January 1, 2025

Improved access for Hong Kong companies to the Chinese market

The Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) is a free trade agreement concluded by Mainland China and Hong Kong covering four areas, namely trade in goods (via the Agreement on Trade in Goods), trade in services (via the Agreement on Trade in Services), investment (via the Investment Agreement), and economic and technical cooperation (via the Agreement on Economic and Technical Cooperation).

The rationale behind the CEPA is to bring new business opportunities to Mainland Chinese, Hong Kong as well as foreign investors. For Hong Kong, the CEPA provides Hong Kong businesses with greater access to Mainland Chinese markets. The CEPA also encourages foreign investors to establish businesses in Hong Kong, as leveraging on the benefits provided by the CEPA enables them to tap into the vast opportunities of Mainland Chinese markets.

As the first free trade agreement ever concluded between Mainland China and Hong Kong which began to operate from 1 January 2004, this year marks the 20th anniversary of the CEPA. This year also saw the signing of the Second Agreement Concerning Amendment to the CEPA Agreement on Trade in Services (“Second Amendment”), which will be implemented on 1 March 2025.

This legal update briefly discusses how the Agreement on Trade in Services offers enterprises and individuals in service industries in Hong Kong preferential arrangements and how the Second Amendment introduces further liberalisation measures across various service sectors.

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Agreement on Trade in Services – Explained

Preferential arrangements to carry out and expand business in 153 sectors in Mainland China may be relied on by persons (both natural persons and juridical persons) in the Hong Kong services industry, provided that they satisfy the eligibility criteria of a Hong Kong Service Supplier (“HKSS”) as stipulated under the CEPA.

In order to be eligible as an HKSS, such person must be:

If it is a juridical person, a legal entity duly constituted or organised under the laws of Hong Kong. Juridical persons should apply to the Trade and Industry Department for an HKSS Certificate, and then apply to relevant Mainland Chinese authorities for providing services in Mainland China with CEPA treatment.
If it is a natural person, a Hong Kong permanent resident. Natural persons need not apply for an HKSS Certificate.

For the purposes of applying for an HKSS Certificate, the HKSS should:

Be engaged in substantive business operation in Hong Kong for 3 or 5 years;
Pay profits tax in accordance with the laws in Hong Kong;
Own or rent business premises in Hong Kong; and
Employ staff in Hong Kong with the majority of them being Hong Kong residents.

New Measures

New liberalisation measures will be introduced by the Second Amendment to 17 services sectors in which Hong Kong enjoys competitive advantages, making it easier for HKSSs to set up enterprises and develop business in Hong Kong. The new measures include, in particular, removing or relaxing restrictions on equity shareholding and business scope in the establishment of enterprises, relaxing qualification requirements and providing facilitation.

Specific examples are as follows.

(A) Financial Services

In terms of foreign financial institutions which invest in shares of insurance companies, the requirement to have total assets as at the end of the most recent year of not less than US$2 billion will be removed.
Restrictions on foreign bank branches established by HKSSs from conducting bank cards services will be removed.

(B) Accounting Services

When determining the duration of residency in Mainland China for Hong Kong certified public accountants who hold Mainland Chinese certified public accountant qualification and practise as partners of accounting firms in Mainland China, the days spent on travelling between Mainland China and Hong Kong will be counted towards the days of residency in Mainland China, and any part of a day will be counted as a full day.

HKSSs will be allowed to provide advertising services in the mode of cross-border supply.
Facilitation to be provided to HKSSs to develop online media agency services in Mainland China.

(D) Market Research and Public Opinion Polling Services

With respect to the provision of market investigation services, the requirement for such services to be restricted to equity joint venture or contractual joint venture will be removed.
Specifically for provision of broadcast and television rating surveys, the requirement for the Mainland Chinese party to be the controlling shareholder is maintained; for social investigation, the shareholding of the Mainland Chinese party shall not be less than 67% and the legal representative shall be of Chinese nationality.

(E) Tourism Services

Optimisation of the existing “144-hour visa-exemption” policy for foreign group tours entering Guangdong from Hong Kong by increasing the number of inbound control points and expanding the area allowed to stay to the whole of the Guangdong Province.
Facilitation to be provided for Mainland travel agents when receiving group tours at West Kowloon Station of the High Speed Rail.
In respect of Mainland Chinese visitors participating in international cruise itineraries involving port-of-call in Mainland Chinese cruise ports, they will be able to travel to Hong Kong in transit to join all sorts of cruise itineraries, by presenting their passports and confirmation documents of the relevant cruise itineraries.

(F) Telecommunication Services

HKSSs will be allowed to distribute in Mainland China telephone service cards which can be used globally but cannot be activated in Mainland China.

How we can help

We can assist clients in determining and setting up or investing in a Hong Kong company for the purpose of leveraging the many advantages provided by the CEPA. We would be happy to discuss and advise in further details as to whether the CEPA will meet your needs.

If you would like further information and/or assistance with respect to how you can leverage the CEPA, please contact us.

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