A data subject is entitled to:

    • ascertain whether a data user holds personal data of which he is the data subject;

    • request access to personal data, to be given reasons if his request is refused and to object to this refusal;

    • request the correction of personal data, to be given reasons if his request is refused and to object to this refusal.

As a result of the amendments to the PDPO, there is now also a much tighter regime imposed in respect of use of personal data for direct marketing and transfer of data (see Question 1).

 

Product liability

33. How is product liability and product safety regulated?

The Consumer Goods Safety Ordinance (CGSO) imposes a duty on manufacturers, importers and suppliers of certain consumer goods to ensure that the goods they supply, and the packaging in which the goods are supplied, are reasonably safe, and that safety warnings are attached to certain goods. Those contravening the CGSO face criminal penalties.

Under the Sale of Goods Ordinance, there is an implied condition that goods are of merchantable quality, which includes the requirement that the goods are as free from defects and as safe as it is reasonable to expect. There is also an implied condition that goods will be reasonably fit for a certain purpose, so long as this is made known to the seller at the time the contract is made.

There are also ordinances dealing, among others, with liability relating to specific products, for example the:

  • Toys and Children’s Products Safety Ordinance dealing with toys and children’s products.

  • Public Health and Municipal Services Ordinance dealing with food and drugs sold for human consumption.

  • Dangerous Goods Ordinance dealing with dangerous goods such as compressed gases and corrosive substances.

Hong Kong does not have a separate cause of action for product liability. A person suffering injury from an unsafe or defective product can claim against the retailer under contract law, or sue the manufacturer or seller for negligence.

 

Main business organisations

Companies Registry

W www.cr.gov.hk/en/home/index.htm

Main activities.

  • Providing facilities to allow the promoters of companies, limited partnerships, trust companies and registered trustees to set up their enterprises and register required documentation.
  • Providing the public with facilities to search for information it holds.
  • Ensuring compliance by enterprises, and their officers, with their obligations.
  • Advising the Hong Kong Special Administrative Region Government on policy and legislative issues regarding company law and related legislation.

Inland Revenue Department

W www.ird.gov.hk/eng/tax/bre.htm

Main activities.

  • Responsible for the administration of various Hong Kong ordinances on taxes and duties and the related rules and regulations, for example the Inland Revenue Ordinance, Stamp Duty Ordinance and Business Registration Ordinance.
  • Collecting revenue.
  • Providing a business registration service to enable business operators to comply with their legal obligations, and to allow the public to obtain business information.

Hong Kong Customs and Excise Department

W www.customs.gov.hk/en/home/index.html

Main activities.

  • Protecting Hong Kong against smuggling.
  • Protecting and collecting revenue on dutiable goods.
  • Detecting and deterring narcotics trafficking and abuse of narcotic drugs.
  • Protecting intellectual property rights and consumer interests.
  • Protecting and facilitating legitimate trade and industry and upholding Hong Kong's trading integrity.
  • Protecting consumers against certain unfair trade practices including aggressive commercial practices and bait advertising.
  • Fulfilling international obligations.

Hong Kong Labour Department

W www.labour.gov.hk/eng/news/content.htm

Main activities.

  • Improving the use of human resources by providing a range of employment services to meet changes and needs in the labour market.
  • Ensuring that risks to people's safety and health at work are properly managed by legislation, education and promotion.
  • Fostering harmonious labour relations through promotion of good employment practices and resolving labour disputes.
  • Improving and safeguarding employees' rights and benefits in an equitable manner.

Securities and Futures Commission (SFC)

W www.sfc.hk/web/EN

Main activities.

  • Working to ensure orderly securities and futures market operations, protecting investors and helping to promote Hong Kong as an international financial centre and a key financial market in China.
  • Setting and enforcing market regulations, including investigating breaches of rules and market misconduct and taking appropriate enforcement action.
  • Licensing and supervising intermediaries seeking to conduct regulated activities for which the SFC has regulatory responsibility, such as brokers, investment advisers and fund managers.
  • Supervising market operators including exchanges, clearing houses and alternative trading platforms, and helping to enhance market infrastructure.
  • Authorising investment products and/or offering documents before their distribution to retail investors.
  • Overseeing regulations governing takeovers and mergers of public companies and The Stock Exchange of Hong Kong's regulation of listing matters.
  • Co-operating with and providing assistance to local and overseas regulatory authorities.
  • Helping investors understand market operations, the risks of investing and their rights and responsibilities.


Online resources

Department of Justice Bilingual Laws Information System (BLIS)

W www.legislation.gov.hk/eng/index.htm

Description. This is the Hong Kong Special Administrative Region Government Department of Justice Bilingual Laws Information System (BLIS). It is the official website for obtaining Hong Kong legislation in both English and Chinese, that is, all ordinances and subsidiary legislation currently in operation, and past versions of ordinances and subsidiary legislation (including repealed ordinances and subsidiary legislation) dating back to 30 June 1997.

BLIS also contains constitutional and other relevant instruments, for example the constitution of the People's Republic of China and the Basic Law of the Hong Kong Special Administrative Region.



Contributor profiles

Cynthia Chung, Partner, Corporate Commercial

Deacons

T +852 2825 9297
F +852 2810 0431
E cynthia.chung@deacons.com.hk
W www.deacons.com.hk

Professional qualifications. Solicitor, Victoria, Australia, 1994; Barrister, Victoria, Australia, 1994; Solicitor, England and Wales (non-practising), 1995; Solicitor, Hong Kong, 1996 

Areas of practice. Employment law; retirement schemes; immigration law; commercial law; financial services.

Charmaine Koo, Partner, Intellectual Property

Deacons

T +852 2825 9330
F +852 2810 0431
E charmaine.koo@deacons.com.hk
W www.deacons.com.hk

Professional qualifications. Solicitor, Ontario, Canada, 1996; Barrister, Ontario, Canada, 1996; Solicitor, Hong Kong, 1997; Solicitor, England and Wales, 1998

Areas of practice. IP enforcement and litigation; commercial IP; entertainment and media.

Stefano Mariani, Registered Foreign Lawyer, Corporate Commercial

Deacons

T +852 2825 9314
F +852 2810 0431
E stefano.mariani@deacons.com.hk
W www.deacons.com.hk

Professional qualifications. Solicitor, England and Wales, 2012

Areas of practice. Tax.

Machiuanna Chu, Partner, Corporate Commercial

Deacons

T +852 2825 9630
F +852 2810 0431
E machiuanna.chu@deacons.com.hk
W www.deacons.com.hk

Professional qualifications. Solicitor, Hong Kong, 2001; Solicitor, England and Wales, 2002

Areas of practice. Corporate commercial; China trade and investment; mergers and acquisitions and joint ventures.


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