Practical Business Solutions for Your Global Expansion: Risk Management - Hong Kong Advantages Stephen Hung Council Member Law Society of Hong Kong

Facts about Hong Kong World Recognition Freest and Most Competitive Economy, Top Financial Hub, Worlds Largest IPO Market… GDP per capita US$34,300 (HK 2011), US$5,555 (China 2011) US$42,863 (Japan 2010) US$34,300 (HK 2011), US$5,555 (China 2011) US$42,863 (Japan 2010) Legal ~8,000 lawyers in HK, 72 foreign law firms & ~1,500 foreign lawyers in HK from 28 jurisdictions. More than 200,000 lawyers in the PRC. HK: ~1 lawyer per 1,000p; PRC: ~1 lawyer per 5,000p Japan: ~1 lawyer per 4,119p ~8,000 lawyers in HK, 72 foreign law firms & ~1,500 foreign lawyers in HK from 28 jurisdictions. More than 200,000 lawyers in the PRC. HK: ~1 lawyer per 1,000p; PRC: ~1 lawyer per 5,000p Japan: ~1 lawyer per 4,119p Taxation Corporate: 16.5% (max), Salaries: 15% (max), nil VAT/GST, no tax on offshore income, no estate duty Corporate: 16.5% (max), Salaries: 15% (max), nil VAT/GST, no tax on offshore income, no estate duty Japanese connection 1,085 Japanese branch offices/subsidiaries, over 21,000 Japanese residing in HK as at 2011 out of approx. 7 million population, largest Japanese food export to Hong Kong A Livable City A truly cosmopolitan city, expatriates from all over the world

Expanding your business globally: what are the risks? SME 8. FINANCIAL 7. FOREIGN EXCHANGE 6. OPPORTUNITY 5. POLITICAL 4. LEGAL 3. LABOUR & EMPLOYMENT 2. IMMIGRATION / VISA 1. ADJUSTMENT

Expanding your business globally: what are the Hong Kong advantages? 1. Adjustment Multi-lingual; cultural difference Familiar with PRC environment Close connection with PRC Largest foreign investment to PRC 4 hours from all of Asias key markets 2. Immigration / visa Visa-free visits for 170 countries/territories Easy to get working visa 3. Labour & employment International business hub Multi-lingual professionals with wide international connections Skilled work force 4. Legal HK lawyers familiar with PRC laws HK Law Society – close connection with law associations in PRC; many MoUs signed Employment law is not complicated Fast and efficient to set up company Good at commercial contracts, direct foreign investments etc.

Expanding your business globally: what are the Hong Kong advantages? 5. Political Open, transparent and anti-corrupted government High level of disclosure, good corporate governance 6. Opportunity Little restrictions on business fields Easy access and close connections with PRC and other parts of Asia e.g. Myanmar, Vietnam etc. Easy to meet business people, via HKTDC 7. Foreign exchange HK$ is stable and freely convertible Separate from RMB; linked to US$ HK serves as PRCs biggest offshore RMB market 8. Financial Low risk and cost of doing business Free flow of capital Simple tax system Offshore company can be tax exempt Good financial market Loans, listing, debt restructuring

Case Study 1 Ms Toshi runs a business selling chocolates in Tokyo for many years. She plans to expand her business to Zhuhai, Hong Kong, Macao, Guangzhou and Shenzhen. Initially, she intends to stay in Zhuhai with her 10 year-old daughter to explore her options, but… Risks: Hong Kong Advantages: Adjustment Multi-lingual city with a sizable Japanese community Japanese International Schools in HK Got her work permit easily Easy to find skilled work force to help out her business Transportation / infrastructure & opportunity Guangzhou-Shenzhen-HK Express Rail (by 2015) HK-Zhuhai-Macao Bridge (by 2016) 1 or 2 hours away; close proximity

Case Study 1 Setting up business complicated? HK Law Society (~ 8,000 lawyers) and HKTDC are more than happy to provide services CEPA – import products of HK origin free of tariff to Mainland Profits could be brought back to HK – offshore RMB centre Governing law Sale and Purchase Agreements made in HK HK law as governing law and use HK as jurisdiction Strong legal protection for contracts In person or as a company? Fast, efficient, simple, low-cost formation of HK company Limited liability companies have separate legal entity, will not be held personally liable Easy to trade and invest in PRC Risks: Hong Kong Advantages:

Case Study 2 Mr Suzuki (Japan) and Mr Chan (HK) are each 50% of a HK company. HK company invests in an equity joint venture (EJV) with a PRC company to set up a factory in Dongguan. HK company has 60%. PRC company suggests: 1) Appoint their staff to be legal representative for EJV; and 2) They will deal with all licensing but demand a fee. Risks: Hong Kong Advantages: Deadlock? 50 – 50 shareholdings in HK company Prepare Shareholders agreement Legal representative? Under PRC Company law, legal representative has wide power Presumption that they can represent the company using the Seal Legal representative out of control?! Must choose a trustworthy legal representative Oral promise? Cultural difference between Japan and PRC Due diligence - must incorporate everything in legal documents; do not rely on oral representations