ABOUT HONG KONG

Occupied by the UK in 1841, Hong Kong was formally ceded by China the following year; various adjacent lands were added later in the 19th century. Pursuant to an agreement signed by China and the UK on 19 December 1984, Hong Kong became the Hong Kong Special Administrative Region (SAR) of the People's Republic of China on 1 July 1997. In this agreement, China promised that, under its "one country, two systems" formula, China's socialist economic system would not be imposed on Hong Kong and that Hong Kong would enjoy a high degree of autonomy in all matters except foreign and defense affairs for the next 50 years.

GEOGRAPHY:

Hong Kong is located at the mouth of the Pearl River in southeastern China, near Guangzhou and Macau. Victoria Harbour, on Hong Kong Island, is one of the finest natural harbors in the world. Hong Kong has a landmass of over 1,108 square kilometers, and supports an estimated population of 7,055,071 (July 2009 est.)

GOVERNMENT AND LEGISLATIVE SYSTEM:

Executive branch: Chief of State: President of China HU Jintao (since 15 March 2003); Head of Government: Chief Executive Donald TSANG Yam-kuen (since 24 June 2005); Head of Cabinet: Executive Council or ExCo consists of 15 official members and 14 non-official members. Elections: chief executive elected for five-year term by 800-member electoral committee; last held on 25 March 2007 (next to be held in 2012). Election results: Donald TSANG elected chief executive receiving 84.1% of the vote of the election committee; Alan LEONG Kah-kit received 15.9%

Legislative branch: unicameral Legislative Council or LegCo (60 seats; 30 seats indirectly elected by functional constituencies, 30 elected by popular vote; members serve four-year terms) elections: last held 7 September 2008 (next to be held in September 2012) lection results: percent of vote by party - pro-democracy 57%; pro-Beijing 40%, independent 3%; seats by parties - (pro-Beijing 35) DAB 13, Liberal Party 7, FTU 1, others 14; (pro-democracy 23) Democratic Party 8, Civic Party 5, CTU 3, League of Social Democrats 3, ADPL 2, The Frontier 1, NWSC 1; others 11; independents and non-voting LegCo president 2

LAW SYSTEM

As an ex- British colony, Hong Kong boasts English as one of its official languages, along with Chinese (Cantonese). Its legal system is based on British common law, supplemented by local statutes enacted by the Legislative Council, and this system is guaranteed under the Basic Law to remain distinct from the Chinese legal system until the year 2047.

ECONOMY

Hong Kong has a free market economy highly dependent on international trade and finance, which has left it heavily exposed to the global economic slowdown that began in 2008. The total value of goods and services trade, including the sizable share of reexports, was equivalent to 404% of GDP in 2007. The territory has become increasingly integrated with mainland China over the past few years through trade, tourism, and financial links. The mainland has long been Hong Kong's largest trading partner, accounting for nearly 49% of Hong Kong's exports trade by value in 2008. As a result of China's easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 16.9 million in 2008, when they outnumbered visitors from all other countries combined. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. More than one-third of the firms listed on the Hong Kong Stock Exchange are now mainland Chinese companies. They account for 60% of the Exchange's market capitalization. During the past decade, as Hong Kong's manufacturing industry moved to the mainland, its service industry has grown rapidly and now accounts for more than 90% of the territory's GDP. Hong Kong's natural resources are limited, and food and raw materials must be imported. GDP growth averaged a strong 5% from 1989 to 2007, but the global financial crisis caused a sharp slowdown in the second half of 2008, pushing the territory into recession. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.

FINANCE, BANKING AND MONETARY SYSTEM

Hong Kong is the world's third most important financial center, after New York, London and Singapore. It is also the 15th largest banking center in terms of the volume of external transactions, and the second largest in Asia after Japan. More than 65 of the world's 100 largest banks have a presence in Hong Kong - one of the largest contingents of international banks in the world. The banking sector has played a vital role in establishing Hong Kong as a major loan syndication center in the region.
Hong Kong's banking system is characterized by a tiered system made up of three types of banking institutions - licensed banks, restricted license banks and deposit-taking companies - which operate under different restrictions. Only licensed banks and restricted license banks can actually be called banks. The banking sector, being the major participant in Hong Kong's foreign exchange market, contributes to its status as the world's 6th largest foreign exchange center.
The currency in circulation in Hong Kong is the Hong Kong Dollar (HK$), which is pegged to the US Dollar by a currency board at the rate of HK$7.75 to US$1 (est. end of 2009). Hong Kong has no foreign exchange controls.

TAX SYSTEM

Hong Kong is a permanently low-tax jurisdiction. At the end of 2005, it had a comprehensive double taxation treaty with China, Belgium, Luxembourg and Thailand, and limited treaties with Canada, Germany, Israel, Mauritius, Netherlands, New Zealand, the Russian Federation, South Korea, the UK, the US and others. Details are as follows:

A. Personal Tax

Hong Kong imposes a Salaries Tax, which is the lower of either 15% of assessable income after deductions, or a progressive rate levied on assessable income after deductions. Only income earned in Hong Kong is taxed in Hong Kong.

B. Corporate Tax

Hong Kong imposes a tax of 16.5% on corporate profits. Only those profits originating in Hong Kong are taxable. Interest income earned in Hong Kong by corporations and financial institutions is not subject to Corporate Tax.

C. Withholding Tax

Hong Kong does not impose withholding tax on interest or dividends. If a non-resident company receives income from Hong Kong in respect to the use of trademarks, patents or royalties, the company is taxed at 30% of the corporate tax rate of 16.5%.

D. Capital Gains Tax

Hong Kong does not impose capital gains tax.

E. Estate Tax

Hong Kong does not impose estate tax. Estate duty has been abolished in Hong Kong since 2006.

F. Transfer Tax at Death and on Gifts

Hong Kong imposes a progressive stamp duty on inter-vivos gifts, ranging from no tax on gifts of less than US$256,000 to a maximum of 3.75% on gifts of more than US$862,000. Gifts to charitable organizations are not subject to this stamp duty.