Why should you do business with Hong Kong?“ in other words. ”. The following are the reasons:
Hong Kong is a level playing field for every business, there is no foreign ownership restrictions.
In the low, simple, and predictable tax regime, there is no tax on offshore income, capital gains, dividends, estate or sales.
Rule of law and an independent, experienced judiciary based on British common law
Free movement of capital, talent, and goods
According to China’s Ministry of Commerce, 58 percent of all outward Foreign Direct Investments (FDI) from China went to Hong Kong in 2014, totaling US$123 billion. Furthermore, Hong Kong is China’s second-largest trading partner after the United States, accounting for 8.7% of the country’s overall commerce in 2015.
The comparison I: Company Formation and Compliance
Hong Kong:
It is always a low-cost formation to establish a business presence in Hong Kong because it is simple and efficient.
Within three working days, you can form a private company limited by shares, regardless of where you live. You just need to deal with the Companies Registry (CR), which provides comprehensive public information (including sample forms) in both English and Chinese. Your newly founded Hong Kong company will receive a Certificate of Incorporation (CI) and a Business Registration Certificate (BR) from CR after filing. If you are in a hurry, we can assist you; we are competent to electronically submit the incorporation form to CR, which reduces the time to one day.
In either case, you must choose a company secretary who is either a Hong Kong resident or a Hong Kong limited company, and maintain a Hong Kong postal address to conform with the Hong Kong company’s location. Furthermore, there is no capital injection legislation in place for limited corporations.
All modifications to the company’s structure, including as the appointment or firing of directors or the alteration of the articles of association, can be undertaken after first obtaining written consent from the shareholders and then submitting the appropriate notices to the CR.
China:
These are intricate procedures since both state and destination city laws and regulations must be taken into account. As a result, hiring China lawyers is critical to completing the process.
Foreigners commonly choose a WFOE, which is a sort of limited liability company in China that allows foreigners to have complete control and ownership of the business. In a simple example, the setup takes 4 to 6 months.
Furthermore, there are rigorous regulations regarding the injection of registered capital into WFOEs, and the amount varies depending on the company’s specified industries and registration cities.
For the management, there are certain major corporate management which require the unanimous consent of all shareholders. Therefore, one shareholder who holds a minority stake can post a risk of deadlock.
Comparison II: Tax System
Hong Kong:
The territorial source concept of taxes gives incentives for utilizing a Hong Kong company as a vehicle for conducting offshore business because only income with a source in Hong Kong is taxed here. It also imposes a single sort of direct income tax on incorporated bodies, known as Profits Tax, which is very similar to corporate income tax in other offshore jurisdictions. The annual tax rate on taxable income is currently 16.5 percent (as of March 2017). It has no tax on dividend income or dividends paid overseas, as well as no tax on capital gains received and distributed.
The timeframe of tax assessment is one year. Since the post-transactions accounting principle and withholding tax on direct income have been adopted, ongoing accounting management is required to monitor your profit, so you can devote your efforts to making profit once you receive your annual tax return from the Inland Revenue Department (IRD), Hong Kong’s tax authority.
Individuals who receive employment income from Hong Kong are liable to Salaries Tax in addition to Profits Tax (a type of direct income tax on employment income for personal tax payer).
Because you are an employee of this Hong Kong company, you must declare this income to IRD regardless of your domicile if you are a director of a Hong Kong company and earned salary from your firm in a tax assessment year. Salaries Tax has a progressive rate that is limited at 15% and a considerable tax allowance. For instance, the first HK$132,000 in earnings is tax-free. However, there is a withholding tax on Salaries Tax; the IRD collects Salaries Tax from your expected income for the following tax year, which you can deduct from taxes owed to the IRD in the following tax year.
China:
The Enterprise Income Tax in China (a sort of direct corporate income tax) is set at 25%. Dividends and capital gains are both taxable income.
Passive income, such as dividends, royalties, and interest, is generally taxed at 20% in China.
These earnings are also subject to withholding. Dividends, royalties, and interest are all subject to a withholding tax of 20%, 10%, and 10%, respectively, in China.
The above domestic withholding tax rate applies to a WFOE earning income in China.
Fortunately, many tax treaties have been made between China and other countries to provide relief for WFOEs from dividend withholding tax. For example, a WFOE held entirely by a Hong Kong company may qualify for the 5% withholding tax rate if the Hong Kong business is the beneficial owner of the dividends. Furthermore, a full tax exemption in the PRC is available on capital gains derived by a Hong Kong investor from the disposal of shares in a PRC-based company, provided that the shares sold are less than a 25% shareholding of the PRC company and the assets of the PRC company are not mainly composed, directly or indirectly, of immovable property (such as real estate) situated in the PRC.
In China, VAT is charged. China imposes a value-added tax (VAT) on retail sales, however exports of goods are usually exempt from the tax. It can obtain zero output VAT while exporting, as well as a refund of input VAT ranging from 0% to 17 percent on materials acquired domestically for the export of goods.
Comparision III: Freedom of capital flow
Hong Kong:
For the past 20 years, the Hong Kong Dollar (HKD) has been tied to the US dollar at a rate of roughly USD7.8 to HKD1. The Hong Kong Dollar is a reliable and widely accepted currency. You and your organization can accept payments in currencies other than the Chinese yuan ("RMB” is a commonly used abbreviation). The following currencies are available from Hong Kong banks: USD, EUR, GBP, CHF, CAD, AUD, NZD, CNY, HKD, JPY, and SGD.
There are no restrictions on capital movement. Banks and authorities do not scrutinize payments made or received from other countries.
Financial institutions also provide a broader choice of financial products. For example, lending money rates in the United States are often lower than those in China.
It makes no difference whether a Hong Kong firm raises funds through a share capital infusion or a loan. Both procedures are simple, Hong Kong bank are efficient, and any remittances do not require bank or government clearance. enabling Hong Kong businesses to run on time
China:
The State Administration of Foreign Exchange regulates China’s economy, which is state-controlled with limited currency regulations (SAFE). For capital account international incoming and outbound transactions, Chinese enterprises must get several approvals from the SAFE.
China enforces severe currency regulations. There are limitations on the amount of foreign exchange can be retained in Chinese companies’ and personal accounts. To accomplish business transactions in Chinese banks, Chinese enterprises must first get authorisation.
In China, there are specific rules governing the foreign source of funds ratio in WFOEs. The invested share capital of a WFOE must be appropriate and sufficient to allow the Chinese firm to engage in all of the activities mentioned in its business scope, as determined by state and local authorities. Only when the business scope draft has been submitted to the authorities can the exact amount of share capital to be donated be determined. Furthermore, the amount of invested share capital raised via a loan from a foreign parent business is limited; otherwise, SAFT will reject the loan.
