HONG KONG, Oct. 24, 2014 /PRNewswire/ -- Hong Kong architects have provided professional services in Mainland China since 1970s in which the majority was hotels. In 1990s, they started to set up points of operation and various architectural projects in the Mainland. At this time, Registered Practices of The Hong Kong Institute of Architects (HKIA) set up branches in 10 cities in the Mainland. In 2004, HKIA and National Administration Board of Architectural Registration co-signed an agreement of reciprocity of qualification of Mainland architects and Hong Kong architects, resulting 412 Hong Kong architects attained the "PRC Class 1 Architect Qualification" from 2004 to 2008. And 249 out of these 412 architects also passed the Guangdong Legislation Examination from 2011 to 2013. As of 16 October 2014, there are 39 Hong Kong architects and 2 Hong Kong architectural firms registered in Guangdong.
The Hong Kong Institute of Architects (HKIA) is fully committed to promoting Hong Kong architectural services and expertise both overseas and to Mainland China, and has engaged Hogan Lovells International LLP and KPMG Advisory (China) Limited to conduct large-scaled research on taxation, foreign exchange and legislation that Hong Kong architects will have to face when establishing business in Mainland China. A comparison was drawn in the research for data of Qianhai, Hengqin, Nansha and the Shanghai Free-Trade Zone. Considering that Mainland architects had an advantage in the ability to provide one-stop professional services from design to completion, Hong Kong architects involved in Mainland projects would have helped improve quality and standards of architectural design, project management and construction. After comprehensive research on taxation, legislation and foreign exchange management, the HKIA has prepared the Template of Agreement of Offshore and Onshore Mainland Projects for Hong Kong Architect to clearly set out the terms and options available, to further allow Mainland development units and Hong Kong architects have a clearer basis and foundation for agreed services and partnerships, in the hope that significant contributions can be made to the industry for overseas services.
The study revealed the following six major operation models that Hong Kong-based architectural firms carried out business in the Mainland:
| Offshore Operation Models |
Onshore Operation Models |
| (No company established on the Mainland) |
(HK Wholly Foreign Owned Enterprise / Joint Venture) |
| 1. HK professionals providing design services within HK, for Mainland projects |
4. HK company setting up a WFOE / JV in Mainland China and entering into a service contract with Mainland client |
| 2. HK professionals dispatched to Mainland to provide design services within territory |
5. Mainland company subcontracting Mainland business to Hong Kong company |
| 3. HK company cooperating with Mainland company via tripartite contract |
6. Hong Kong company subcontracting Mainland business to Mainland company |
Provincial Tax for Offshore Companies: Development Opportunities and Limitations for Businesses
For all offshore operating models, there is a common advantage that the large amount of capital and personnel investment required for establishing a company on the Mainland can be avoided, but operational capabilities are limited.
Due to differences of location of service delivery, the first offshore operating model has the 6% Value-added Tax (VAT) while the second offshore operating model will involve with 25% Corporate Income Tax (CIT) and Individual Income Tax (IIT), in addition to the 6% VAT. There will be deductions in Hong Kong profit tax and salary tax. As for the third offshore operating model, with the cooperation of Hong Kong and Mainland design units, the nature of the service agreement can be deepened.
Onshore Operations Vary: Attention to Legal Dynamics
For onshore operations, VAT, CIT and IIT are all required. There is also a withholding tax of 5% or 10% for dividend repatriation from the Mainland. However, benefits include setting up points of operation within the territory which offers flexibility via proximity and accessibility to customers. The fourth operating model purely involves onshore business units offering Hong Kong architect services in compliance with the territory's regulations, taxes and foreign exchange terms. The fifth and sixth operating models consider quality and quantity of services. Hong Kong and Mainland companies will have clear division of labour arrangements and contractual relations.
Due to the differences and subjective nature of each contract, legal and tax-related issues will vary. Local architectural firms whom wish to expand into the mainland market should pick the appropriate business model that suits their characteristics and business strategies. The study lists out tax incentives and policy limitations of different economic zones. HKIA's Template of Agreement of Offshore and Onshore Mainland Projects for Hong Kong Architect covers various conditions and details in different business models, and meets the needs of architectural firms positioned in the Mainland, and helps them in facing challenges for developing in the Mainland market.
Hong Kong architects' achievements meet international standards
HKIA looks highly upon the international image of Hong Kong's architectural industry. From October till November this year, HKIA will organize a grand exhibition titled "The Hong Kong Institute of Architects Annual Awards 1965-2004 - 50 Years of Hong Kong Architecture", at the Royal Institute of British Architects in London. Carefully selected winning projects from the past 50 years of HKIA Awards, will be displayed at the exhibit, with the aim of globally promoting the outstanding works of Hong Kong architects. The United Kingdom will be the first stop for this exhibition, which will span 5 weeks. The exhibit will be entered into HKIA's archives, and will improve the fundamentals of building science.
Award winning exhibits include the Choi Hung Estate (Silver Medal, 1965) which is one of Hong Kong's post-war expedient housing project, Landmark (Silver Medal, 1982) which is a symbol of high-end office and retail space, the iconic Hong Kong International Airport Passenger Terminal (Silver Medal, 1998), and many more.
Ada Fung, President of The Hong Kong Institute of Architects said: "The international status of Hong Kong's architects is indisputable and second to none. Even in a city with high density, high floor buildings and limited land resources, Hong Kong architects are able to construct intricate and versatile buildings. This large-scaled study will help our industry to better grasp the Mainland market. At the same time, through the Template of Agreement of Offshore and Onshore Mainland Projects for Hong Kong Architect, we hope to provide local architects more development opportunities, and to help them catch the rapid development of Mainland China."
About The Hong Kong Institute of Architects
The Hong Kong Institute of Architects (HKIA) is the professional body of architects in Hong Kong with over 4,000 membership and 179 registered Practices. Established in 1956, the HKIA aims to advance architectural education and practices in Hong Kong as well as to promote and facilitate the acquisition of knowledge of the various arts and sciences connected therewith. The Institute is committed to raising the standard of architectural creativity in Hong Kong, maintaining its code of professional conduct among members, providing services to the public and nurturing architectural talents by offering courses and counsel in professional practice and practical experience in architecture. To take Hong Kong to the fore in international circles, HKIA is also actively engaged in various international unions and councils. (Our website: www.hkia.net)
