1. Investment opportunities in Asia Pacific via the Hong Kong platform Siegfried Verstappen, Invest Hong Kong Brussels office SEV seminar Thessaloniki January 10th 2014 Advantages of Hong Kong when doing business in Asia

2. Are you an SME? (KMO in Belgium) BECAUSE, IF YOU ARE, YOU ARE: - short of cash - short of management time - short of affordable qualified personnel

3. Are you an SME? (MKB in the Netherlands) HONG KONG WILL HELP YOU OVERCOME THOSE SHORTCOMINGS This speech will show you how a Hong Kong presence will optimize your operations with a minimum of commitment in terms of risk, cost and personnel

4. RIGHT PLACE, RIGHT TIME Hong Kong’s Enduring Advantages Where Business Goes to Grow

5. Heart of Asia The world's 4th busiest international passenger airport Around 90 scheduled airlines operating some 750 flights per day to about150 destinations One of the world’s busiest container ports 23 minutes from central business districts to Airport by high-speed train

6. Forbes Tax Misery Index 2009 Hong Kong - 3 rd lowest tax misery score = 41.5 Singapore - eight positions higher, score = 78.5 Belgium – nr 3, score = 156 China – nr 2, score = 159 France – nr 1, score = 167 Low and simple tax system

7. Source: Forbes Tax Misery Index 2009, Inland Revenue Low and Simple Tax System NO VAT/GST or sales tax NO Capital gains tax NO Withholding tax on dividends and interest NO Estate duty NO Global taxation (offshore income allowed/only HK-sourced income is taxable) NO Wine duty Only 3 direct taxes in HK: profits, salaries, property

8. Why Hong Kong instead of mainland China? Source: Fiducia Management -Doing Business 2011, World Bank Report

9. Why Hong Kong instead of mainland China? The ideal combination: The Hong Kong Limited Company executes the trade transactions and the Representative Office / WFOE in China manages quality control and/or manufacturing. Direct sales and direct invoicing from Hong Kong to overseas‘ subsidiaries and to customers FOB shipment to the customer, No direct contact between customer and manufacturer Profits are “locked“ in Hong Kong and not in China: taxed in Hong Kong and not in China! Goods do not touch the intermediary’s warehouse No VAT refund complications Reduced cost and risks: Transport and shipment cost Finance cost Credit risk  Customer benefits from lower price Reliable legislation, easy taxation, low corruption

10. “”” No other city in the world can help overseas investors manage the risks inherent in entering Mainland markets as well as Hong Kong. This is an important part of the reason why overseas firms prefer Hong Kong for the highest-value activities that they perform in the Asia-Pacific region. ” Michael Enright, Sun Hung Kai Properties Professor, School of Business, University of Hong Kong Hong Kong is China ’ s Risk Manager

11. Hong Kong: best place to launch a new venture In Hong Kong you have freedom to move: - capital - people - ideas Unmatched anywhere else except Silicon Valley Source: Dr. Jong Lee, CEO RGL Holdings Ltd (Korean venture capitalist, moved his global head office to Hong Kong)

12. Hong Kong’s Elements of Strategic Confidence Intellectual property rights Legal recourse Access to the Chinese market (CEPA) Credit risk insurance Chinese wall between suppliers/customers Lower financing cost Low threshold for starting up HK office Market research Support for SME loans and marketing RMB currency developments Taxes

13. IP rights in China: problem China has signed the WTO treaty and is committed to protecting IPR. In practice, this will take many years before it is fully implemented. Meanwhile, only a few thousands of well-known international foreign brand names enjoy automatic protection EVERYONE ELSE needs to register his brand name, trademark, patents, etc if you want to be able to have legal recourse inside mainland China against copyright infringement Example: many firms find out that their brand name or trade mark has already been registered in mainland China by local entrepreneurs and are forced to buy back their rights

14. IP rights in China: latest update Intellectual Property Rights Protection in China are improving 2010: 42.000 IPR related lawsuits filled in PRC Highest number in the world MNC’s success rate as plaintiffs:60-90% vs below 60% in USA/EU BUT damages awarded are very small: Microsoft receives on average 50000 RMB Strong,determined,aggressive policy on building PRC’s own IPR governance regime 2010: 750.000 patens applications filed – world largest patent-filing country 2011-2015: 2.000.000 domestic applications ANNUALLY The annual patent transaction annual target is to reach 100 billion yuan (USD 15 billion) by 2015 Major sectors: technology and clean energies Source: SCMP, “China’s reputation in IP rights is still dismal” Denise Tsang

15. IP rights in China: solution A Foreign high tech, engineering and design firms can become a part of the Hong Kong Science & Technology Parks network HKSTP has pre-arranged networks with both the Shenzhen Science Park and a network of universities around Xian, ensuring that sensitive design can be done with full protection in HK, while test runs, pilot plants and qualified labour are provided through the partners in mainland China Website: www.hkstp.orgwww.hkstp.org

16. Hong Kong Science & Technology Parks

19. IP rights in China: solution B For companies in the digital world: A melting pot campus where companies from all over the globe come together to create Digital Content and develop applications. A cost effective “entry point” for overseas companies seeking to develop their Asian or China strategies. A Metro-LAN (NGN) with specialist Shared Facilities available to tenants. Website: www.cyberport.hkwww.cyberport.hk

20. 20 Cyberport IPN – 10Gbs Network Operation Center SMATV & VSAT Free Seamless Wireless LAN Cyberport tenants Central Data Centre Unified Messaging Network Management System Cyberport Help Center Security System CYBERPORT Differentiator 1: Total IT&T Integration Video/ Data on Demand

21. 21 CYBERPORT Differentiator 2: Strategic Cluster (1) 75 Tenants + 30 Incubatees + 55 Smart Space (85+% occupancy rate) Tenants include companies of diverse origins, sizes and at different stages of development: –MNC: 58% (from North America, Europe, Hong Kong, etc) –Overseas & Local Mix: 40% and 60% –Large firms & SMEs: about 50-50 –Start-ups: 18%, e.g. game, digital entertainment, specialized software –Diversified Industries: ICT, media, entertainment, content, new e- Biz –5,000+ employees at Cyberport

22. 22 CYBERPORT Differentiator 2: Offices Option 2: Offices Start at 70sqm One year or one-plus-one available if required Hi-Tech, Grade A Rent ~ USD2.00-2.25 psf per month (USD20.00-25.00 per sqm per month) Management Fee ~ USD0.8 psf per month (USD9 per sqm per month), includes air-con and internet etc.

23. 23 CYBERPORT Differentiator 3: Entrepreneurship Centre Incubation programme: 180+ companies incubated to-date, 30 per year going forward. 67% Survival Rate Incubate companies in digital media and digital entertainment industries, ICT and Web3.0 Cyberport Creative Micro Fund – seed- money. Provide technology, entrepreneurial and business development training.

24. Legal recourse: problem Mainland China has no tradition of Western style law and jurisprudence Many lower courts are not yet fully conversant with new laws regulating commercial, investment or IPR issues Non-Chinese firms (and most Chinese firms) find it very difficult and time-consuming to obtain their rights through the Chinese courts

25. Solution A: HK International Arbitration Centre Insert clause in contract with the mainland Chinese partner that any disputes regarding the execution of the contract will be submitted to the Hong Kong International Arbitration Centre. Both Hong Kong and mainland China have signed the Convention of New York : any arbitration award from HK is immediately executable in China* HK based law cabinets confirm that the system is working speedily, smoothly and satisfactorily Website: www.hkiac.orgwww.hkiac.org *(enforceable between HK and mainland China since February 2000)

26. Sol. B: Sue in HK, enforce in China A new agreement on July 16, 2006, between HK and mainland China : if parties provide for this in their contract, verdicts from the Hong Kong courts are immediately executable in mainland China* It covers money judgments and commercial cases The contract has to stipulate expressly in writing that the HK court has exclusive jurisdiction Applicable whenever the judgment debtor keeps his assets in mainland China *(enforceable between HK and mainland China since August 2008)

27. Access Chinese markets: problem Many foreign investors find that, although China has joined the WTO, its markets remain closed or protected against foreign competition This applies both to trade in goods and trade in services

28. Solution: Closer Economic Partnership Arrangement (CEPA) Since July 2003, Hong Kong and mainland China have signed a type of free trade agreement, providing preferential access into mainland China for HK based goods and service providers (CEPA) Overseas companies can take advantage of CEPA by outsourcing to, partnering with a CEPA qualified manufacturer or service provider, or having their goods qualified as HK origin. CEPA being rolled out in phases : current scope and benefits of CEPA likely to expand – CEPA VII now applicable. Listing of applicable CCN can be found at: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_201 0.pdf http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_201 0.pdf

29. Solution: Closer Economic Partnership Arrangement (CEPA) Latest development: free trade by 2015 China’s Vice Premier of the State Council Li Keqiang announced in Hong Kong in August 2011 that the latest supplement of the Hong Kong-mainland Closer Economic Partnership Arrangement, expected to be signed in October, will broaden Hong Kong’s access to mainland services industries. “The target is to realise free services trade with Hong Kong by the end of the 12 th five-year period,” Mr Li said at a Hong Kong forum on China’s 12 th Five-Year Programme.

30. Access Chinese markets: brand problem Because quality guarantees are insufficient in mainland China, Chinese consumers have a positive bias towards foreign brands. But if those brands aren’t present in Hong Kong, they lose credibility in China, because the Chinese consumers trust Hong Kong’s IPR and brand protection regulatory framework and its enforcement Source: Prod. Dr. Justina Yung, Polytechnic University Hong Kong, speech on long term PRD development December 2013

31. Hong Kong: Chinese wall between supplier and customer merchandise can be shipped directly from mainland factories to end customers overseas without showing the factories’ details if you follow these steps HK office is the shipper and books the shipping line with forwarding company. A shipping order (S/O) will be prepared by the forwarding company and sent to the HK office. Since HK office is the shipper, there is no need to show the Chinese manufacturer's details. When the HK office receives the shipping order, they send it to the Chinese manufacturer who take this to send the merchandise to the forwarding company

32. Hong Kong: Chinese wall between supplier and customer After shipment, a set of bill of lading (B/L) will be sent by the forwarding company to the HK office. The B/L information is prepared according to the info on S/O, and there is no info of manufacturers. Then HK office could send the B/L to their customer for collecting goods at forwarder. As such, from shipping order to bill of lading, no manufacturer’s info will be shown. HK office can also hide the consignee info on the shipping order so that the Chinese factories cannot access the customer info when they take the S/O to send the goods to the freight forwarder.

33. Hong Kong: Chinese wall between supplier and customer Please note: this works when the importing country requires no country of origin (C/O) for the importing goods. If C/O is required, then it might not be possible to hide the manufacturer's details in some other documents is only applicable to the documents of shipping order, bill of lading, invoice and packing list

34. Hong Kong’s credit risk insurance advantage Hong Kong based firms exporting goods to other markets can obtain both country risk and buyer risk insurance from a HKSAR agency called: Hong Kong Export Credit Insurance Corporation (ECIC) Website: http://www.hkecic.com/eclink/infoCenter.jsphttp://www.hkecic.com/eclink/infoCenter.jsp Insurance premium can be as low as 0.39%

35. Hong Kong’s lower financing cost advantage Hong Kong based firms trading goods with other markets can obtain a lower financing cost as the base rate HIBOR is consistently lower than EURIBOR, since Hong Kong in effect follows U.S. monetary policy

39. Hong Kong’s lower financing cost advantage CAUTION !!!!! Eurozone firms wishing to use this benefit have to accept a currency risk exposure, as the financing will be handled in the HK $ zone

40. Hong Kong’s market research advantage Hong Kong based firms can access the database managed by the Hong Kong Trade Development Council The TDC manages an online sourcing platform that connects over 120,000 credible suppliers over 800,000 worldwide buyers use the platform to source products and services provided by China, Hong Kong, and Asian suppliers for free at www.hktdc.com/sourcingwww.hktdc.com/sourcing Website: www.tdctrade.org www.tdctrade.org

41. Low threshold for starting up HK office New arrivals worry about 2 major cost aspects in Hong Kong: –labour cost –real estate expense

42. Low threshold for starting up HK office Typical gross salary cost to the employer will vary between 25K and 35K annually Most positions will also have variable bonus of 10% to 30% of the salary A typical contract is for 12 months, the average notice period is 1 month

43. Low threshold for starting up HK office Real estate expense: HK is ranked among the 3 most expensive cities in the world But there are low entry solutions in the private sector, with prices as low as: –1000 HK$ per month per workplace (Cocoon) to –4500 HKS$ per month per workplace (Hive) Some venture capitalists will finetune your concept: e.g. Nest will invest 500,000 HK$ in 3 months time if they accept your proposal

44. Coworking space: COCOON CoCoon is a coworking place where entrepreneurs, creative talent, successful leaders and investors meet, collaborate and deliver results together Theodore Ma, Co-founder - T: 852 3158 2999 - theodore@hkcocoon.orgtheodore@hkcocoon.org www.hkcocoon.orgwww.hkcocoon.org - 3/F, Citicorp Centre - 18 Whitfield Road -Causeway Bay, Hong Kong

45. Coworking space for creative industries:The Hive The Hive is Hong Kong’s first purpose designed members’ co worker space for those in creative industries. Constant Tedder, Founder – 852 9356 7883 – constant@thehive.com.hk www.thehive.com.hk – 21/F The Phoenix, 23 Luard Road, Wan Chai

46. Investment Platform: NEST NEST is an investment platform focused on investing in scalable consumer businesses in the lifestyle space. Simon Squibb, CEO - T 852 2721 2787 – simon@nestideas.com www.nestideas.comwww.nestideas.com – 3d floor Chao’s Building – 143-145 Bonham Street – Sheung Wan

47. Creative Space for Digital Start-ups Cocoon –US$128/mth Fill in the Blanks –US$102/mth Good Lab –US$230/mth The Hive –US$359/mth Hong Kong Commons –US$205/mth

48. Support for SME’s

49. BUD Fund Launched in June 2012 $1 billion “Dedicated Fund on Branding, Upgrading and Domestic Sales” Aims to provide funding support to assist Hong Kong enterprises in exploring and developing the Mainland market through developing brands, upgrading and restructuring operations, and promoting domestic sales in the Mainland.  the BUD fund comprises two programmes 1)Enterprise Support Programme provides funding support for individual enterprises 2) Organisation Support Programme Provides funding support for non-profit-distributing organisations. http://www.tid.gov.hk/english/smes_industry/bud/bud.html

50. SME Loan Guarantee Fund aim to help SMEs to secure loan from participating lending institutions (PLIs) for acquiring equipments and meeting working needs with Government as the guarantor companies must be registered in HK with substantive business operation in HK. no requirement of the year of business operation but subject's to the requirement of PLIs the guarantee of the loan must be in a non-revolving loan the amount of guarantee is 50% of approved loan, subject to a max. amount of HK$6m http://www.smefund.tid.gov.hk/eng/eng_main.html?content=/eng/sgs.htm

51. SME Financing Guarantee Scheme(SFGC) aim to help SMEs to obtain loans Hong Kong Mortgage Corporation Ltd (HKMC) provides guarantee coverage on 50%, 60% or 70% of the loans companies must be registered in HK with business operation for at least 1 year on the date of application the scheme guarantees both term loan and revolving credit facility maximum loan amount is not more than $12m and max loan tenor is 5% guarantee fee ranges from 0.5% - 3.2% of the loan amount/credit limit http://www.hkmc.com.hk/eng/ops/ourbusiness/sme.html

52. SME Export Marketing Fund The SME Export Marketing Fund (EMF) aims at helping small and medium enterprises (SMEs) expand their businesses through participation in export promotion activities. Companies must be registered in HK with substantive business operation in HK. Provides grant to SMEs for their participation in trade fairs/exhibitions and business missions outside Hong Kong, as well as local trade fairs/exhibitions which are “export- oriented”. Provides grant to SMEs for their advertisements on printed trade publications targeting export markets; as well as advertisements placed on eligible trade websites. Applicants must participate in the export promotion activities as Hong Kong SMEs The maximum amount of grant for each successful application will be 50% of the total approved expenditures incurred by the applicant or $50,000, whichever is the less. The maximum cumulative amount of grant that an SME may obtain from the EMF is $150,000. http://www.smefund.tid.gov.hk/eng/emf.html#objective

53. Hong Kong was, is and will remain a global financial center attracting high volumes of capital to support growth Hong Kong usually is the best option for your route into China As a financial center it brings innovation by offering RMB financial products Hong Kong is currently the main player in the globalization of the RMB and will have the highest volumes and liquidity going forward Renminbi liquidity is supported and controlled by the PBoC by means of currency swaps with HKMA resulting in sharper pricing for your foreign exchange in HK and support for your capital investments, trade flows, and repatriations of profits. Hong Kong: China’s offshore renminbi centre

54. RMB Trade Settlement Scheme: implications for sourcing from China ●Old system of paying in hard currency has following consequences for the Chinese supplier: ●A) he has a currency risk exposure of about 6 weeks before SAFE informs him at what rate the conversion will take place ●B) he has to finance his foreign customer for 2 months before he receives the payment in his Chinese account ●C) therefore his export prices are up to 10% more expensive than his domestic prices to compensate these risks ●New system allowing renminbi payment has following consequences for the Chinese supplier: ●A) no longer currency risk exposure ●B) no intervention by SAFE = payment occurs 4 weeks faster ●CONCLUSION: You can negotiate lower prices from your supplier: his 10% cushion is no longer required SINCE HE IS ALLOWED TO TRADE IN RENMINBI !!!

55. Chinese taxes: problem China is nr 2 worldwide on the Forbes Tax Misery Index

56. Chinese taxes: solutions Objective: reduce your taxable income in mainland China The Double-taxation avoidance treaty between HK and mainland China allows, to a certain degree, the imputation of expenses by HK parent companies to mainland affiliates Examples that could qualify under certain conditions: market research, personnel support or recruitment, quality control inspectors, logistics coordination, etc…. Hong Kong corporate tax rate is 16.5% and even 0% for offshore incomes Hong Kong companies can deduct 50% of their income from joint ventures with mainland Chinese firms from taxable revenue

57. Chinese taxes: solutions The Double-taxation avoidance treaty (DTAT) between HK and mainland China brings in new and highly favourable rates for transfer of dividends, interest, and royalty payments from mainland China firms to their HK parent companies In practice, withholding taxes are now greatly reduced on these forms of transactions: 5% for dividend payments 7% for interest payments 7% for royalty payments

58. Confirmed Double Taxation Relief Agreements with 23 trading partners: Double Taxation Agreements In negotiations: Bangladesh Canada Finland India Korea Macau Malaysia Mexico Saudi Arabia the United Arab Emirates Austria Belgium Brunei Czech Republic France Hungary Indonesia Ireland New Zealand Portugal Spain Switzerland Thailand Italy UK Vietnam Japan Jersey Kuwait Liechtenstein Luxembourg Mainland of China Malta Netherlands As of February 2013 * - Pending entry into force

59. Invest Hong Kong: how we can help Enjoy our free of charge services Latest information on business environment and opportunities Contacts for all aspects of business establishment Arranging tailored visit programmes Support and assistance with visa applications, trade regulations etc. Public relations services during your launch/expansion Advice on settling in Hong Kong – housing, schooling, healthcare

60. Rue d ’ Arlon/Aarlenstraat 118, B-1040 Brussels, Belgium Telephone +32/2/775 00 76 E-mail: siegfried_verstappen@hongkong-eu.orgsiegfried_verstappen@hongkong-eu.org Websites: www.investhk.gov.hk and: www.hongkong-eu.orgwww.investhk.gov.hkwww.hongkong-eu.org Hong Kong background information: http://www.brandhk.gov.hk/en/#/en/facts/factsheets/index.html Invest Hong Kong Brussels office