The Hong Kong Market Entry Playbook

Hong Kong has a long history as a business-friendly location and regional hub to access markets in China and the Asia Pacific region. In this article, we explain key points about Hong Kong as a regional and international business centre, and how to establish your business in Hong Kong. This article is divided into nine parts:

Part 1: The Legal Foundations, in which we explain the special characteristics of the Hong Kong legal system

Part 2: Business Establishment, in which explain how to set up a business in Hong Kong

Part 3: Foreign Investment and Immigration, in which we summarise the open policies in respect of foreign investment and immigration in Hong Kong

Part 4: Intellectual Property, in which we explain the system of intellectual property protection in Hong Kong

Part 5: Data Protection and Privacy, in which we set out the main features of personal data privacy and protection framework in Hong Kong

Part 6: Employment, in which we outline the key features of employment law in Hong Kong

Part 7: Consumer Protection, in which we summarise the key points of consumer protection laws in Hong Kong

Part 8: Terms of Service, in which we set out the principles applying to online terms of service in contracts under Hong Kong laws

Part 9: Premises and Bank Accounts, in which we make practical points about funding premises and opening bank accounts in Hong Kong

This playbook should provide you the foundation for your entry to and set up in Hong Kong. We are her to help you on your journey.

Part 1: The Legal Foundations

Government

Hong Kong is an autonomous Special Administrative Region (SAR) of the People’s Republic of China. The Basic Law is the mini constitution of Hong Kong that sets outs the political status of Hong Kong, and individual rights of persons in Hong Kong. The Basic Law guarantees Hong Kong a high degree of autonomy until 2047.

Hong Kong is led by the Chief Executive. The Chief Executive is advised on major policy decisions by the Executive Council.

Hong Kong has a two-tier system of representative government. At the central level is the Legislative Council which legislates, approves public expenditure and monitors the performance of the administration. At the district level, 18 district councils advise on the implementation of policies in their respective areas.

The administration, being the executive arm of the government, is organised into the government secretariat and departments. The government secretariat bureaux formulate policies and initiate legislative proposals. Departments implement laws and policies and provide direct services to the community.

Legal system

The legal system of Hong Kong is based on the rule of law and the independence of the judiciary. Under the principle of ‘one country, two systems’, the Hong Kong legal system is different from that of Mainland China, and is based on the common law supplemented by statutes.

All legislation in force in Hong Kong is accessible on the internet. The laws in force in Hong Kong include:

(a) the Basic Law;

(b) national laws listed in Annex III to the Basic Law as applied to Hong Kong (relating to defence, foreign affairs and similar matters);

(c) the laws (including common law and rules of equity) in force before 1 July 1997, as developed by the Courts of Hong Kong since then; and

(d) laws enacted by the Legislative Council.

Judiciary

Under the Basic Law, Hong Kong has been authorised by the National People’s Congress to exercise independent judicial power, including the power of final adjudication. The courts of Hong Kong exercise judicial power independently, free from interference. Members of the judiciary are immune from legal action in the performance of their judicial functions. Judges are constitutionally required to determine and handle cases strictly in accordance with the law and legal principles.

The courts of justice in Hong Kong comprise the Court of Final Appeal, the High Court (which includes the Court of Appeal and the Court of First Instance), the Competition Tribunal, the District Court (which includes the Family Court), the Lands Tribunal, the Magistrates’ Courts (which include the Juvenile Court), the Coroner’s Court, the Labour Tribunal, the Small Claims Tribunal and the Obscene Articles Tribunal.

Part 2: Business Establishment

Pre-incorporation

Many founders will operate as individuals in the early concept stage, and perhaps only consider a Founder Collaboration Agreement to organise affairs between them. This is a commercial agreement between founders in the form and style of a binding term sheet. The Founder Collaboration Agreement will summarise the key terms agreed by the founders in respect of important features of the business, including:

(a) timing of incorporation;

(b) initial shareholding of founders;

(c) assignment of intellectual property rights; and

(d) reverse vesting of shares held by founders.

These terms will require more formal agreements once the business has incorporated.

Incorporation

The decision to create a formal business structure is usually reached quite early in the development of the business. Common triggers include:

(a) the creation of any material value (especially intellectual property);

(b) an increase in the risk environment, particularly if it impacts personal liability of the founders; and

(c) investment or grant funding.

Private company limited by shares

Legal status: A private company may be limited by shares. This means that the liability of shareholders will be limited to the unpaid capital on their issued shares in the company. A private company must restrict the right to transfer its share, limit the number of shareholders to 50 (excluding employees and former employees), and prohibit any invitation to the public to subscribe for any shares or debentures of the company.

Requirements: A private company limited by shares incorporated in Hong Kong must have at least one director, one company secretary and one registered shareholder. One of the directors must be a natural person. The company secretary and the shareholders can either be natural persons or a body corporate. The company secretary must be resident in Hong Kong. There are no other residency requirements for officers or shareholders of the company. A sole director must not also be the company secretary.

Significant controller: A private limited company must maintain a significant controller register. This will contain details of persons who directly or indirectly hold more than 25% of the issued shares or voting rights in the company or otherwise exercise significant influence or control over the company (including rights to appoint the majority of directors). The significant controller register is not a public document, but may be inspected by enforcement authorities in prescribed circumstances.

Company name: Any company name that is the same as that of an existing company is not permitted. A company name may be in English, Chinese or both, but subject to restrictions on the use of certain words by the Companies Registry.

Registered office: Every Hong Kong private limited company must have a registered office in Hong Kong for communications and notices. Any change of address of the registered office must be notified to the Registrar of Companies for public filing.

Accounts: The accounting records of the company must be audited for each financial year, sent to the shareholders and laid before shareholders in an annual general meeting. The audited accounts for private limited companies do not need to be publicly filed or disclosed.

Share capital: There is no prescribed minimum or maximum share capital for any type of company in Hong Kong. A company can be formed with different types or classes of shares including ordinary or preferred shares with special rights attached to them. These must be set out in the company’s Articles of Association. If no separate share classes are designated, then the shares will be considered ordinary shares.

Annual general meeting: Every Hong Kong private limited company must hold an annual general meeting of its shareholders nine months after the end of its accounting reference period for that financial year. If the first accounting period exceeds twelve months, then the private company must hold an annual general meeting nine months after the anniversary of the company’s incorporation.

Annual return filing: Annual returns must be delivered to the Registrar of Companies for registration within 42 days after the anniversary of the date of the company’s incorporation.

Tax: Profits tax is levied in Hong Kong against all companies, at the rate of 8.25% on assessable profits up to HK$2,000,000; and 16.5% on any part of assessable profits over HK$2,000,000 (for the year of assessment 2018/19 onwards), which carry on a trade, profession or business in Hong Kong in respect of profits arising in or derived from Hong Kong. Offshore profits are beyond the general scope of Hong Kong tax. There are no capital gains taxes or value added taxes in Hong Kong. Dividends are generally payable free of withholding tax, though royalty payments may be subject to withholding.

Business registration: Every company incorporated in Hong Kong must obtain a business registration certificate. The application must be made within one month from the start of business. If a company carries on a business using one or more business or trade names, a business registration certificate is required for each such name. A branch business registration certificate is needed for each separate office of the company in Hong Kong.

Timeline for incorporation: A company may be incorporated in Hong Kong by submitting the prescribed forms, documents and fees to the Companies Registry and it will be deemed to have made a business registration application at the same time. The Certificate of Incorporation and the Business Registration Certificate is usually available within five working days. The company legally exists from the date of incorporation.

Other business structures

Non-Hong Kong companies: Foreign companies (non-Hong Kong companies) that establish a place of business in Hong Kong must register prescribed particulars with the Companies Registry within one month from establishment of that office. Generally, if a foreign company enters legally binding contracts in the course of business from a continuing location in Hong Kong, then it will have established a place of business in Hong Kong and trigger this registration requirement. The foreign company and its branch office in Hong Kong are the same legal entity, and do not have separate legal liability. This is the main reason why this business structure is mainly used if required for regulatory reasons.

Representative office: Foreign companies can have a business presence in Hong Kong by setting up a representative office. If a foreign company in Hong Kong has an office in Hong Kong but does not enter into legally binding contracts in Hong Kong, then that office is referred to as a representative office. The activities conducted by a representative office are limited. A representative office cannot transact any business which creates legal obligations that would amount to the establishment of a place of business. Its activities are limited to liaison with offices in other parts of the world, and business representation, customer promotion and customer liaison in Hong Kong. A foreign company that has a representative office must obtain a business registration certificate from the Inland Revenue Department within one month from the establishment of its office.

Partnership: A general partnership is established by operation of law when two or more people carry on a business in common to make a profit. Every partner in a company or firm is jointly liable with other partners for all the debts and obligations of the business incurred as long as the act is done in the partnership business. A partnership must obtain a business registration certificate from the Inland Revenue Department, which will state the names of all partners of the business as well as the trading name of the partnership. Given the potential personal liability consequences, founders must be especially careful to avoid their activities being considered a partnership at the pre-incorporation stage.

Hong Kong also has a limited liability partnership structure, but this is typically used in relation to investment funds.

Sole proprietorship: Businesses can be owned and operated by an individual in sole proprietorship. There is no separation of liability between the business and its owner. A sole proprietor must obtain a business registration certificate from the Inland Revenue Department, which will state the name of the sole proprietor as well as the trading name of the business. Given the potential personal liability consequences, sole proprietorship is normally only used at a very early stage of the business.

Part 3: Foreign Investment and Immigration

Free market: Hong Kong policy promotes free trade and free market principles with minimal government intervention. Generally, there is no distinction in law and practice between investments by foreign-controlled companies and those controlled by local interests. In most conditions, foreign companies and individuals can incorporate their operations in Hong Kong without discrimination and undue regulation.

No exchange controls: The Basic Law of Hong Kong provides that no foreign exchange control policies can be applied in Hong Kong and that the Hong Kong dollar must be freely convertible. The Hong Kong government is also required under the Basic Law to safeguard the free flow of capital within, into and out of Hong Kong. Consequently, there are no regulations in Hong Kong regarding exchange control, currency and foreign remittance of profits.

Free port and trade: The Basic Law also requires that Hong Kong is maintained as a free port, and that Hong Kong pursues a policy of free trade that safeguards the free movement of goods, intangible assets and capital. Consequently, no tariff is charged on import or export of goods. Licensing is only required for the import and export of certain limited classes of dangerous or controlled goods (such as optical disc mastering and replication equipment, and radio transmitting apparatus).

No foreign investment restriction: In general, there are no specific laws and designated regulatory authorities to govern foreign investment unless specified. For instance, there are no restrictions based on nationality to distinguish between domestic and foreign ownership of property in Hong Kong. One specific restriction is that foreign ownership must not exceed 49% in respect of businesses seeking a sound broadcasting or domestic television programming service licence.

Immigration

Immigration: Hong Kong is a separate travel area from Mainland China. Hong Kong has visa-free entry for residents from about 170 countries and territories for trips ranging from seven to 180 days. In broad terms, short-term visitors may conduct business negotiations and sign contracts while entering Hong Kong on a visitor or entry permit.

Employment visa: All persons having no right of abode or right to land in Hong Kong, must obtain an entry permit/employment visa before coming to Hong Kong for the purpose of employment. Applications should be made through the sponsor (usually the employer company in Hong Kong). It must be demonstrated that the proposed employee has special skills, knowledge or experience not readily available in Hong Kong.

Investment visa: This requires the applicant to establish or join in business in a Hong Kong registered company. The applicant will be required to produce details on the viability of the proposed business and demonstrate that the applicant is in the position to make substantial contribution to the economy of Hong Kong.

Top Talent Pass Scheme (TTPS): This scheme seeks to attract talented persons with rich work experience and good academic qualifications to enter Hong Kong. This top talent includes high-income professionals and graduates from the world’s top universities.

Dependant visa: Persons who are successful in receiving one of the above visas may also bring their spouse or civil partner (including the other party to a same-sex civil partnership, union or marriage) and unmarried dependant children under the age of 18 to Hong Kong provided there are sufficient funds and suitable accommodation for them. The limit on their stay is the same as that of the applicant sponsor. Normally, dependant visas are issued as a matter of course as long as the requisite relationship exists. A person holding a dependant visa is allowed to undertake any type of lawful employment in Hong Kong.

Timing: It normally takes four to six weeks to process a work/employment/TTPS visa application.

Hong Kong Identity Cards: Every person aged 11 years or above who enters and is permitted to stay in Hong Kong for more than 180 days must apply for a Hong Kong Identity Card within 30 days of arrival. Applying for the card from the Immigration Department is simple and is free. By law, you should carry your identity card with you at all times.

Part 4: Intellectual Property

Jurisdiction

Mainland China and Hong Kong are separate jurisdictions. Registration in one jurisdiction does not extend protection to the other. IP owners must register IP rights separately in each jurisdiction for coverage and protection.

Trademarks

Trademarks: A trademark is a recognisable phrase, word or symbol that denotes a specific product, differentiating it from other products of its kind.

Registration: Registration of trademarks in Hong Kong is governed by the Trade Marks Ordinance.

Protection: Trademark registration entitles the owner of the trademark to use it in relation to the specified goods and services for which the mark is registered. Registration significantly reduces procedural requirements in enforcing trademark rights against unauthorised users in Hong Kong.

Application for registration: An application for registration of a trademark can be made online through an e-filing system, or filed by post or by hand with the Trade Marks Registry, Intellectual Property Department of Hong Kong. Once the application is received, the Registrar will examine whether the application satisfies the requirements for registration by carrying out a search of earlier trademarks records to see if similar trademarks exist. If the Registrar accepts the application for registration, particulars of the application will be published in the Hong Kong Intellectual Property (HK IP) Journal to provide an opportunity for the public to oppose the application for three months. If no notice of opposition is given within this period, a certificate of registration will be issued and notice of registration will be published in the HK IP Journal.

Duration of protection: Upon registration in Hong Kong, the validity of the registered trademark will last for 10 years beginning on the filing date of the application for registration. The registration must be renewed every 10 years with the payment of a prescribed renewal fee stated below for extending the period of another 10 years.

Treaties: Legislation was passed in Hong Kong to empower the Registrar of Trade Marks to make rules in Hong Kong to implement the Madrid Protocol for International Registration of Marks. Nonetheless, the Madrid System is not yet implemented in Hong Kong. The Paris Convention for Protection of Industrial Property and the Nice Agreement on International Classification of Goods and Services apply to Hong Kong.

Patents

Patents: Patents protect inventions, being products, substances, or processes which are new and inventive. An invention which is new, involves an inventive step and is capable of industrial application is patentable, unless it is an excluded subject-matter or activity. Examples of excluded subject-matters are discoveries, scientific theories and surgical methods for treatment of the human body.

Registration: Registration of patents in Hong Kong is governed by the Patents Ordinance.

Protection: The patent owner or inventor of the invention has the right to exclude others from using the invention in Hong Kong for the period of protection granted by the patent. Patent protection is territorial in nature. Patents granted outside Hong Kong do not afford protection in Hong Kong.

Types of patents: There are two types of patents available in Hong Kong, being the standard patent and the short-term patent.

Standard patent (O): A standard patent can be an original grant patent by means of direct application in Hong Kong. A standard patent (O) must satisfy both the formality of the application process and substantive examination by the Registrar of Patents. The substantive examination will determine whether the claimed invention is new, involves an inventive step, and is capable of industrial application. The period of protection for a standard patent (O) is 20 years.

Standard patent (R): A standard patent can also be granted on the basis of a re-registration of a patent granted by the China National Intellectual Property Administration, the European Patent Office (designating the United Kingdom), and the United Kingdom Intellectual Property Office. A standard patent (R) is only subject to a formality examination by the Registrar of Patents. Formality examination is an examination of the information required in the application form and the supporting documents. A standard patent (R) is valid for 20 years from the filing date at the designated patent office.

Short term patent: A short term patent granted in Hong Kong is based on a search report from designated searching authorities outside Hong Kong. A short-term patent is only subject to a formality examination by the Registrar of Patents. There is no substantive examination of the application. A short-term patent having a protection term of up to eight years, being an initial term of four years renewable for an additional four years.

Treaty: The Patent Cooperation Treaty (PCT) applies to Hong Kong.

Designs

Registered design: Registered designs protect the appearance of products. Specifically, the protection relates to features of shape, configuration, pattern, or ornament applied to a product by an industrial process. The protection does not extend to the manner in which a product operates, and certain designs are excluded from the scope of protection (for example, computer programmes or topographies).

Registration: Registration of designs in Hong Kong is governed by the Registered Designs Ordinance.

Protection: Registered design owners have the exclusive right to the design in relation to the article for which the design is registered. Registered design owners have the right to prevent others from manufacturing, importing, using, selling or hiring the design product. Registered design protection is territorial. Designs registered outside Hong Kong do not afford protection in Hong Kong.

Application: A registrable design must be new at the filing date of the application. This means the design must not have been previously registered for the same or another article, or previously published or disclosed in Hong Kong or outside Hong Kong. An application for registration of a design may be made online through the e-filing system or filed by post or by hand with the Design Registry, Intellectual Property Department of Hong Kong. The application is only subject to a formality examination by the Registrar of Designs, and no substantive examination is undertaken. If the application is in order, the Registrar of Designs will register the design and publish it in the HK IP Journal. A certificate of registration will be issued.

Duration of protection: A design right in Hong Kong is valid for 25 years from the filing date. The owner can claim a priority date if the design is first applied in a Paris Convention Country or the World Trade Organization (WTO) member within six months prior to the application in Hong Kong. However, it is still necessary to prove the design is new at the priority date.

Treaties: The Hague System for International Registration of Industrial Designs does not apply to Hong Kong.

Copyright

Copyright: Copyright is a property right given to the owner of an original work, The right can subsist in literary works, musical works, computer software, dramatic works, artistic works and typographical arrangements. Copyright works made available on the internet are also protected.

No registration: Hong Kong does not have a government-established copyright registry. Copyright automatically arises when a work is created. To enforce copyright, it may be necessary to offer independent evidence of the existence of the copyright.

Legislation: Copyright is governed by the Copyright Ordinance.

Protection: In general terms, the copyright owner has the exclusive right to copy the work and to distribute it to the public. A copyright owner can bring legal proceedings against any person who infringes the copyright in the work. Copyright does not protect ideas, but only the expression or product of ideas. Also, fair dealing for research and private study, criticism, review and news reporting, and for use of works in library and school is permitted, though the scope of these exceptions must be carefully considered.

Duration of protection: The general rule is that copyright lasts until 50 years after the creator of the work dies.

Licences: Copyright owners may license the copyright of their works (a) by standard terms licences, (b) by licences under licensing schemes; or (c) on terms negotiated on a case-by-case basis. A localised version of creative commons licences was introduced in Hong Kong by Creative Commons Hong Kong for those who wish to make copyright work available for free under the governing terms of the selected creative commons licence. Hong Kong also has copyright licensing bodies which are authorised by copyright owners to grant, on their behalf, licences to users of copyright works. Some of these licensing bodies have registered on a voluntary basis with the Copyright Licensing Bodies Registry.

Reform: New changes in copyright law in Hong Kong have:

(a) created an exclusive technology-neutral communication right for copyright owners to communicate their works to the public through any mode of electronic transmission;

(b) introduced criminal sanctions against individuals who make unauthorised communication of copyright works to the public for profit or to prejudice copyright owners;

(c) expanded the scope of new copyright exceptions to allow use of copyright works in certain common internet activities;

(d) introduced safe harbour provisions to limit online service providers’ liability; and 

(e) introduced two additional statutory factors for courts to consider when determining whether to award additional damages to copyright owners for copyright infringements.

Specifically, these reforms include provisions that are intended to limit the liability of online service providers, provided that they have procedures to demonstrate they have taken reasonable steps to limit or stop copyright infringement as soon as practicable after they receive a notice of alleged infringement.

Treaty: A number of international treaties in respect of copyright apply to Hong Kong. These include:

(a) the Berne Convention for the Protection of Literary and Artistic Works;

(b) the Universal Copyright Convention;

(c) the Geneva Convention for the Protection of Producers of Phonograms;

(d) the WIPO Copyright Treaty;

(e) the WIPO Performances and Phonograms Treaty; and

(f) the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired, or Otherwise Print Disabled.

Trade secrets

Trade secrets: Trade secrets are confidential business information which if disclosed would be able to cause real or significant damage to the owner of the trade secrets. It is usually information that is proprietary and unique to the business.

No legislation: Hong Kong does not have specific trade secret legislation, and trade secrets are protected by the common law principles of confidence. An obligation of confidence will arise whenever the information is communicated to or acquired by a person who knows or ought as a reasonable person to know that the other person wishes to keep that information confidential.

Remedies: Remedies include injunctions, damages, account of profits and delivery up of materials containing trade secrets. The owner of trade secrets may also seek orders or undertakings in respect of third parties who have unlawfully received trade secrets.

Non-Disclosure Agreements: Protection of trade secrets is typically achieved by non-disclosure terms and conditions that are contained in a standalone agreement or incorporated into employment or commercial agreements. The non-disclosure terms and conditions will include provisions not to disclose trade secrets, to limit the use of trade secrets to specific purposes, and to deliver up materials containing trade secrets on demand.

Practical measures: Each business should take practical measures to protect valuable proprietary trade secrets. This should include measures to:

(a) Access control: Unauthorised access to technical and operational information should be prohibited, including restrictions on employees, consultants, JV partners, vendors and others. Employees and outside partners should have only have access to information necessary for performing their proper duties and responsibilities. Only a few people should have unlimited access to all information and all access by these individuals should be monitored and their activities documented.

(b) Monitoring: The source of most unauthorised use of trade secrets and other sensitive information is when someone is given unmonitored access to such information. If information is valuable to a company’s operations, it is useful to a company’s competitor. Thus, access should be monitored and controlled, and made available on a need to know basis.

(c)  Physical measures: Consider restricting the use of USB drives, notebook computers and other storage devices. As part of its best-practice guidelines and procedures, a business should have policies and guidelines for employee usage of personal email, personal cloud database, instant messaging apps and similar information-sharing software applications on company computers, and limiting of uploading and downloading of information.

(d) IP audits: A business should conduct regular internal IP audits and reviews as part of its IP protection program, with an internal team of IP auditors and reviewers with the authority to conduct random, unannounced audits and reviews of every computer within the company, fully supported by management.

(e) Competitor monitoring: Monitoring of competitors’ activities is a useful way of detecting unauthorised use of a company’s trade secrets as is monitoring former employees, manufacturers, vendors, consultants and service providers.

(f) Segregate and separate: A business should compartmentalise its sensitive information by keeping different steps of development and delivery, for example separating development from sales and delivery. The key is to prevent personnel in one part of the business process from accessing information in a different part, unless there is an approved business need or senior level approval.

Enforcement

Civil: Civil remedies are available through local courts. Hong Kong courts often follow UK court decisions in IP matters.

Criminal: Infringement of certain IP rights may result in criminal sanctions.

Customs: The Customs service will work with holders of registered IP rights to seize and forfeit infringing goods entering Hong Kong. It is possible to establish and maintain communication channels with enforcement officials. Developing a working relationship with enforcement officials is helpful to understand enforcement mechanisms and procedures available in the event of unauthorised use of IP rights.

Recommendations

Be proactive: A business should not rely on others to protect its IP rights. It is important to make IP protection a core value. It is important to educate employees about the company’s rights.

IP culture: A business should instil IP awareness as part of the corporate culture and engage the entire company in this effort. Ultimately, it is up to the IP holder to protect its own IP rights. Engaging the entire workforce to help protect such valuable assets is a wise approach.

Part 5: Data Protection and Privacy

Context

Constitutional status: The Basic Law is the key constitutional document of Hong Kong. The right to privacy is recognised in Article 30 of the Basic Law, and in Section 8, Article 14 of the Hong Kong Bill of Rights Ordinance.

Legislation: The Personal Data (Privacy) Ordinance (the “PDPO”) was passed in 1995 and took effect from December 1996 (except certain provisions). It is one of Asia’s longest standing comprehensive data protection laws. The PDPO underwent major amendments in 2012 and 2021.

Authority: The Office of the Privacy Commissioner for Personal Data (“PCPD”) is an independent statutory body set up to oversee the enforcement of the PDPO. The courts of Hong Kong have jurisdiction to deal with privacy and data protection related matters.

Enforcement approach: The main enforcement measures adopted by the PDPD are:

(a) Investigation: The PCPD can investigate complaints regarding breaches of the PDPO, conduct formal investigations, and issue an enforcement notice. However, the PCPD by itself has no power to impose fines.

(b) Fines and imprisonment: It is an offence if the terms of an enforcement notice is breached. The PCPD can institute civil or criminal proceedings against data users in breach of an enforcement notice by referring criminal offences under PDPO to the Hong Kong Police Force. They may then be prosecuted through the Hong Kong court system. There are also separate criminal offences under PDPO punishable by fines and imprisonment. The PDPO can bring prosecutions in respect of doxxing offences.

(c) Compensation: Data subjects have a right to bring proceedings in court to seek compensation for damages, including damages for injury to feelings.

Regulatory approach: The PCPD has issued various codes of conduct. Examples include the Code of Practice on the Identity Card Number and Other Personal Identifiers and the Code of Practice on Human Resource Management. If data users breach a Code of Practice, this gives rise to a rebuttable presumption in any legal proceedings that the data user has breached the PDPO. This means that the data user would have to produce evidence of compliance with data protection laws, notwithstanding the breach of the Code of Practice. In addition, the PCPD has published guidelines and information leaflets on various issues. These are non-binding.

Key principles

Data protection principles: The PDPO sets out six Data Protection Principles (“DPPs”):

DPP1  Personal data must be collected in a lawful and fair manner, and the data user must give specified information to a data subject when collecting his personal data.

DPP2  Personal data must be accurate and up-to-date, and kept no longer than necessary.

DPP3  Personal data should only be used for the purposes for which they were collected or a directly related purpose. Otherwise, the data user must obtain the “prescribed consent” of the data subject.

DPP4  The data user must have measures in place for the confidentiality and security of personal data.

DPP5  Data users must provide general information about the kinds of personal data they hold and the main purposes for which personal data are used.

DPP6  Data subjects must be given a right of access to their personal data, and to correct them.

Collection: On or before collection of personal data, all practicable steps must be taken to ensure that the data subject is informed of (a) whether the supply of the data is voluntary or obligatory, (b) the purposes for which the data are to be used, and (c) the classes of persons to whom the data may be transferred. Before first use of personal data, the data subject must also be informed of: (a) his right to request access to, and to correct, the data, and (b) the name or job title, and address, of the individual who is to handle any such request. These obligations are typically fulfilled by providing a personal information collection statement with the prescribed information to the data subject on or before the collection of personal data.

Data processors: If personal data is entrusted by the data user to a data processor, the data user is liable as the principal for any act done by its authorised data processor. The data user must adopt contractual or other means to prevent any personal data transferred to the data processor from being kept longer than necessary for processing the data, and to prevent unauthorised or accidental access, processing, erasure, loss or other inappropriate use of the personal data.

Direct marketing: A data user engaging in direct marketing must first obtain the data subject’s consent. The consent of a data subject must be the explicit agreement by the data subject to indicate that he consents or does not object to the use or provision of his personal data for use in direct marketing. If a data subject has orally consented to a data user using the personal data for direct marketing, the data user must confirm prescribed particulars of that consent within 14 days. A data subject may request that a data user ceases to use his personal data for direct marketing without charge (also known as the opt-out request).

It is a criminal offence, punishable by fine and imprisonment, to use personal data for direct marketing without the consent of the data subject. It is a separate offence for data users to provide a third party with personal data for the purposes of direct marketing in return for payment and without the data subject’s consent.

International data transfers: There are restrictions on transfer of personal data to overseas jurisdictions in section 33 of the PDPO, but these provisions have not come into effect. Nonetheless the transfer of personal data is in itself a form of use of the personal data, and a data user must give notice to explicitly inform data subjects of the purpose (in general or specific terms) for which the personal data is to be used and the classes of persons to whom the data may be transferred.

Data processing agreements: The most common means for a data user to protect personal data transferred in a cross-border data transfer is by written contract. The PCPD has published two sets of recommended model contractual clauses. These cater for two scenarios, being the transfer of personal data from one data user to another data user and the transfer of personal data from a data user to its data processor. The recommended model clauses address the transfer of personal data from a Hong Kong entity to another entity outside Hong Kong; or between two entities both of which are outside Hong Kong when the transfer is controlled by a Hong Kong data user. The purpose is to ensure adequate protection is given to the personal data as provided under the PDPO as if the personal data concerned were not transferred outside Hong Kong.

Data protection officers: There is no statutory requirement to appoint a data protection officer. The PDPO requires a data user to inform a data subject of his rights to request access, and correct his personal data and the name (or job title) and address of the person to whom such requests should be made. In practice, the person identified for this purpose in a personal information collection statement is usually described as a data protection officer. This is a matter of convention, not a requirement of law. The title does not carry the same obligations or duties as a DPO under GDPR.

Data breach: There is no general mandatory data breach notification requirement in Hong Kong, though notification requirements may arise in certain regulated sectors. The PCPD has consistently encouraged data breach notification as recommended best practice and has commented adversely in its Investigation Reports in respect of any failure or delay to report a data breach. The PCPD has recommended that notification should be made as soon as practicable after detection of the data breach, except where law enforcement agencies have, for investigative purpose, made a request for a delay.

Data protection impact assessments: DPIAs are not mandatory. However, the PCPD had made clear that DPIAs are recommended best practice as they are the best means of adhering to the principles of proportionality, transparency and fairness enshrined in the statutory DPPs.

Data subject rights

Data access: Data subjects are entitled to request access to personal data. The data users must provide copies of the personal data requested within 40 days of the request. The data users can only charge the data subjects for a non-excessive amount of fees. The PCPD has specified a prescribed form in which such a request has to be made.

Data correction: Data subjects are entitled to request the correction of personal data without charge to the data subject. This data correction request must be preceded by a data access request. If the data subject considers that the personal data held by the data user is inaccurate, he may make a request that the data user corrects the data. If the data user is satisfied that the data is inaccurate, the data user must make the necessary correction to the data no later than 40 days after receiving the request. However, the data user may refuse a personal data correction request in certain circumstances such as when the data user is not supplied with information it reasonably requires to ascertain how the personal data is inaccurate, or that the data user is not satisfied that proposed correction is accurate.

Data deletion: Data subjects do not have the right to require data users to delete their personal data. Data users are required under DPP2 to take all practicable steps to erase personal data held by them where the data are no longer required for their prescribed purpose, unless erasure is prohibited under any law or it is in the public interest for the data not to be erased.

Part 6: Employment

Legislation: The Employment Ordinance (Cap. 57) is the primary piece of legislation affecting employment in Hong Kong. The Employment Ordinance prescribes certain basic rights and protection for all employees, including maternity leave, paternity leave, rest days, annual leave, sick leave, long service payment, severance payment, and rights upon termination of employment.

Scope: The Employment Ordinance applies to all employers and employees and to all contracts of employment in Hong Kong. There are exceptions in relation to people such as merchant seamen and those employed for work outside Hong Kong. Statutory provisions of the Employment Ordinance will overrule any contractual provision that purports to reduce or extinguish the rights and benefits given to employees by the Employment Ordinance.

Contract of employment: A contract of employment need not be in writing. However, if the employment contract is not in writing, the employer must upon receipt of a written request by the employee, before such employment is entered into, provide a written notice of the employee’s conditions of employment.. An employer is required to inform an employee before the commencement of employment of his wages and the corresponding wage period, whether the employee will be entitled to any end-of-year payment, and the period of notice required to terminate the employment. The employer must also inform the employee of any amendments to the employment contact. As a matter of practice, a written employment contract is highly recommended as it provides certainty in respect of the terms of employment.

Minimum wage: A statutory minimum wage applies to all employees, regardless of whether they are employed under a continuous employment contract, with exception of persons to whom the Employment Ordinance does not apply, live-in domestic workers, and specified student interns and work experience students. The statutory minimum wage for an employee for a wage period is the amount derived by multiplying the total number of hours (including any part of an hour) worked by the employee in the wage period by a rate prescribed by law (presently HK$40.00).

Wages: Wages become due on the expiry of the last day of the wage period, and must be paid as soon as is practicable but in any case not later than seven days thereafter. The failure for any employer to comply with this provision constitutes a criminal offence. An employer must immediately terminate a contract of employment in accordance with its terms, if the employer believes that it will be unable to pay wages due under the contract.

Mandatory provident fund: The Mandatory Provident Fund Schemes Ordinance (Cap. 485) requires that every employer in Hong Kong contributes an amount equal to at least 5% of an employee’s relevant income (up to a maximum contribution of HK$1,500 per month) to a retirement scheme that is registered as an MPF scheme. Every employee will also be required to contribute at least 5% of his relevant income (again up to a maximum of HK$1,500 per month) to the scheme.

Insurance coverage: Under the Employees’ Compensation Ordinance (Cap. 282), employers are required to maintain insurance coverage in respect of work-related injuries. There is no statutory requirement to provide medical benefits otherwise.

Intellectual property: Intellectual property which is created in the course of permanent employment duties is usually the property of the employer. An employment contract can provide additional rights in respect of work created outside employment, and can impose obligations for signing documents and making filings that can continue after the employment ends. If the intellectual property right is created in the course of performing employment duties, wages will be considered sufficient payment for the rights. Frequently, an employment contract will provide a right of first refusal in respect of intellectual property in these circumstances.

Confidential information: In the course of an employment, an employee may come across different kinds of information, including trade secrets, confidential information, skills and knowledge and other non-confidential information. The law provides different levels of protection for different types of information.

(a) Trade secrets are confidential business information which if disclosed would be able to cause real or significant damage to the owner of the trade secrets. It is usually information that is proprietary and unique to the employer. Trade secrets of an employer will be protected during employment and after termination of employment, even if there is no express provision in the employment contract.

(b) Confidential information is unknown to people outside the employer’s business, but not of the critical and vital importance to trade secrets. Confidential information will be protected during employment, but generally not after termination of employment. However, a provision in the employment contract can protect the secrecy and use of confidential information after termination, provided the confidential information is not know how.

(c) Know how is information that becomes part of an employee’s own skills and knowledge by performing the job. An employee’s skills and knowledge must not be used or disclosed during employment. However, an employee is free to use his full skills and knowledge for his own benefit after termination of employment.

(d) Non-confidential information is information that is in the public domain, or which does not have the character or value of confidential information. Employees are generally free to use and disclose non-confidential information.

Protective covenants: The basic rule developed by the common law Courts is that each person should be free to use his skills and experience in future employment and that any agreement restraining competition is on the face of it void and unenforceable.  However, contractual provisions restraining an employee from competing with his former employer or from working for a competitor are enforceable if the degree of restraint imposed on the employee is reasonably necessary for the protection of some legitimate interest of the employer, goes no further than necessary for the protection of such interests, and is not against the public interest. The Courts will consider the protection of a proprietary interest in goodwill, trade secrets or confidential information, or the stability of the employer’s workforce as a legitimate interest.  The kind of trade secrets or confidential information that the Courts are most ready to protect include customer contact lists, supplier lists, secret formulae and processes.  Reasonableness is considered with reference to each employee’s individual circumstances such as the employee’s role, seniority, access to confidential information, client connections, and in terms of time, geographical scope, and the kind of activities restrained.

Termination of employment

Termination by agreement: Termination by agreement occurs where a contract is for a fixed term or for a particular task and the term has expired, the task has been completed, or where the parties agree to terminate. Severance payment is generally not payable, but is in some cases, and in certain circumstances long service payment may be due.

Termination by notice or payment in lieu: The employer and employee can agree on a notice period for termination, subject to a minimum of seven days notice for any continuous contract. A contract may be terminated by notice or by either party agreeing to pay to the other a payment in lieu of notice. The amount of payment is determined by reference to the daily or monthly average wages of the employee for the 12 months preceding the termination date, or if the employee has been employed for shorter than 12 months, for the duration of the employee’s employment with the employer. Payment in lieu does not affect an employee’s right (if any) to severance payment or long service payment.

Summary dismissal without notice: An employer may terminate a contract of employment without notice or payment in lieu:

(a) if an employee, in relation to his employment:

(i) wilfully disobeys a lawful and reasonable order;

(ii) misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties;

(iii) is guilty of fraud or dishonesty; or

(iv) is habitually neglectful of his duties; or

(b) on any other ground on which the employer would be entitled to terminate the contract with notice at common law.

Wages owing up to the time of dismissal must be paid plus annual leave pay accrued and owing at the date of termination. Severance payment and long service payment are not payable to an employee who was dismissed by the employer’s valid summary dismissal..

Resignation without notice: An employee is entitled to resign without notice in circumstances where the employer is guilty of serious misconduct or a serious breach of the contract. A specific ground of resignation without notice is when wages are not paid to the employee within one month from the date on which they become due to him. Severance payment is not payable (unless redundancy is involved) but long service payment may be due. In addition, the employer will generally be liable to pay the employee his other accrued benefits.

Wrongful termination: Wrongful termination is a termination otherwise than in accordance with the terms of the contract or without giving notice required or making payment in lieu.  Under the Employment Ordinance, the party in default must pay to the other a sum equal to the amount which would have been payable by the employer had the employer terminated the employment lawfully by payment in lieu of notice.  An employer wrongfully terminating will generally have to pay the employee his other accrued benefits.

By operation of law: An employment contract may terminate because of an external event. This could occur, for instance, if the employment becomes illegal or as a result of the death or insolvency of the employer. Payments may be due depending on the circumstances.

Claim limitation period:  Generally, an employee or an employee may commence a claim under the Employment Ordinance or an employment contract within six years after the date the cause of action accrued. Shorter limitation periods apply to specific claims under the Employment Ordinance. For example, an employee wishing to claim statutory severance payment from a former employer must submit a claim in writing to the employer within three months from the termination date.

Contractors

Status: Individuals who perform services will typically fall into one of two categories under Hong Kong law. These are employees who enter into a contract of employment to serve an employee, and contractors who enter into a contract to provide services to another person. The distinction is important. The employment relationship has particular duties and obligations (including different statutory rights and tax treatment) that do not apply in a contractor relationship. Businesses need to properly consider which model of obtaining services they wish to use, and ensure it is properly implemented as a matter of fact and law.

Contractor characteristics: A contractor who is genuinely self-employed is not an employee and does not have employment rights or duties. The classic characteristics of a self-employed contractor are that the contractor provides his own skill and work in return for pay, with a high degree of control of his own activities and how he conducts the performance of his services. The nature of the arrangements must also be consistent with self-employment.

Risk: If key contractor characteristics are absent in the relevant contract, or in how the contract is performed, then there is a risk that the contractor may be able to claim that he is an employee. This, in turn, may mean the person can claim entitlements and rights that flow from employment status. Also, taxation issues can arise for businesses and contractors if contractors wish to be engaged via a services company.

Factors to consider: From the business owner’s perspective, the engagement of a contractor carries a lower administrative burden. The contractor is responsible for his own immigration status. The business is not required to enrol the contractor in the business’ MPF scheme. Fees, services and deliverables, and termination of services can be determined by contract. Contractor arrangements are sometimes preferred as a means of avoiding business establishment concerns if only one person will be providing services in Hong Kong. However, the business will have less control over the activities of the contractor, and must be prepared to accept that the contractor may perform services for others.

No hybrid status: Presently, Hong Kong law only recognises the status of employee and contractor. There is no statutory recognition for a separate category of workers who are neither employees nor contractors, and no specific laws that focus on issues arising from the gig economy.

Intellectual property: Intellectual property rights in respect of the work product of contractors will largely be determined by the agreement between the business and the contractor. In the case of patents, the patent will normally belong to the inventor, and it will be essential for those rights to be assigned and transferred to the business. For commissioned works subject to copyright, ownership of copyright is determined by the agreement between the business that commissioned the work and the author. This highlights the critical importance of ensuring that the contracting arrangement fully considers and deals with intellectual property rights.

Part 7: Consumer Protection

Contract terms

Sale of Goods Ordinance: The Sale of Goods Ordinance contains many helpful provisions that apply in respect of consumer sale of goods. However, for practical purposes, most businesses need to be aware that that goods sold in the course of business have an implied condition that the goods supplied:

(a) with good title and the seller has the right to sell the goods free from undisclosed encumbrances;

(b) are of merchantable quality;

(c) fit for purposes made known by to the seller; and

(d) correspond with any sample or description given to the buyer.

Under the Control of Exemption Clauses Ordinance, these implied conditions cannot be excluded or restricted in sale of goods to persons dealing as a consumer, but can be excluded or restricted in sale of goods to a person acting in the course of business so long as the exclusion or restriction is reasonable.

Supply of Services (Implied Terms) Ordinance: This Ordinance provides for implied terms in contracts for the delivery of services, including implied terms that:

(a) services will be carried out with reasonable care and skill;

(b) if the contract is silent on timing for delivery of services, the services will be performed within a reasonable time; and

(c) if the contract is silent on charges, the service recipient will pay a reasonable charge.

It is not permitted for the service supplier to seek to exclude these implied terms if the service recipient deals as a consumer.

Control of Exemption Clauses Ordinance: Exemption clauses seek to limit or exclude liability of a party. Some key provisions are that it is not permitted to exclude or restrict liability for death or personal injury resulting from negligence, and any exclusion or restriction of liability must be reasonable if it relates to other loss or damage arising from negligence, or breach of contract. There are other protective provisions for persons dealing as consumer.

Unconscionable Contracts Ordinance: This legislation empowers the Court to refuse to enforce any part a contract (in whole or in part) in which one of the parties is dealing as a consumer that the Court has found to be unconscionable. The Court will consider a range of factors in determining whether a contract is unconscionable, including the bargaining positions of the consumer and seller, the legitimate interests of the parties, the ability of the consumer to understand the contract, and any circumstances of undue influence or unfair tactics.

Promotion and marketing

The Trade Descriptions Ordinance prohibits manufacturers, retailers and service providers from misleading consumers in respect of goods and services provided in the course of trade, and prohibits other unfair trade practices.

A person commits an offence under the Trade Descriptions Ordinance if he:

(a) supplies a false trade description to any goods/services;

(b) offers to supply any goods/services to which a false trade description is applied; or

(c) has in his possession for sale or for any purpose of trade or manufacture any goods to which a false trade description is applied.

A seller who adopts unfair trade practices also commits an offence, being:

• misleading omission occurs if the seller hides or omits material information, or provides material information in a manner that is unclear;

(b) aggressive commercial practice arises when the seller causes the consumer to enter into the transaction through harassment, coercion or undue influence;

(c) bait advertising occurs when the seller advertises the goods at a specified price if there are no reasonable grounds for believing that the seller will be able to offer for supply those goods at that price in a reasonable quantity and period of time;

(d) bait and switch refers to a practice in which the seller invites the consumer to purchase goods at a specified price with intention to promote a different product; and

(e) wrongly accepting payment means the seller accepts pre-payment with the intention that he is not going to supply the goods or service in question but will supply something that is materially different.

Enforcement: The Customs and Excise Department is the main enforcement agency handling the complaints and prosecution under the Trade Descriptions Ordinance. The Office of the Communications Authority handles matters involving telecommunication and broadcasting under the Trade Descriptions Ordinance.

Other legislation

Hong Kong law also contains consumer protection legislation in respect of specific industries or circumstances. These include legislation dealing with product safety, consumer credit, medicine and health, dangerous, controlled and prohibited goods, and specific provisions in legislation regulating estate agents, money changers and travel agents.

The Consumer Council

The Consumer Council is an independent statutory body in Hong Kong. The Council serves as a watchdog for protecting the rights and interests of consumers and promoting a fair and just delivery of goods and services. The Council only handles complaints on goods and services purchased from the seller by individual consumers for private use or consumption only. It does not handle complaints involving goods and services purchased for business and investment.

The Consumer Council is not a law enforcement agency, and has no power to conduct investigations or to prosecute. It handles complaints by way of conciliation. If settlement cannot be reached after conciliation, the consumer may consider pursuing the matter via the Courts of Hong Kong. The Consumer Council has established a Consumer Legal Action Fund for providing legal assistance to consumers.

The Consumer Council regularly issues alerts for products and services that are unfit for use, and publishes articles on the comparison of different products and services in respect their quality and price.

Part 8: Terms of Service

Terms of Service: Online Terms of Service are usually uploaded on a company’s website or downloaded with an application, and provide the contractual terms for the use of the website in question and the online purchase of goods or services via the website or application.

Electronic contracts: Terms of Service often contain provisions in relation to the formation of contract and making payments via the website or application. In Hong Kong, the Electronic Transactions Ordinance is the governing law in respect of electronic contracts, and provides that contracting online is subject to the same requirements as contracting on paper. A contract will not be invalid or unenforceable on the sole ground that an electronic record was used to form the contract. As a matter of principle, electronic acceptance of contract offers is permitted under the Hong Kong law.

Click-wrap: Click-wrap acceptance of online terms occurs when the contracting party agrees with the Terms of Service by clicking a button or checking the “I agree” box. This commonly arises when the Terms of Service are displayed in a pop-up box in full or on a hyperlink. The general view is that clickwrap acceptance of Terms of Service is effective in Hong Kong, as active action is required from the user to confirm acceptance of the Terms of Service.

Browse-wrap: Browse-wrap acceptance of online terms occurs by notifying the online terms to the user, and deeming acceptance by their continued use of the website or application in question. The users are not required to actively agree to the Terms of Service, and there is no requirement that the user has to tick an “I agree” box. There is not a definitive guidance in Hong Kong law on whether browse-wrap acceptance is enforceable. The prevailing view is that, most likely, browse-wrap acceptance would not be valid in consumer contracts, and may not be valid in business-to-business contracts.

Electronic signatures: The Electronic Transactions Ordinance recognises the validity of electronic signatures, subject to limited exceptions, and adopts a technology neutral approach to what constitutes an electronic signature. The basic requirement is that the letters, characters, numbers or other symbols in digital form are attached to or logically associated with the electronic record of the contract, and were executed or adopted for the purpose of authenticating or approving the electronic record. In terms of business or sales contracts, generally, electronic signatures would suffice. 

Online payment: There is an active market for the provision of online payment services in Hong Kong. The provision of money service operations will require a licence in Hong Kong. Consequently, most online sellers will avoid directly conducting the online payment transaction, and will engage licensed third parties to conduct online payment services. Online payment services are provided by licensed banks, payment system operators, stored value facility operators and money service operators.

Part 9: Premises and Bank Accounts

Choices: Hong Kong offers the usual range of choices between leased premises, serviced offices and co-working spaces.

Office tenancy: A permanent office may be more suitable depending on factors such as the type of business and the regularity of clients’ visits. Rental will be highest in buildings with top quality amenities located in the Central area of Hong Kong. The length of the lease varies, but is usually for an initial period of three years. The lease will include provisions in respect of the period of tenancy, the monthly rent, payment period, deposit, facilities, renewal, and termination.

Costs: The commercial property market in Hong Kong is quite landlord dominant, and negotiation of lease terms can be challenging for prospective tenants. Apart from rent and the initial security deposit, other office rental costs typically include:

(a) One-off payment to property agent;

(b) Management service charges to cover air-conditioning, security, common areas cleaning and other building services; and

(c) Government rates.

Process: After agreeing with the landlord on the principal terms of the lease, the landlord will issue a Letter of Offer. This has to be counter-signed and returned by the tenant within a specified period with a security deposit (usually two to three months’ rental plus management service charge and government rates). Once the lease is signed, the agreement must be submitted to the Stamp Office of the Inland Revenue Department for payment of stamp duty within 30 days after the date of execution of the agreement. Usually, the landlord and tenant share the stamp duty equally.

Serviced offices or co-working space: Some businesses prefer to start with a serviced office or co-working space. These facilities are available across Hong Kong, and allow for use of premises that can be scaled or reduced according to the needs of the business, and usually include access to a range of business support services.

Opening a business bank account

Account opening: Opening a business bank account in Hong Kong is straightforward and transparent. Before opening a business account, the applicant must complete the business registration and company incorporation. The process and documents required to open an account vary, depending on the type of business and the choice of bank. Complications can arise if the applicant has not understood or fulfilled the requirements of the bank, or has delayed in the submission of necessary documents or information.

Documents: Common documents needed to open a business account include:

(a) proof of identity of the principal directors and beneficial owners;

(b) proof of business address in Hong Kong;

(c) business formation documents; and

(d) business plan and proof of existing business activities.

Due diligence: Most of the banks in Hong Kong follow strict due diligence and know your customer procedure. This can include a requirement that the account signatories and principal directors to be physically present at the bank in Hong Kong for opening the account.

Pádraig Walsh

* This article is an expanded version of our contribution to the iTech Law global publication “Startup Legal Playbook”, which can be accessed on this link.

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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 10 September 2024.