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Oldham, Li & Nie contributed to the Lexology Getting The Deal Through (GTDT) series – Public M&A Hong Kong

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The Lexology GTDT – Public M&A guide has been published. Our Partner Simon Wong prepared the Hong Kong chapter for the guide.

This reference guide enabling side-by-side comparison of local insights into public M&A issues worldwide, including types of business combination; principal laws and regulations; cross-border and sector-specific considerations; governing laws; filing and disclosure requirements; duties of directors and controlling shareholders; shareholder approval and appraisal rights; hostile transactions; break-up fees and frustration of additional bidders; government influence; conditional offers; financing; minority squeeze-outs; waiting and notification periods; tax; labour and employee benefits; restructuring, bankruptcy or receivership; anti-bribery, anti-corruption and sanctions issues; and recent trends.

Read and download the whole chapter below.

Download the Lexology Getting the Deal Through (GTDT) Public M&A Hong Kong Chapter

The Future Of Travel From A Family Law Perspective

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(This article was published in the November 2022 Issue of “Britain in Hong Kong – The Future of Travel” magazine)

In Hong Kong, the quarantine rules have drastically eased after almost 3 years of tight restrictions.  In particular, the Hong Kong Government recently removed the hotel quarantine restriction.

With the ease of travel restrictions in Hong Kong, what is the future of travel from a family law perspective and the things you should consider ahead of your holidays? 

Whilst it may be desirable to book flights and pack your bags for a spontaneous trip, it is more complicated when you are divorced or are divorcing and have children to consider.  Prior to leaving Hong Kong with the children, an agreement must be reached with the co-parent. If an agreement is not reached, the parent who wishes to remove the children from the jurisdiction of Hong Kong for the holidays must apply to the Family Court for an order allowing him/her to remove the children from Hong Kong.  Given the delays with the Family Court, it is a good idea to apply as early as possible as it may take two (2) to three (3) months before it will  be decided by the Family Court.

For example, if you are planning a holiday with the children next summer and you are currently in dispute with your spouse about these holidays, you should meet with your solicitor as soon as possible and apply to the Family Court preferably no later than January 2023 to avoid pressure with respect to air tickets and hotel bookings.

The Family Court orders have a deadline for the return of children to Hong Kong.  However, it is preferable to have flexible dates built into the Family Court order so that if there is a delay caused by a flight cancellation or you or your family member has a sudden onset of Covid-19 whilst traveling, provisions will be made in the Family Court order so that the extraneous events which you have no control over, do not cause you to be in breach of the Family Court order and does not result in further court applications being made.   

Ahead of travel, another document you may want to consider is a Deed of Parenting. A Deed of Parenting is a legal document that simply states that you and your spouse are the legal parents of the children.  On a practical level, you can take with you the original birth certificates of the children (instead of a Deed of Parenting) or preferably have your solicitor sign a certified true copy of the birth certificate so you do not have to take the original documents with you whilst traveling.  Whilst a Deed of Parenting is not needed in a “traditional” family, these days families are often made up of same-sex couples where the birth certificates will not assist.  In these circumstances, a Deed of Parenting will be helpful.  A Deed of Parenting can clearly state the legal parents of your children without any question or issue.

This may be important during these travel times when customs and immigration officers are burdened with ever-changing rules for individuals coming in and out of their country. 

Another legal document parents may wish to consider is a Deed of Guardianship.  A Deed of Guardianship sets out guidelines for the caring and well-being of minor children in the event of both parents passing away or temporary unavailability due to unforeseen circumstances such as unexpected quarantine during Covid-19 times, especially if you test positive upon arrival in Hong Kong and are required to quarantine at a designated hotel or quarantine facility.

A Deed of Guardianship is a legal document signed by both parents and two witnesses and sets out specific guidelines regarding the care of your minor children.  A Deed of Guardianship will set out the minor children’s primary caretakers and can also identify temporary guardians until such time the minor children can be in the care of their parents or permanent guardians.

Deed of Guardianships may be especially important to expatriates living in Hong Kong, especially when family members are not in the same jurisdiction.  For many expatriates, having a Deed of Guardianship can provide parents with the peace of mind about the care of their children in emergency situations.

It is important to speak with a solicitor who can assist in the preparation of travel with your children.  Oldham, Li & Nie (“OLN”) has a full-service matrimonial team well-versed on such topics and can provide comprehensive advice. Having the appropriate documents prior to travel is imperative in this post-Covid world and can provide you with peace of mind!


Hong Kong’s proposed refinements on foreign source income exemption (“FSIE”) regime for passive income – Part 1

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In response to its inclusion on the “watchlist” for non-cooperative jurisdictions for tax purposes by the European Union (“EU”), the Hong Kong government launched a consultation on the proposed refinements to Hong Kong’s FSIE regime for passive income, mapping out significant changes to address the EU’s concerns such that Hong Kong would not be “blacklisted” by the EU for tax purposes.

The amendment bill in relation to the proposed refinements will be introduced into the Legislative Council in October 2022. The Financial Services and the Treasury Bureau aim to secure the passing of the amendment bill by the end of 2022 and bring the refined FSIE regime into force from 1 January 2023. The Inland Revenue Department will issue administrative guidance on requirements for exemptions and tax credits (please see part 2 below).

1. What is taxable and who is the taxpayer?
Covered income

Under the FSIE, offshore passive income is deemed to be sourced from Hong Kong and chargeable to profits tax if it is:

  1. interest, dividends, disposal gains or intellectual properties (“IP”) income (collectively, “In-scope Offshore Passive Income”);
  2. received in Hong Kong;
  3. by a constituent entity of an MNE group (a “Covered Taxpayer”); and
  4. the Covered Taxpayer fails to meet the relevant economic substance requirement or nexus approach requirements.

Covered taxpayer

The proposed refinements will only apply to multinational enterprise groups (“MNE”) which is defined under the Global Anti-Base Erosion (“GloBE”) Rules promulgated by the Organisation for Economic Co-operation and Development as “any group that includes at least one entity or permanent establishment that is not located in the jurisdiction of the ultimate parent entity”.

Hence, the proposed refinements are not applicable to: (1) stand-alone local companies, (2) purely local group companies or (3) individuals.

2. Exemptions and tax credit

According to the consultation paper, by meeting the relevant economic substance requirements or nexus approach requirements, or qualifying under the participation exemption, an In-scope Offshore Passive Income could still be exempt from profits tax.

Step 1 and 2: economic substance / nexus approach & participation exemption

Interest Dividends Disposal gains IP income

Step 1 

Can the covered income fulfill these requirements?

1a. If yes, the income would not be deemed taxable.

1b. If no:

For interest and IP income, check if the income is qualified for foreign tax credit or unilateral tax credit (see Step 3 below).

For dividends and disposal gains, check if the income is qualified for participation exemption (see Step 2 below).

Economic substance requirements

  • The Covered Taxpayer has to conduct substantial economic activities (“Relevant Activities”) with respect to the relevant passive income in Hong Kong:
  • for a non-pure equity holding company, the Relevant Activities will include (i) making necessary strategic decision, and (ii) managing and assuming principal risks in respect of any assets it acquires, holds or disposes of.
  • for a pure equity holding company (i.e. a company which, as its primary function, acquires and holds shares or equitable interests in companies and only earns dividends and disposal gains in relation to shares or equity interest), a reduced substantial activities test applies and the Relevant Activities will only include (i) holding and managing its equity participation, and (ii) complying with the corporate law filing requirements in Hong Kong.
  • It is possible for the Covered Taxpayer to outsource the Relevant Activities if it is able to demonstrate (i) adequate monitoring of the outsourced activities, and (ii) that the Relevant Activities are conducted in Hong Kong.

How is “substance” being measured?

  • Non-pure equity holding companies have to meet the adequacy test in terms of:
  • (i) employing an adequate number of qualified employees; and
  • (ii) incurring an adequate amount of operating expenditures in Hong Kong in relation to the Relevant Activities.
  • The Inland Revenue Department (“IRD”) will consider whether a taxpayer has met the adequacy test after taking into account a list of factors, including:
  • (i) nature of business;
  • (ii) scale of operation;
  • (iii) profitability;
  • (iv) details of employees employed;
  • (v) the amount and types of operating expenditures incurred, etc.
  • As the adequacy test will be determined based on a totality of facts, there will be no minimum objective threshold in terms of number of employees or operating expenditure.
  • Pure equity holding companies have to meet the reduced substantial activities test, which may be satisfied by:
  • (i) having a director who is a Hong Kong tax resident;
  • (ii) holding annual board meetings;
  • (iii) fulfilling annual filing requirements under the Companies Ordinance, etc.
  • subject to further guidance from the IRD and the draft legislation.

Nexus approach requirements

  • Income from a qualifying IP asset can qualify for preferential tax treatment based on a nexus ratio
  • Nexus ratio = Qualifying expenditures incurred by the taxpayer to develop the IP asset / Overall expenditures incurred by the taxpayer to develop the IP asset
  • This proportion of research and development (“R&D”) expenditures is a proxy for substantial economic activities.

Qualifying IP asset

  • Only covers (i) patents and (ii) other IP assets which are functionally equivalent to patents if those IP assets are both legally protected and subject to similar approval and registration processes (e.g. copyrighted software)
  • Marketing-related IP assets (e.g. trademark and copyright) are excluded from the preferential tax treatment

Qualifying expenditures

  • Only include R&D expenditures that are directly connected to the IP asset
  • Acquisition costs of the IP asset are excluded
  • Only cover expenditures on R&D activities (i) undertaken by the taxpayer within the jurisdiction providing the IP regime (“IP Regime Jurisdiction”); (ii) outsourced to unrelated parties to take place inside or outside the IP Regime Jurisdiction; and (iii) outsourced to resident related parties to take place within the IP regime jurisdiction

Taxpayers may be permitted to apply a 30% uplift on the qualifying expenditures, subject to a cap equal to the overall expenditures incurred by the taxpayer

Step 2

For dividends and disposal gains that are already deemed taxable, can the participation exemption requirements be fulfilled?

2a. If yes, the income can be exempt.

2b. If no, check if the income is qualified for foreign tax credit or unilateral tax credit (see Step 3 below).
N/A

Participation exemption

  • The income concerned will continue to be tax-exempt if:
  • (i) the investor company is a Hong Kong resident person (i.e. a company incorporated in Hong Kong, or if incorporated outside Hong Kong, normally managed or controlled in Hong Kong) or a non-Hong Kong resident person that has a permanent establishment in Hong Kong;
  • (ii) the investor company holds at least 5% of the shares or equity interest in the investee company; and
  • (iii) no more than 50% of the income derived by the investee company is passive income.
  • In terms of the requirement of “Hong Kong resident person”, it may not be necessary for companies to apply for a Hong Kong Tax Resident Certificate. The company should be able to fulfill this requirement by demonstrating control of the company in Hong Kong, having a majority of directors who are Hong Kong residents, conducting business activities in Hong Kong, having meetings in Hong Kong etc.

Anti-abuse rules

  • (i) Switch-over rule
  • If the income concerned or the profits of the investee company is or are subject to tax in a foreign jurisdiction the headline tax rate of which is below 15%, the tax relief available to the investor company will switch over from participation exemption to foreign tax credit.
  • (ii) Main purpose rule
  • If there is any arrangement or series of arrangements undertaken by the investor company with a main purpose (or one of the main purposes) of obtaining a tax advantage that defeats the object or purpose of the exemption, the participation exemption will not be available.
  • (iii) Anti-hybrid mismatch rule
  • Where the income concerned is dividends, the participation exemption will not apply to the extent that the dividend payment is deductible by the investee company.
 N/A

Step 3: double taxation relief – unilateral tax credit

For taxpayers who would suffer double taxation if they fail to get exemption under the refined FSIE regime, it is proposed that a unilateral tax credit will be provided to these taxpayers who paid tax in a jurisdiction which has not entered into a comprehensive avoidance of double taxation agreement with Hong Kong (“Non-CDTA Jurisdiction”).

The proposed unilateral tax credit will only be provided in respect of the In-scope Offshore Passive Income which is taxable under the refined FSIE regime. No such tax credit will be available for:

  • In-scope Offshore Passive Income which is exempt from profits tax under the refined FSIE regime;
  • Tax paid in a Non-CDTA Jurisdiction which relates to income other than the In-scope Offshore Passive Income; or
  • Tax paid in a jurisdiction that has a tax treaty with Hong Kong (in such case tax credit would be made available under the tax treaty).
3. Conclusion

The change in Hong Kong’s FSIE regime is happening soon (possibly on 1 January 2023 as aforementioned) for Hong Kong to keep up with the latest international tax standards. While we await the introduction of the amendment bill, it is advisable for businesses to keep an eye on the latest developments, review the corporate structure with reference to the information currently available and consult a tax adviser if in doubt.

If you have any question regarding the topic discussed above, please contact our partner Victor Ng at victor.ng@oln-law.com for further assistance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

OLN获新发布的《亚洲法律概况2022/23年度排名》高度推荐

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我们很高兴地宣布，高李严律师行再次获得《亚洲法律》的高度推荐。

《亚洲法律概况2022/23》认可本行在以下业务领域的专业知识：

  • 争议解决 – 高度推荐
  • 企业并购 – 推荐
  • 知识产权 – 推荐
  • 劳工及雇佣 – 推荐
  • 私人客户 – 推荐
  • 重组与破产 – 值得关注

高李严律师行还于以下行业被推荐：

  • 保险 – 推荐
  • 消费品及服务 – 值得关注
  • 科技及通讯 – 值得关注

《亚洲法律》亦认可本行的合伙人在各自的业务领域中获得排名：

  • 高国峻被公认为争议解决方面的业界资深律师
  • 李卓贤被公认为争议解决方面的卓越律师
  • 叶琳宝 被公认为公司企业和商业法方面的卓越律师
  • 宋静妍被公认为知识产权方面的卓越律师
asialaw Profiles 2023

关于《亚洲法律》

《亚洲法律概况》是唯一一份全面分析亚洲地区和国内律师事务所以及该地区顶尖律师的法律名录。

概况于每年 9 月在线上发布，而今年的排名为23 个司法管辖区（从孟加拉到越南）以及 28 个行业和业务领域提供律师事务所和律师推荐。

Intellectual Property for Social Media Influencers

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88% of Hong Kong population is using social media, and this number is growing every minute. It is no surprise that social media has become a lucrative business. Social media influencers (“Influencers”) or key opinion leaders (“KOLs”) are popular and powerful – they create tight bonds with their followers and have the ability to influence their perceptions of brands and hence their spending behaviours. As a result, they are now an important marketing channel for many local and foreign brands. Influencers partner with these brands and generate income by way of endorsement or other forms of support through their profiles on Instagram, WeChat, Facebook, YouTube, TikTok, and other social media networks.

Influencers and KOLs build up and grow their reputations and market values by creating original contents, where multiple intellectual property rights may subsist, that should be managed properly to preserve and maximize their values. At the same time, Influencers and KOLs may overlook the potential risk of infringing others’ intellectual property rights when creating their posts and articles given their contents often ride on photographs and videos officially released by the leading brands in the market which carry protectable intellectual property rights.

Why influencers and KOLs should be concerned about intellectual property rights (“IPR”) of themselves and others?

Intellectual property rights infringements on the internet, unfortunately, are common. If trade mark and copyright are protected with registration, it is easier to enforce them in the event of a dispute, as compared to unregistered rights.

Registration of intellectual property rights makes it clear to others that they are protected. This helps to avoid plagiarism – if other influencers know that the content is protected, they won’t in the first place replicate the content.

Registered intellectual property rights give a social media account more credibility – followers and brands find the contents more trustworthy and risks free.

What types of intellectual property should influencers register?
Copyright

Copyright protects the original influencer’s works of authorship: photographs, videos, posts, art, sound recordings, and other types of content. The social media influencer or KOL is the owner of the content that he / she creates, and can freely distribute, make copies and commercially exploit the original works. Others must get permission or license before using such copyrighted contents unless a legal based exception, such as “fair use”, applies.

In Hong Kong, it is not necessary to register a copyrighted work as the copyright subsisting therein automatically arises upon the creation of an original work. Having said that, from the perspective of enforcement, the social media influencer may wish to register or deposit a copyright work if it is of significant value in the event it is stolen by a third party.

Trademark

Trademark is a design, logo, phrase or any graphic representation that differentiates one brand from the others in the marketplace. The personal name or nick name of the social media influencer or KOL is the brand name that should be property protected by trade mark registration to preserve and generate its value.

Website domain

The website domain in itself does not carry an intellectual property right yet the domain name usually contains a word, a name or a phrase forming the brand name of the social media influencer or KOL which can be registered as a trade mark.

Intellectual property policies of different social media platforms
The future of protecting intellectual property on social media

To grow exposure and reputation, social media influencers or KOLs often create different types of original contents which are highly susceptible to legal risks. With the internet evolving at such a fast pace, we anticipate infringement of IP right in social media online platforms will increase taking new and more sophisticated forms. Hence, it is imperative for social media influencers and KOLs to be more cautious and proactive to protect their original works going forward. It should not be taken for granted that because nothing bad has happened so far and therefore they will continue to be safe going forward.

It is also important to respect others’ IP rights and not to replicate others’ contents without prior permission.

If you would like to know more about protecting social media influencers or KOLs’ intellectual property rights, please contact us.

Disclaimer: This article is for reference only. Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

The Succession of Digital Assets: NFTs, Cryptocurrency or Online Accounts

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There has been an increase of wealth distributed in various forms of digital assets or platforms.  For example, NFTs, cryptocurrencies such as Bitcoin or Ethereum or even online social media or gaming accounts may have substantial value in them. Investment is no longer restricted to its traditional forms, leading to the emergence of many alternative assets investments, most of which are done on an anonymous basis.

To consider how to plan the succession of digital assets, it would be useful to distinguish between digital assets that are transferable and those that are non-transferable.

Transferable Digital Assets

Transferable digital assets include cryptocurrency, NFTs, funds kept in online accounts such as Alipay or WeChat pay.  These can generally be passed down by including provisions in a will. Most countries may treat them the same as any traditional assets (such as bank accounts or real estate property) and require a form of grant of representation to access the digital assets. 

Some companies may even provide the feature on their software platform whereby the user can designate an individual as an emergency contact to receive the data in the user’s account under conditions specified by the user, such as upon the user’s death or incapacity. This feature would potentially allow an executor or trustee nominated in the user’s will (if there is one) to gain access to valuable personal, financial and business information after the user’s death even before presenting an authenticated grant of probate to the company, as well as to act on such information for the benefit of the user’s next generation pursuant to the will.  For example, Apple has a policy known as Legacy Contacts where the person who is set as a Legacy Contact can access photos, messages, notes (but not passwords, music, subscriptions, etc.) with just the access key generated when the Legacy Contact was set and the death certificate.

Given the popularity of digital assets, popular trading platforms for cryptocurrency and other digital assets already have some form of structured policy for dealing with account holders who have passed away.  Some trading platforms have adopted the traditional requirements of dealing with any other physical asset, i.e. requiring beneficiaries to provide the grant of representation, death certificate and other supporting documents to allow access into the deceased person’s account, whilst other platforms give their users options to complete their know-your-client procedure which allows the platform to identify the person using the account, and therefore assist beneficiaries in accessing such accounts.

However, as currently there is no uniform standard on how to pass on digital assets, the best and simplest method is to make sure your beneficiaries are able to find out not only what digital assets you own.  Importantly, and due to the highly secured and encrypted nature of digital assets such that a form of password or key is required to access the assets, it may be important to store such passwords in a safe place but also make your beneficiaries aware of how to access such passwords and keys.

Non-transferable Digital Assets

Non-transferable digital assets are usually digital assets that are licensed for personal use, but not owned in a legal sense.  These include email accounts, social media handles and accounts or mobile app accounts and information contained therein. These generally cannot be passed down simply by a will and may require non-conventional estate plans.

Despite the personal nature of these non-transferable Digital Assets preventing them from being passed down, it is possible to preserve these in accordance with the wishes of the deceased person.  For example, Instagram offers a service known as “memorialising” the deceased person’s account, which allows the memorialized account to be kept as if it was frozen in time.  Facebook offers a further service that allows the person to designate a legacy contact to manage the memorialized account to a certain extent (such as writing a pinned post to share a final message or to update the profile picture, but not allowing removing or changing past posts etc.).  YouTube also provides an estate planning service known as Inactive Account Manager, which allows the person to designate who should have access to the information or whether the account should be deleted.  Otherwise, individuals may need to go through hoops of customer service and in the end not even be able to access any personal or important information.

Inheritance tax considerations

Digital assets (in particular cryptocurrencies) can fluctuate in value rapidly.  In Hong Kong, where estate duty has been abolished, this generally does not create any concern.  However, digital assets may also be based in other jurisdictions that impose inheritance tax, and therefore the applicable jurisdiction of the digital asset or the company through which the digital assets are held before investing in such should be given consideration and taken into account when conducting estate planning.

Conclusion

With diversified forms of valuable assets and technological advancements offering new solutions to asset succession and security, individuals face more considerations than ever in wealth protection and succession.  It is highly recommended that a legal framework should be carefully planned to ensure their wealth can be preserved free from unwanted interference.

Disclaimer: This article is for reference only.  Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.