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6. What is the meaning of substantive business operations?
To meet ‘substantive business operations’, a company has to fulfill requirements:
§ Its business in the Mainland China that the company intends to engage in must be of the same nature as that the company engages in HK.
§ It must be liable to pay HK profits tax.
§ It must own or rent business premises in Hong Kong to operation the substantive business.
§ It must employ 50% or more in HK of its total staff.
7. How about foreign companies in Hong Kong?
The branches of foreign companies registered in Hong Kong under Companies Ordinance Part XI are generally excluded from the CEPA definition. Registered foreign law firms are excluded, because, inter alia, the main business scope of a CEPA Hong Kong law firm must be the provision of domestic legal services. Yet a registered foreign law firm provides legal services based on the law of its home jurisdiction. The CEPA definitions concerning insurance companies and the mixed miscellaneous category expressly state that ‘registered overseas companies and their offices in Hong Kong are not included’. The definition concerning a bank contains no such express statement. After reading both Chinese and English version of the Arrangement, the conclusion appears that even banks incorporated overseas with a long history of operating in Hong Kong and contributed to HK economy for a substantial period of time would be excluded from the definition.
8. Will CEPA impact the foreign business in Hong Kong?
Both positive and negative impacts on foreign business will arise from the CEPA definitions. The CEPA definition does not discriminate the basis of the nationality of a company’s investor or directors; therefore, it allows foreigners or foreign companies to be shareholders and directors of CEPA definition companies. Hence, purchase of small CEPA Definition Company in HK would be a proper option.
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