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A Cut Above The Rest ( Professional, Training & Others )(HKTDC Hong Kong Trade Services, Vol 01,2001)

Vol 1, 2001



A Cut Above The Rest

Defensive Diligence Deemed Best

Tips On Mainland Taxation Success

Expert Advice Tailor-Made

Potential Deals Raise Points To Ponder

Olympian Product Opportunities


A Cut Above The Rest

The independence and professionalism of Hong Kong's legal system is a source of strength for most SMEs.

PROFESSIONAL services play a critical role in helping small and medium-sized enterprises maintain Hong Kong's reputation as a major business, finance and services centre.

Hong Kong accountants, bankers and financiers, lawyers, information technology experts and others are highly flexible and responsive to clients while rigorously following international standards.

One advantage for SMEs is that Hong Kong services providers are among the most advanced and competitive in Asia. Using accepted standard accounting practices and speaking multiple languages, Hong Kong accounting and auditing firms provide a conduit for SMEs entering the Chinese mainland.

Chartered accountants or certified public accounting firms offer assistance with statutory and in-house audits, tax advice, company formation, listings/IPOs, corporate finance, company secretarial services, liquidation and due diligence.

"SMEs can reduce labour costs by using updated and reliable accounting systems. Better efficiency brings greater profits," says Berfield (Executive) Consultants Ltd director Bernard Chan.

"Furthermore, as Internet-based transactions continue to grow, anti-computer-virus protection is a must for all SMEs. Otherwise, computer systems could collapse at any time, causing unthinkable damage."

Another source of strength for SMEs is the independence and professionalism of Hong Kong's legal system. It maintains a separation between solicitors and barristers.

Barristers have an exclusive right to appear in higher courts. Their work involves intellectual property, shipping, criminal cases, corporate and commercial, construction, landlord/tenant disputes and personal injury cases.

Time and again, conveyors of professional services based in Hong Kong prove flexible and responsive while rigorously following international standards.

Solicitors' services include company or commercial law covering joint-venture agreements, incorporation of companies, formation of partnerships, mergers and acquisitions, drafting of contracts, general advisory services, company secretarial and administration services.

SMEs benefit because Hong Kong's financial system is one of Asia's most efficient and transparent. There are no withholding taxes, the Hong Kong dollar is freely convertible and the supervisory Hong Kong Monetary Authority follows international standards.

Hong Kong was an innovator in government-business Electronic Data Interchange. Most of its software developers are small firms with fewer than 20 employees, making them highly flexible and responsive to customers. Much of their strength is in producing competitive customized software.

Another key sector is industrial testing and inspection. Hong Kong has 155 accredited testing laboratories. These offer quality assurance testing of samples for compliance with destination-country regulations, product inspection to facilitate quality planning and control, and consultancy and equipment calibration services to help clients achieve quality accreditation.

"With the Chinese mainland set to join the World Trade Organization, huge demand for product quality assurance services, such as product testing, inspection and certification, is expected for imported and exported goods not only on the mainland, but in Hong Kong too," says The Hong Kong Standards and Testing Centre Ltd director of testing and development Robert Cheung.

"These services are important to SMEs because they can give third-party endorsement of product quality and performance."

The massive demand for most Hong Kong-based professional services is likely to continue expanding as the Chinese mainland enters the WTO.

Useful Contact(s)

Hong Kong Society of Accountants
Tel: 2287-7228
Fax: 2865-6603, 2865-6776
E-mail: hksa@hksa.org.hk
Website: www.hksa.org.hk

The Law Society of Hong Kong
Tel: 2846-0500
Fax: 2845-0387
E-mail: sg@hklawsoc.org.hk
Website: www.hklawsoc.org.hk

The Hong Kong Assn of Certification Laboratories Ltd
Tel: 2542-8620
Fax: 2541-8154
E-mail: ats@cma.org.hk

Intellectual Property Department
The Government of the Hong Kong Special Administrative Region
Tel: 2961-6901, 2803-5860 (hotline)
Fax: 2838-6276
E-mail: enquiry@ipd.gov.hk
Website: www.info.gov.hk/ipd/

Hong Kong Quality Assurance Agency
Tel: 2202-9111
Fax: 2202-9222
E-mail: hkqaa@hkqaa.org
Website: www.hkqaa.org

Hong Kong Quality Management Assn
Tel: 2581-2210
Fax: 2581-2212
E-mail: info@hkqma.org.hk
Website: www.hkqma.org.hk

Defensive Diligence Deemed Best

MEASURES to prevent competitors from infringing on intellectual property rights are a vital part of doing business. Adelaide Yu, an associate at the Deacons law firm specializing in IPR issues, offers this advice:

  • Acquisition of Intellectual Property Rights: Individuals should register patents, design rights and trade marks with Hong Kong's Intellectual Property Department and in any markets where they do business.

  • Licensing and Transfer of Technology: Owners or authorized licensees must use intellectual property rights to keep them valid. Licensing and transfer of IPR can be valuable commercial tools.

  • Challenging Competitors' IPR: Rights holders should monitor IPR granted to competitors and others that may infringe on their own registered rights. Criteria in Hong Kong's legislation allow rights owners to oppose any rights that infringe on their own. In certain circumstances, procedures allow for the cancellation of registered rights.

  • Infringements: Rights owners must monitor markets to identify infringements at an early stage. Prompt action can prevent infringements from gaining a foothold and offset any arguments of acquiescence put forward by the violator.


Tips On Mainland Taxation

THE Chinese mainland's accession to the World Trade Organization means change, according to Deloitte Touche Tohmatsu tax specialist Calvin Lam.

"Tax laws will be consolidated to effect consistent treatment of foreign and domestic investment enterprises. Custom laws will be amended to be consistent with the global environment and legal restrictions will be eased in some currently restricted industries," he predicts.

Lam cites the following considerations:

  • Business form: Possibilities include equity joint venture, cooperative joint venture, wholly owned subsidiary or factory ownership. In any joint venture, selection of the mainland partner is critical to avoid potential disputes.

  • Investment: This may comprise equity and loan capital. An investor should advise authorities about the total investment carried by the mainland firm. Capital injections may include cash, fixed or intangible assets.

  • Injection of any shareholder loan: Legally, foreign currency nominated loans must be registered with a local bureau of the State Administration of Foreign Exchange.

  • Record keeping: When an expense is incurred, do obtain officially recognized invoices. Claims unsupported by invoices will be penalized.

  • Withholding: When paying individuals, local or overseas, there is a legal obligation to withhold personal tax and report it to the local tax bureau. This applies even when payment is made to a non-resident company.

Expert Advice Tailor-Made

CONSULTANCY firms based in Hong Kong provide a wide range of services to Hong Kong small and medium-sized enterprises and overseas companies either active on the Chinese mainland or considering it.

"When Hong Kong SMEs think of establishing entities on the mainland, we can advise what set-up is most convenient - whether it should be a wholly foreign-owned enterprise, joint venture, representative office or perhaps just registration with the tax authority without setting up a permanent establishment," says K.C. Law, a partner specializing in tax services at international accounting firm Arthur Andersen & Co.

Consultants can recommend how to structure transactions. They tell manufacturers about sourcing raw materials, subcontracting production or opting for contract processing and distributing finished products.

"We can review any legal documents an SME enters into and comment on implications or legal responsibilities," Law says.

Hong Kong consultants advise on creating new computer or other systems for mainland operations.

"We help with tax filing and audit. We advise on how to minimize tax," Law says. First and foremost, all records, such as internal records, transaction, compliance or remittance documents, should be clear.

Law says manufacturers interested in the mainland market, when registering as non-mainland companies, should strive to negotiate the highest possible ratio of permitted domestic sales. The ratio of products allowed for domestic sales rather than export can vary, often depending on location and the products involved.

Bonded warehousing is available. Mainland-made finished goods delivered to a bonded warehouse can be regarded as exported to a Hong Kong company and then re-imported, although never actually leaving.

This enables mainland-based Hong Kong producers to effectively sell and manage inventory. "It is much more convenient to send goods to bonded warehouses and back than to ship them overseas before re-importing them," Law says.

Potential Deals Raise Points To Ponder

THE process of leasing a legally protected (trademarked or copyrighted) name, likeness, logo, graphic, saying, signature or character in conjunction with products is known as licensing.

This is usually based on a contractual agreement between two business entities: the owner or agent of the property (the licensor) and the prospective licensee (usually a manufacturer).

In pursuing licencing deals, SME representatives should remain wary of potential pitfalls.

Peter Bullock, a partner specializing in information and technology law at Masons Solicitors, suggests devoting special consideration to the following:

  • Is the licence exclusive?
  • Does the principal reserve the right to sell in your territory?
  • How easily can each side terminate the licence?
  • Is there an intellectual property rights indemnity clause?
  • Do any clauses require expensive training or marketing exercises?

"If you wish to license your products to others, then register your copyright and any trade marks in Hong Kong and on the Chinese mainland. If you are licensing software, avoid releasing any source code. Finally, make sure you can easily terminate the licence," Bullock says.

Go Licensing (Int'l) Co consultant Winnie Sze Yuk-ling adds these tips:

  • Try conducting a mini-survey to estimate business potential and see if buying a licence is justifiable.
  • Be ready to spend time providing the licensor with documents like your financial background and a comprehensive marketing plan.
  • Remember it takes up to four weeks for deal approval and two months for product design approval (from drawings to samples) before mass-production begins.

Useful Contact(s)

Intellectual Property Department
The Government of the Hong Kong Special Administrative Region

Tel: 2961-6901, 2803-5860 (hotline)
Fax: 2838-6276
E-mail: enquiry@ipd.gov.hk
Website: www.info.gov.hk/ipd/

Olympian Product Opportunities

THE 2008 Olympic Games in Beijing create unique business opportunities for small and medium-sized enterprises to approach Walt Disney, Warner Bros and others for licences to manufacture and sell products combining licensed characters with the Olympics logo.

SMEs need permission and licences from the Games organizers before seeking a "cross-license" from each character owner, says Deacons associate solicitor Charmaine Koo.

"Companies like Disney and Warner Bros have consumer-product licensing divisions to handle licenses for third parties to make, distribute and sell products bearing their licensed characters. SMEs wanting a license to manufacture and sell on the Chinese mainland or in other countries should contact the companies' Asian sales representatives, usually in Hong Kong," she adds.

Licences granted to SMEs may be limited to specific characters, territories, goods and terms. "Any license will be for a limited time, such as two years, and for specific countries and goods. The goods category can be very narrow, such as sleepwear for children 3-12 years old."

Licensing companies usually charge royalties on product sales, but require non-refundable "guaranteed amounts" paid upfront and/or during the license term.

"Most grant exclusive licences only to large, well connected international manufacturers. However, there is generally unstated policy not to grant the same licence to different parties."

All companies grant licences on strict quality conditions. They may demand to approve designs and samples or inspect factories.

Licensing companies usually have character names and likenesses registered as trademarks or have copyrights. They may use security measures like holograms, special identification tags and codes to obstruct product copying by counterfeiters.

Most big companies retain rights and will pay costs to pursue counterfeiters, rather than impose such responsibility on SMEs or licensees.

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