Investment Opportunities in Macau - Offshore Services |
| Current Status and Services Provided | Supporting Technology | Legal Framework |
| Reasons to Invest in Macau |
Many large companies have been active in offshore for many years. They recognized that by properly structuring their business, they could use the legal incentives in other countries to their own advantage. Today ever more small businesses have become aware that they need not limit their activities by remaining within their own country. Typical advantages may include tax deferment or tax avoidance, operational flexibility, investment flexibility, better investment return, engaging in business activities which may be severely restricted in one’s own place of residence, privacy of affairs, protection of assets, avoiding probate and death taxes.
The Government of Macau has adopted the strategy to transform the Territory into an offshore service center in the region, a natural choice in the context of the regional economic development and integration. Under this development strategy, a lot of effort has been made in terms of attracting foreign companies to the Territory, namely through the continuous improvement of the legal framework and enhancement of overall conditions that make Macau a competitive location in the region.
Besides financial activities, commercial and auxiliary services permitted in offshore are:
Commission services and commercial intermediation
Long distance selling activities
Trade information dissemination
Management and administration of ships and aircrafts
Documentation services
Call centers for customer support
Investigation and security
Hardware consultancy
Software consultancy
Data processing
Data base related activities
Research and development activities
Legal activities
Accounting, audit and fiscal consultancy
Management and business consultancy
Architecture, engineering and related activities
Tests and technical analysis
Packaging
Back offices
Current Status and Services Provided
Official statistics are unable to capture the expansion in key areas of trading activity. Although it is clear that offshore trade and offshore manufacturing investment is growing, making total export business carried out by Macau companies higher than what can be reflected by current trade statistics, we are still enable to quantify that process.
The increase in offshore trade derives from the increase in offshore manufacturing investment of Macau companies. Capitalizing on the comparative advantages of low cost production in developing Asian economies and Macau’s own business connections, management expertise and infrastructure, Macau companies have been able to expand their manufacturing and trading business beyond domestic production constraints and geographical boundaries.
Being a small open economy, the long acquired competence of cross-border operations of Macau’s small and medium sized enterprises provides the Territory an advantage as a trading center in a world of globalization in production and sourcing. This creates the possibility to diversify not only in terms of geographic locations of operations (China and Asia Pacific region) but also diversify into other types of businesses (trade related activities). Despite the potential attractions of other cities in Asia made “cheaper” by recent currency devaluation, higher value added activities are not expected to be relocated to those countries, either by reasons of insecurity or risk or low quality of service.
The expansion of offshore trade indicates that more goods originating outside Macau are being dispatched to overseas markets through direct shipments or transshipments. As the Mainland’s production capability continues to improve there is less need for goods concerned to be shipped back to Macau for final processing. It is also due to the relatively high handling costs in Hong Kong and Macau, coupled with the development of ports along the Chinese coast and the enhancement of cargo handling facilities in the Mainland.
This situation induces Macau to create the incentives to develop other offshore services, mainly related to trade. It is clear that the expansion of offshore business is generating increased demand for certain trade-supporting services (such as transportation, quality certification, consultancy, information technology services, among others). This expansion is contributing not only to the restructuring of the economy but also to the development of the workforce.
The installation of offshore services requires the existence of certain infrastructures capable of supplying a competitive base to the development of the business.This is the case of transportation infrastructures, skilled human resources and most of all advanced telecommunications.
Macau has already a comprehensive line of communication services provided by CTM, the local telecom provider. It has sophisticated communications equipment, it was the first in Asia to have a fully digital network, and CTM plans to expand the network and customer service, including the installation of optical fiber cables into China and the laying of an undersea cable between Japan and Europe (a project undertaken by several major world telecommunications companies). This will allow the transmission of signal in a different way, making it possible to handle multimedia services.
Moreover CTM’s strategic goal is to provide the necessary technology at a competitive price that can transform Macau into the major call center in the region. This can only be an advantage to businessmen interested in establishing a back office or other offshore service in Macau.
The natural propensity of the economy of Macau towards tertiarization and the improvement seen in local infrastructures, particularly in terms of transports and telecommunications, justify the development of an international business center in Macau, upgrading the incipient model previously defined. Consequently, in the financial domain, not only credit institutions but also to other financial institutions and financial intermediaries, as well as insurance companies are allowed to operate within the international business center. Additionally, the incorporate models also include commercial services and auxiliary services, such as call centers and back offices.
The new offshore law, in effective since November 1999, introduces exemptions from income tax, industrial tax, inheritance and donation tax, real estate transmission, and stamp duty, under DL 58/99/M, of October 18. The law applies to activities carried out in Macau exclusively to the foreign market and in foreign currency. These measures are aimed to create an attractive package for all the companies intending to relocate their headquarters to Macau and developing an offshore service.
Furthermore, managers and specialized technicians, authorized to reside in the territory, are exempted from professional tax on the salaries rendered by the offshore institutions till December 31st of the third year of employment in Macau.Hong Kong remains the hub for trade-supporting services and a strong offshore service center. Along with Singapore and Malaysia – and now Macau – Hong Kong is still one of the major offshore centers in Asia Pacific region. Nevertheless, competition from neighboring countries intensifies and Macau is now turning its investment environment even more competitive.
The tax regime applied to Macau’s offshore sector is competitive and complies with international standards. There are basically para-fiscal requirements, such as establishment fees and biannual operating fees, set before hand.
Macau is a founding member of the World Trade Organization and subscriber of numerous international agreements and conventions. Being a very open economy, its integration into international trade system and the use of international business practices and rules are essential for the economic development of the Territory. This is an assurance of Macau’s autonomy as a SAR and a factor for strengthening Macau’s position in the regional economy, especially in South China.
Good examples of the efforts made in this area are the legislative effort for intellectual property protection and the Offshore Service Law, in force since November 1999.Responding to the increasing competition in the region and to the needs of the structural adjustment of the economy, Macau has invested heavily not only in the formal education of the population, but also in professional training. In recent years several educational institutions have appeared to offer a comprehensive range of educational services - despite the opportunities that still exist in the market for this kind of services, created by an ever changing and ever increasing demanding environment.
Furthermore, there is a flexible import labor regime for recruiting external workers (mainly from Mainland China). As to qualified technicians and investors, it is easy to get residence status through a special residency application law.The use of new and high-end technology is not only necessary to Macau but it is critical for the development of Macau as a service center.
There is a government subsidized interest rate for buying equipment and subsidies for certification of quality management systems, environmental management systems, and accreditation of laboratories. Besides, a strong effort has been made to promote the use of new technologies and advanced management practices, namely through seminars, training, task-forces for the promotion of information technology and the implementation of EDI (Electronic Data Interchange).
Macau has been one of the main economic “windows” to Mainland China. Relations and cooperation with China are tighter and, being a Special Administrative Region of China will enhance those relations even more. On the other side this close relationship brings benefits for China in terms of the relations with the European Union and Portuguese speaking countries. For international businessmen, this vast market is an opportunity that can not be ignored.