Doing Business in Hawaii
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FORMS OF BUSINESS
(a) Sole Proprietorship. A business owned and managed by a single individual. It is the simplest form of business organization, requiring no legal entry formalities in Hawaii except a general excise tax license, a Federal employers identification number if there are employees, and applicable state and local licensing requirements for certain types of businesses.
(b) Partnership. A legal relationship existing between two or more persons contractually associated as joint principals in a business. Entry formalities include a general excise tax license, partnership registration, Federal employer identification number and applicable state and local licensing requirements for certain types of business.
(i) Limited Partnership. A form of a partnership in which the limited partners are liable only for the amount they have invested.
(ii) Joint Venture. The same as a partnership, regardless of the venture's specific duration or objectives.
(c) Corporation. A legal entity created under the laws of a state to carry on some business or other authorized activities. The principal distinction between a corporation and other forms of business organization (i.e., sole proprietorship or partnership) is that the liability of the owners is limited to the capital of the corporation. Entry formalities include a general excise tax license, corporate registration, Federal employer identification number and applicable state and local licensing requirements for certain types of businesses.
(i) Subchapter "S" Corporation. A version of a closely held corporation which has 35 or fewer stockholders and allows each stockholder to pay individual income tax rather than the corporation paying corporate income tax.
(d) Limited Liability Company. A hybrid between a corporation and partnership.
GENERAL EXCISE TAX
With few exceptions, all types and levels of business activity are required to obtain a state General Excise Tax License from the State Department of Taxation, 830 Punchbowl Street, Honolulu, Hawaii 96813-5045, (808) 587-4242. The one-time general excise tax licensing fee is $20.
BUSINESS REGISTRATION
(a) Sole Proprietorships
* Registration not necessary except to notify public of use of a trade name.
* Initial trade name registration good for one year. Fee: $50
* Renewal registration of trade name may be done within six months prior to expiration date and is good for ten years. Fee: $25
(b) Partnerships
(i) General Partnerships
* Must register within 30 days of formation.
* Registration fee: $25
(ii) Limited Partnerships
* Must register within 30 days of formation.
* Exempted from Sale of Securities Act if 25 or fewer limited partners
* Limited Partnership Registration Fee: $50
(iii) Foreign (non-Hawaii U.S. or international) General Partnerships and Limited Partnerships
* Must register within 30 days after commencement of business in Hawaii.
* Foreign General Partnership registration fee: $25
* Foreign Limited Partnership registration fee: $100
(c) Corporations
(i) Domestic (Hawaii) Corporations
* File Articles of Incorporation, executed and certified by at least one incorporator.
* Articles of Incorporation provide name of the corporation, address, purposes and powers, authorized capital, number of directors, names and addresses of initial officers and directors, names of the subscribers for capital stock, subscription price, amount of capital paid by each subscriber, manner of payments, and other pertinent information.
* Minimum of one director required if there is only one shareholder.
* At least one director must be a Hawaii resident.
* Exempted from registration requirements of the Uniform Securities Act if 25 or fewer subscribers.
* Filing fee for Articles of Incorporation: $100
(ii) Non-Profit Corporations
* Articles must be filed and signed by at least one incorporator.
* Filing Fee: $100
(iii) Foreign Corporations (Incorporated outside the State of Hawaii, that is, either on the U.S. Mainland or elsewhere)
* Must register by filing:
* Application for Certificate of Authority
* Certificate of Good Standing issued by the state or country in which the corporation was organized, dated no earlier than 30 days prior to filing
* Filing Fee: $100
* License Fee: $100 per year
(d) Franchises
* File proposed franchise circular.
* Present approved circular to prospective franchise seven days in advance of the sale of franchise.
* No registration required for franchise salespersons or brokers. Disclosure of the salespersons or brokers should be made in the offering circular.
(e) Securities
* All securities to be sold in Hawaii must be registered unless they are exempt from registration or sold in an exempt transaction.
* Security dealers must be registered.
* Registration of securities salespersons employed by National Association of Securities Dealers (NASD) firms is done through the NASAA/NASD Central Registration Depository, P.O. Box 9401, Gaithersburg, Maryland 20898-9401. Salespersons with non-NASD member firms must register with the Business Registration Division (BREG/DCCA).
(f) Investment Advisor
* Investment Advisors must be registered with BREG/DCCA unless an exclusion can be claimed.
* Persons representing Investment Advisors must register with this division as an Investment Advisor Representative.
TRADE NAME, TRADEMARK AND SERVICE MARK
Distinctions between trade name, trademark and service mark:
* Trade name is used to identify the name of a business (manufacturer or dealer of goods or services).
* Trade mark is used as an identifier for goods or products and can be a word, design or word plus a design..
* Service mark is used to identify the type of service a business provides.
(a) Acquiring Ownership Through Use or Intention to Use.
- State of Hawaii: Ownership of trade name, trademark or service mark is acquired by actively using the name or mark before the consuming public.
- Federal: Ownership of a trademark may also be acquired by having an intention to use plus registering it, however, you must place the mark in commercial use and file a Declaration of Use within six months.
(b) Registration.
- State of Hawaii
- Registration of a trade name, trademark or service mark does not grant ownership, but rather use of the name or mark publicly determines ownership.
- Registration is not mandatory but is a means for giving notice to the public that rights are being claimed to use the name or mark.
- Registration makes it easier to claim your rights.
* Federal
- Federal registration allows registered owner to sue in federal court:
- right to obtain an injunction
- right to recover lost profits and damages
- right to have infringing labels destroyed
- Rights are incontestable after five years of use.
- Filing for trademark with the U.S. Customs Services prevents goods with infringing marks from entering the country.
(c) How and When to Register
* State of Hawaii
- Registration in Hawaii is done through the Department of Commerce and Consumer Affairs (DCCA). The Business Action Center also receives applications and forward them to the DCCA for filing.
- A list of existing trade names, trademarks and service marks can be found at the Department of Commerce and Consumer Affairs and the Business Action Center.
* Federal
- If trademark or service mark is used in commerce between states, federal registration should be made with the Patent & Trademark Office (PTO).
ZONING AND BUILDING REQUIREMENTS
Unless renting or buying premises already in existence, a first consideration will be what can be built and where.
Hawaii has a state land use law which categorizes all land in one of four broad classifications: Urban, Rural, Agricultural, Conservation. Each of these has definite boundaries and permissible uses:
Within urban designations, each of the State's four counties - Honolulu, Hawaii, Kauai and Maui (includes the islands of Molokai and Lanai) - exercises specific control of such details as: How large a building? How much land? How many parking spaces: What kind of industry? What uses are allowed within an urban use classification, etc.? In addition to state land classification, each county has planning and zoning criteria for specific land use.
The process is not inflexible. Application can be made to the State Land Use Commission or the appropriate county planning department for a change in land use designation or zoning. For changes in State Land Use District boundaries, application must be made in the State Land Use Commission. For changes in county plans and zoning designation, application should be made to the appropriate county planning department. Where appropriate, public hearings will be held and proposals will be considered in light of impacts and benefits to the area.
It should also be noted that county building permits for construction of any kind - including simple alterations - are also required. In practice, the licensed contractor employed usually attends to this requirement.
FEDERAL REGULATIONS
All basic federal business regulations apply in Hawaii as they do in other states. These requirements cover Social Security taxes, wage-and-hour laws, child labor laws, income reporting, employee certification of citizenship, and other employment practices.
It is essential that any new business immediately acquire a Federal Employer Identification Number. Only a sole proprietor who pays no wages to an employee(s) and who is not required to file federal excise tax returns, including those for alcohol, tobacco and firearms, may use a social security number as a business taxpayer number. The federal ID Number is issued by the Internal Revenue Service and is necessary when establishing a business account at banks and to report income for State and Federal Taxes. It is an addition to Social Security Number requirements.
Employers are also required to certify the citizenship of their employees by completing an I-9 form. Information and assistance in completing the I-9 - Employee Certification of Citizenship form can be obtained from the U.S. Immigration and Naturalization Service, 595 Ala Moana Boulevard, Honolulu, Hawaii 96813-4999. Telephone the INS at (808) 541-1379 (Recorded information). For assistance call (808) 526-9040.
Many of the federal labor laws are enforced by the State of Hawaii Department of Labor and Industrial Relations.
HAWAII'S FOREIGN-TRADE ZONE NO. 9
WHAT IS A FOREIGN-TRADE ZONE?
Simply, a "Foreign-Trade Zone" ("FTZ") is a secured place authorized by the federal government, considered to be outside the Customs territory of the United States though under U.S. Customs supervision and control.
Normally, when foreign cargo lands on U.S. soil, it is subject to clearance through Customs and payment of U.S. Customs duty. Many firms use FTZs to postpone and, in the case of re-export of cargo, avoid the application of U.S. Customs laws that impose duties, taxes, bonds, quotas and certain other requirements.
Domestic and foreign merchandise may be stored at an FTZ. It may be manufactured, displayed, sold or altered in almost any way that isn't prohibited by U.S. law.
As long as the merchandise remains in the FTZ, it is not subject to U.S. Customs laws governing the entry of goods into Customs territory or payment of duty on those goods. In addition, FTZ users can legally minimize the payment of U.S. Customs duties by either paying duty based on the classification of the merchandise at time of admission to the FTZ or by paying duty based on the classification of the merchandise when it subsequently enters U.S. Customs territory. Merchandise subject to quotas may be admitted to a FTZ without regard to those quotas. And no duty is assessed on domestic merchandise that enters Customs territory from a FTZ.
Even though Hawaii's FTZ is considered to be outside the Customs territory of the United States, it is on U.S. soil. For that reason, goods and activities in the FTZ are subject to federal, state and local laws and regulations. Articles prohibited by law are not allowed admission, nor are articles that violate copyright, trademark or patent laws. Animal guarantee restrictions may apply as well.
There are two types of FTZs in Hawaii: general purpose zones and special purpose zones. General purpose zones operate as public utilities providing a variety of services to many users. Special purpose subzones are single-use facilities which cannot be accommodated within the general purpose zone.
WHAT HAPPENS IN FOREIGN-TRADE ZONES?
(a) Storage and Distribution. Merchandise that is admitted to an FTZ may be stored indefinitely. It may be unpacked, repacked, displayed, assembled, disassembled, sorted, graded, cleaned, relabeled or even destroyed. It may be distributed as is or combined with other foreign or domestic merchandise. Only when merchandise is taken from an FTZ into Customs territory is it subject to customs duties and quotas, not when it is re-shipped to foreign points. Goods may be transferred directly from one FTZ to another without being subject to Customs duties or quotas.
(b) Manufacturing. Goods may be manufactured in an FTZ except when specifically limited by law. Products may then be exported or sent into U.S. Customs territory. When products enter Customs territory, they are subject to Customs duties; if they are shipped to foreign points, they are not. All new manufacturing operations are subject to the approval of the Foreign-Trade Zones Board and the District Director of Customs.
(Notes: Machinery or supplies of foreign origin used in the manufacturing process are subject to duty when admitted to an FTZ. In the particular case of imported textiles subject to quota, manufacturing is permitted only if the finished products are exported.)
(c) Status Designation of Merchandise. At the time merchandise is admitted to a Foreign-Trade Zone, the owner applies for one of four status designations. Firms may use this status designation to legally minimize payment of U.S. Customs duties.
(i) Domestic Status is granted to goods that are grown, produced or manufactured in the United States provided all applicable internal-revenue taxes have been paid, to goods that have been previously imported on which duties and taxes have been paid, and to goods that have been previously entered free of duties and taxes. Identifiable Domestic status merchandise may be returned to the Customs territory free of quotas, duties or taxes.
(ii) Non-Privileged Foreign (NPF) Status applies to merchandise of foreign origin. It can also apply to certain domestic merchandise which - by reason of non-compliance with FTZ regulations - has lost its Domestic status. Recoverable waste generated in a manufacturing process may also be granted Non-privileged Foreign status. Non-privileged Foreign status allows Zone users to pay duty based on the character, condition and quantity of the merchandise at the time it enters Customs territory.
(iii) Privileged Foreign (PF) Status Merchandise applies to merchandise of foreign origin when classified and appraised with duties liquidated and taxes determined, as of the date the application for this status is approved. Privileged Foreign status allows the importer to alter or manufacture merchandise into new products without changing, for duty-assessment purposes, the original product classification. Privileged Foreign status cannot be abandoned even though the form of the merchandise has been changed. This status, however, cannot be granted to Non-privileged Foreign merchandise which has previously been manufactured in a Zone.
(iv) Zone-Restricted (ZR) Status is granted to either domestic or foreign merchandise that is admitted to a Zone for the purpose of eventual exportation or destruction. this status may not be abandoned once it has been granted. Zone-Restricted merchandise may not enter U.S. Customs territory for domestic consumption unless determined to be in the public interest by the Foreign-Trade Zones Board.
HOW DO FIRMS BENEFIT FROM USING A FOREIGN-TRADE ZONE?
(a) Duty Deferral and Avoidance. By using FTZs, firms defer payment of duty until merchandising enters U.S. Customs territory. Foreign merchandise transiting U.S. ports for foreign designations avoids the payment of U.S. Customs duties and taxes through the use of FTZs. Merchandise is inspected and sorted in FTZs with only the saleable portion entering U.S. Customs Territory. Duty deferral or avoidance results in substantial cash savings.
(b) Taking Advantage of the Tariff Schedule. The Tariff Schedule of the United States (Harmonized Code) adopted in 1989 provides many new opportunities for FTZ users. Products manufactured from foreign-sourced components within an FTZ may be subject to a lower rate of duty than the sum of the parts with which they are made. This also applies to the assembly of sets or kits. Pineapple canneries and canmaking companies, animal-fed mixing operations, and auto and typewriter assembly plants are some operations which gain tariff advantages from being within FTZs.
If, on the other hand, the finished product of a manufacturing operation is subject to a higher rate of duty, the importer may apply to have the imported components designated as Privileged Foreign status merchandise and thus subject to the lower rate of duty that applies to those components. Oil refineries in FTZs operate in this matter.
(c) Import Quotas. Quota restrictions apply at the time merchandise seeks entry into U.S. Customs territory. Merchandise which would be denied entry because of quotas may be stored, and in some cases, altered and manufactured in FTZs. Merchandise may be stored awaiting the beginning of a new quota period. Merchandise, in some instances, may be altered or manufactured into a product not subject to quota limits. Quota merchandise is processed in FTZs for export markets.
(d) "Made in U.S.A." Products that are manufactured in FTZs may, if certain requirements are met, qualify for "Made in U.S.A." labels, even if the finished product incorporates foreign components.
(e) Avoiding Drawback Costs and Delays. Drawback procedures can be quite restrictive. They allow a manufacturer to receive a 99 percent refund of the duty paid on an imported component incorporated into subsequently-exported products. The manufacturer, however, must declare at the time of importation what will be subsequently exported in manufactured form to qualify for drawback. Zone users avoid these costs and delays.
(f) Avoiding Bonded Warehouse Limitations. Importers who store their goods in bonded warehouses must post a bond, and their goods may be stored for a maximum of five years. Importers who use FTZs post no bonds and their merchandise may remain in the Zone indefinitely. Manufacturing, processing or altering goods in Customs bonded warehouses are limited. In Foreign-Trade Zones, similar restrictions do not apply.
(g) Avoiding Certain State and Local Taxes. Goods which are in a zone for a bona fide Customs reason are exempt from State and local ad valorem taxes.
Moreover, customers of Hawaii's Foreign-Trade Zone No. 9 enjoy excellent security, the convenience of warehouse receipts, the assistance of knowledgeable personnel, and highly professional service in all aspects of the Foreign-Trade zone operations. The FTZ's goal is to serve your needs effectively, efficiently and economically.
WHO RUNS THE FOREIGN-TRADE ZONE?
The State government operates Hawaii's FTZ program to encourage international business and economic development. Inspectors from the Honolulu District of the U.S. Customs Service supervise and audit FTZ activities.
WHERE ARE HAWAII'S FOREIGN-TRADE ZONES?
There are 12 sites in Hawaii. Six general-purpose zone sites are located on the Island of Oahu, one on Maui and one on the island of Hawaii.
FTZ No. 9 is headquartered at Pier 2 on 17 paved acres including 300,452 square feet of covered space in Honolulu Harbor. The pier and terminal facilities can accommodate four ships simultaneously.
The Zone is in the heart of Downtown Honolulu, just five miles from Honolulu International Airport, making international shipment of goods convenient and economical. (Cargo unloaded at the airport--or anywhere within the port of Honolulu--maintains its foreign identity and duty-free status when it is transferred to Zone No. 9 by bonded carrier).
FTZ No. 9's expansion sites on Oahu include: 1,051 in Campbell Industrial Park in Ewa, 109 acres in Mililani Technology Park in central Oahu, the Hawai'i Convention Center, aircraft fueling facilities at Honolulu International Airport, and Unicold's cold storage complex.
FTZ No. 9's expansion sites on the neighbor islands include 59 acres in Maui Research and Technology Park, Kihei, Maui; and 31 acres on the island of Hawaii adjacent to Hilo International Airport.
Four special-purpose subzones are situated throughout the State of Hawaii where bakery mix blending, petroleum refining and pineapple canning operations create products for the domestic and export markets.
The presence of Foreign-Trade Zone No. 9 has helped to make Hawaii an attractive, cost-effective place to do business for firms engaged in importing, exporting and manufacturing.
© 1997 Stubenberg & Durrett