Blessed with a deep natural harbor, Hong Kong has long been a hub for international trade. First within the Asia Pacific region, and now the whole world. In such a vibrant marketplace, it is vital to understand the legal requirements for doing business. Hong Kong is a free port with no limits on the right to import merchandise. However, traders must still adhere to specific regulations. This article addresses how IOR works in Hong Kong.
Importing goods into Hong Kong
If you’re planning to import merchandise into Hong Kong, you’ll need approval from the Hong Kong Companies Registry and a valid business registration number.
Any company with a valid Business registration number can operate as an Importer of record. Hong Kong also allows non-residents to engage in import and export duties. However, to do so, you may need an agent to help you complete the customs clearance process. i.e., trade declarations, bonded warehouse arrangements, and license applications.
Paperwork
Any individual who wishes to import non-exempted goods must complete an import declaration less than 14 days after importing the merchandise. You may forward your trade declarations electronically through any one of the following service providers;
- Brio Electronic Commerce Limited
- Global e-Trading Services Limited
- Tradelink Electronic Commerce Limited.
You may also use the same providers to pay duties and declaration charges involved in the import process. Merchandise may be subject to the following taxes at the time of import. Although imports are generally duty-free, there are excise duties on the following items.
- Tobacco
- liquor (with an alcoholic content greater than 30% by volume, measured at a temperature of 20C)
- hydro carbons oil
- methyl alcohol.
Tax refunds
Customs authorities may grant duty refunds subject to specific situations such as when merchandise does not satisfy the sales contracts, when it’s damaged in transit and subsequently demolished in Hong Kong, or remitted to the supplier (with authorization) outside Hong Kong.
Import and Export Controls
Although Hong Kong is a founding member of the World Trade Organization, it has no legal framework to implement the WTO valuation agreement (that is, the WTO Agreement on Implementation of Article VII of the GATT 1994).
The region currently relies on the Brussels Definition of Value (BDV). In reality, the customs authorities allow importers to make declarations based on invoice value (that is, using the purchase agreement between the seller and buyer), as it reflects the WTO agreement.
There is no law governing valuation methods for non-dutiable goods entering Hong Kong. In practice, the import declaration’s declared value for non-dutiable commodities will be considered final as long as it is a rational transaction value.
Related party transactions
Customs may dispute declared values in related party transactions. When this happens, the importer may be requested for proof that the transaction is impartial and that it constitutes “normal value,” i.e., the goods were acquired at the same purchase price given to any independent buyer on the open market.
Other payments
According to the Hong Kong Dutiable Commodities Ordinance (HKDCO), the dutiable value should generally include the value of the rights to use a design, trademark, or patent regarding the merchandise (including the value of any license or royalty fees).
Hong Kong customs will consider all license fees and royalties tied to the imported merchandise as liable to customs duties unless the importer can prove otherwise.
Managing customs audits
Hong Kong Customs does not provide a standardized audit program or time frame. However, customs authorities closely follow import transactions, and they will execute investigations based on document retention periods, duty payment, and declaration charges.
The HKTID (Hong Kong Trade and Industry Department) closely evaluates trader licensing obligations, including applications for vital commodities. Once HKTID discovers non-compliance, it will defer the case to customs for further investigation.
The most common import offenses and corresponding penalties are summarized below.
Incorrect or incomplete lodging of declaration: If you give customs a wrong or incomplete lodging of declaration, you’ll receive a fine of HK$10,000 (for each irregular declaration).
Poor record-keeping: A fine of HK$5,000 for each declaration.
Insufficient licensing for strategic commodities: Summary convictions draw a fine of HK$500,000 and a prison sentence of up to 2 years. If the conviction comes after an indictment, there’ll be an unlimited fine and a prison sentence of up to 7 years.
Voluntary disclosure
Hong Kong does not have a formalized voluntary disclosure process. However, customs and the concerned authorities, such as the HKTID, will generally receive voluntary disclosures (either in-person meetings or paper submissions). There is no guarantee that penalties will be removed.
Appeals and disputes
Traders may seek legal redress by lodging complaints with the Compliant Appeals Committee if they disagree with the results from any investigations.
In the event of an offense (provided it is not indictable), the aggrieved party should make a complaint not more than 2 years from when the issue arose. Although the import and export ordinance in Hong Kong does not specify record keeping requirements, customs require import/export documents to be kept for a minimum of two years. For tax and finance-related issues, importers must adhere to the companies Ordinance and Inland Revenue Ordinance.
Do you need an IOR service?
You should consider partnering with a third party IOR service if:
- This is your first attempt at importing to Hong Kong, and you are trying to establish a presence in the region.
- You have some level of experience (perhaps you have an enterprise there), but you don’t clearly understand the import requirements from a compliance-and-licensing point of view.
- You have considerable business experience, but you realize that it is expensive to purchase materials from within Hong Kong.
- You are looking for innovative ways to deploy infrastructure from outside Hong Kong and capitalize on price differences between the two markets.
We have a profound understanding of the compliance landscape from both the importer of record and exporter of record point of view. If you need our IOR service, schedule a meeting. We’ll be glad to help you meet all the compliance requirements for shipping your merchandise into Hong Kong.
