Updated: Apr 21
Hong Kong is an international city where foreign investors flock to search for business opportunities across Asia. Under the Basic Law, the legal structure governing Hong Kong, capital can flow in and out of the economy freely, in line with foreign exchange regulation under current government policy.
Hong Kong is very successful in the shipping industry, with a large network of ship owners, ship management companies and logistics companies, providing supporting services such as ship financing, insurance, brokerage, surveying, repair, arbitration and legal services to the shipping industry. Many internationally renowned shipowners operate shipping businesses in Hong Kong, controlling or managing about 8% of the world's total tonnage: Hong Kong is one of the top ten shipping centers in the world. The trading and logistics industry is the largest among Hong Kong's four economic pillars in terms of value added and employment. The pillars are financial services, tourism, trading and logistics, professional services and other producer services.
Hong Kong International Airport (HKIA) is one of the busiest international cargo airports in the world. In 2021, the total cargo throughput (including airmail) of Hong Kong International Airport ranked first in the world.
The port of Hong Kong ranked as the ninth busiest container port in the world in 2021, after Shanghai, Singapore, Ningbo-Zhoushan, Shenzhen, Guangzhou, Qingdao, Busan and Tianjin.
Hong Kong's Advantages
Strategic Location and World-class Infrastructure
Hong Kong International Airport has five state-of-the-art air cargo handling facilities with an annual handling capacity of more than 7 million tons.
Hong Kong has nine marine container terminals, including 24 container berths, which can handle more than 20 million TEUs per year.
Hong Kong's well-developed transportation infrastructure allows the city to smoothly connect with the world, especially mainland China, and provides maximum flexibility.
Hong Kong has a deep-water, silt-free natural harbor. It is strategically located next to major sea routes. In addition to the huge cargo base provided by mainland China, Hong Kong has become a maritime transportation hub in Asia.
Scope of Services in the Industry
Air transport services
Sea transport services
Freight forwarding services
Air transport industry can be divided into cargo sector and passenger sector. Both sectors have scheduled and tramp carrier operations. More than half of Hong Kong's air cargo is transported in the cabin of passenger aircraft, rather than pure cargo aircraft. There are two main types of cargo, express cargo and heavy cargo.
Air transport has become increasingly important to Hong Kong's trade over the past few decades. Hong Kong's customs clearance efficiency and its status as a free port are the main reasons for this growth. Mainland China is the largest import and export market for goods transported by air. Simple customs clearance procedures and 24-hour operation of Hong Kong International Airport facilitate the transshipment of goods destined for Mainland China via Hong Kong.
The maritime industry is crucial to supporting Hong Kong's status as the world's sixth-largest trading entity. Mainland China is the largest source and destination of Hong Kong transshipment cargo.
Shipowners own ships for income. In the liner shipping market, ship owners lease ships to shipping companies. In the bulk shipping market, ships are chartered to charterers or ship operators on a time or voyage basis. Shipping lines use shipping agents to sell their cargo slots at specific ports. Shipping brokers are responsible for matching the supply of bulk carriers from operators/owners with the demand for bulk shipping from charterers.
Demand for exportable maritime services is increasing as more countries seek to privatize their port operations and/or develop new commercial ports. Hong Kong port operators are already active in this area, especially in mainland China and the wider region.
Sea freight to and from Hong Kong is carried by liners and bulk carriers. Liner shipping operates according to pre-published rates and predetermined schedules and destinations. Many major routes operate under liner conferences (agreements between major shipping lines on tariffs and voyages). Hong Kong is a major hub, with about 270 container ships sailing each week, connecting more than 600 destinations around the world.
Larger container lines have invested in advanced systems to provide cargo tracking information and improve efficiency. They often form alliances or merge with other transportation providers to develop door-to-door multimodal services. Many liner companies are also forming alliances with each other to increase efficiency and reduce costs in a highly competitive environment. Vessel sharing enables liner companies to offer more flexible services in terms of global coverage, higher frequency of sailings and greater choice of routes. Port Facilities
Hong Kong's port facilities are funded, constructed, owned and operated by private companies. There are currently nine container terminals in Hong Kong with a total of 24 berths, located in Kwai Chung and Tsing Yi Island, operated by a number of private consortiums.
River Trade Terminal
The Pearl River connects Hong Kong to many manufacturing centers in southern China, and the Pearl River Delta is the region's main freight base.
The core business of a freight forwarder is to deliver the shipper's consignment to the consignee in the most perfect order and at the most competitive price within the stipulated time. In response to changing customer needs, many freight forwarders also provide more value-added services, such as warehousing, distribution, integrated logistics and supply chain management solutions.
Larger freight forwarders offer a wide range of transportation and logistics services, while smaller freight forwarders tend to provide more basic and economical services with greater flexibility and a more personalized service. Trade-related services, including preparation of shipping documents, customs clearance, and logistics, can be undertaken by import-export companies or their agents.
In Hong Kong, larger ocean freight forwarders tend to target larger companies for exclusive deals. They provide value-added services and invest in information technology to ensure that the changing needs of their customers are met. Some enterprises set up logistics subsidiaries to provide tailor-made professional services and become customers' service partners. In general, larger companies' well-known brands and extensive logistics networks help them gain significant market share in global export markets. However, smaller regional players tend to understand the business culture better, understand their markets better, and have established networks in the region.
Hong Kong has many experienced international logistics companies to ensure smooth logistics.
General Hong Kong Tax System
Hong Kong offers a non-discriminatory low tax system, subject to the "territorial principle", under which Hong Kong only taxes income from within its jurisdiction.
In addition, Hong Kong has no capital gains tax, service fee or interest withholding tax, interest tax, sales tax, value added tax, inheritance tax and annual net worth tax.
Given the above advantages, both Hong Kong and foreign shipping companies should consider setting up / registering and managing shipping business in Hong Kong.
Profits Tax Coverage
Hong Kong Profits Tax is levied on every person (including a company) carrying on a trade, profession or business in Hong Kong on his assessable profits arising in or derived from Hong Kong from that trade, profession or business.
Profits Tax Rate
Currently, the profits tax rate on assessable profits in Hong Kong is 16.5%.
Hong Kong Profits Tax Rules Applicable to Shipowners
According to the specific provisions of the Inland Revenue Ordinance (the "IRO") on shipping business, shipowners (defined as shipowners or persons who operate a business of chartering or shipping in Hong Kong) are liable to pay profits tax. The IRO provisions also stipulate that a shipowner will be deemed to be carrying on a shipping business in Hong Kong if the following conditions are met:
The ship owning business is normally controlled or managed in Hong Kong; or
The owner of the ship is a company incorporated in Hong Kong.
In addition, any ship owner's ship berthing at any place within Hong Kong waters (except berthing of a casual nature) is deemed to be operating shipping business in Hong Kong.
Calculation of Assessable Shipping Profits
The assessable profits of the shipowner are calculated according to the following formula.
Assessable profit = total shipping profit x Hong Kong shipping revenue / total global shipping revenue
Hong Kong Crew Salaries Tax Regulations
Hong Kong salaries tax applies to income arising in or derived from Hong Kong from any position, employment and pension.
The Inland Revenue Ordinance provides exemption clauses to exempt seafarers from paying salaries tax if they are absent from Hong Kong for a substantial period of time during the year of assessment.
Seafarers are not required to pay salaries tax on their income if their stay in Hong Kong does not exceed:
60 days in total in the basis period for a year of assessment (i.e. 1 April to 31 March of the following year); and
A total of 120 days within part of each basis period assessed over two consecutive years.
In order to reduce the tax burden of Hong Kong shipping companies, the following tax incentives are given to the shipping business:
For ships flying the Hong Kong flag loading cargo in Hong Kong and sailing to international waters, the relevant freight income is exempt from Hong Kong profits tax; and
Taxpayers residing in any region outside Hong Kong but operating shipping business in Hong Kong are exempt from tax in Hong Kong if Hong Kong resident taxpayers enjoy tax reciprocity in that country. These countries include New Zealand and the Republic of Korea.
Relief under Double Taxation Agreements
As a major international shipping centre, the Hong Kong SAR government aims to reduce the overall tax burden of shipowners registering ships in Hong Kong by providing relief from double taxation of income under the Comprehensive Double Taxation Agreement (CDTA), or an agreement to avoid double taxation on shipping income, for countries that do not have reciprocal exemptions in their tax laws.
Hong Kong has so far signed comprehensive agreements with Austria, Belgium, Brunei, Canada, the Czech Republic, France, Hungary, Indonesia, Ireland, Italy, Japan, Jersey, Kuwait, Liechtenstein, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, People's Republic of China (PRC), Portugal, Spain, Switzerland, Thailand, United Kingdom, and Vietnam. Comprehensive agreements with Canada, Italy, Jersey, Kuwait, Malaysia and Mexico have yet to enter into force, pending the completion of the ratification process by the governments concerned. These CDTAs primarily eliminate/reduce withholding taxes on dividends, royalties and interest, and taxes payable on capital gains. With the exemption/reduction of capital gains tax and the abolition/reduction of withholding tax, the CDTA will help facilitate the use of Hong Kong as a location for regional holding companies or regional headquarters.
In addition to the countries with which Hong Kong has signed comprehensive agreements, Hong Kong also has entered into an agreement for the avoidance of double taxation with Denmark, Germany, the Netherlands, Norway, Singapore, Sri Lanka, the United Kingdom, and the United States of America.
Industry Development and Market Outlook
Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area)
The development of the Greater Bay Area (GBA) has resulted in a fully integrated transportation network in the region, including air cargo, ground transportation and warehousing services. Not only Hong Kong, but also the air cargo logistics at nearby airports in the Greater Bay Area has grown rapidly in recent years. Service providers can now work more closely together to seize the opportunity to build a strategic cooperation platform for air transport. The Hong Kong-Zhuhai-Macao Bridge is a large-scale cross-border infrastructure connecting the three places, improving the connection between cities and making the journey between cities faster. The direct overland connection reduces travel time, doubles the number of daily trips for truck drivers and further enhances the movement of goods between Hong Kong and the western Pearl River Delta.
E-commerce poses competitive pressure on traditional brick-and-mortar retailers, but it also creates a huge opportunity for air cargo. Consumers demand speed and reliability, and air cargo services will have significant advantages. Online retail currently accounts for less than 20% of total global retail sales, indicating that the potential for e-commerce as a future growth driver for the air cargo industry remains huge. Increased overall manufacturing capacity in Asia and the continued shift of production of high-value goods to Asia could also boost air cargo. With shortened product life cycles, commodities such as telecommunications equipment and electronic equipment and components are always shipped by air.
New technologies are increasingly playing a role in improving operational efficiency in the logistics industry. The rise of the Internet of Things (IoT) is encouraging logistics service providers to adopt mobile applications that can be used for tracking and customer service interactions. Emerging 5G technology will also support next-generation IoT deployments and, with its low latency and high speed, offer a range of new and improved solutions to the logistics industry. Supply chain efficiency and accuracy can be improved through real-time data sharing and asset tracking. Robot technology has also become a prominent trend in today's logistics technology, and will be increasingly used in logistics and warehousing operations such as parking and picking.
According to the "Mainland and Hong Kong Closer Economic Partnership Arrangement" (CEPA), Hong Kong service suppliers (HKSS) can obtain greater flexibility and more favorable conditions when entering the Mainland logistics market. The Agreement on Trade in Services consolidates and expands the liberalization of trade in services to the entire mainland of China, and Hong Kong service suppliers receive national treatment to provide various transportation services in the mainland. Hong Kong service suppliers are allowed to set up contractual joint ventures, equity joint ventures or wholly-owned enterprises to provide airport operation services, computer reservation system services, sales and marketing services and other ancillary services for air transport. Hong Kong service suppliers may also establish wholly-owned agencies or enterprises to provide freight forwarding and maritime services.
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At Bestar, our specialists in deals, tax and assurance services help clients ranging from aviation, sea transport, rail and road transport to logistics service providers to set up their businesses in Hong Kong. In a fast-accelerating industry, our comprehensive suite of tax and advisory services help you not only keep up but stay ahead.
For further business information regarding the shipping companies and logistics industry in Hong Kong, please contact us.