Benefits of Using Hong Kong Holding Company When Setting up Business in China

• It's easy, convenient and fast to open a Hong Kong company - takes 1-2 days.
• Flexibility in changing ownership:
  Once a WFOE (wholly foreign owned enterprise) is set up in China, changing directors and ownership is requires compliance with Chinese regulations and time consuming. It is easier to change or add shareholders of your Hong Kong company than a WFOE. If your China business increases and you add more shareholders, they can be added to the Hong Kong holding company instead which owns the WFOE.
• Hong Kong legal system is separate from mainland China and based on English common law. Many investors prefer their contracts and disputes to be governed by Hong Kong law and subject to the jurisdiction of the Hong Kong courts.
• Hong Kong holding company of the Chinese investment may offer foreign investors more protection from liability than a direct shareholding.
• To sell a Hong Kong holding company involves much less bureaucracy without triggering any approvals to be received by the Chinese authorities.
• Banking in Hong Kong has a very high standard in technology and security, and all major international banks are located in Hong Kong. In the contrary to China, there are no restrictions or approvals necessary in Hong Kong to receive or transfer funds or foreign currencies.

Tax Benefits:

• Hong Kong corporate income tax is 16.5%, compared to the PRC's 25%.
• Withholding tax on payments to Hong Kong are lower from China, with Hong Kong benefiting from only a 5% rate, instead of the 10% levied against other countries.
  There is no tax on dividends in Hong Kong.
• Certain advantages may be granted by the double tax agreement (DTA) between Hong Kong and China.
• To sell Hong Kong company would be much easier than company in China.
  No approval from the PRC authorities is required. Hong Kong stamp duty would be levied at 0.2% on the higher of the transfer consideration and the net asset value of the shares as at the date of transfer.
  Capital gains are tax exempted in Hong Kong.
• Business conducted outside of Hong Kong is tax free. If Hong Kong company buys product in PRC and ships those goods to home country. There is no profits tax applied in Hong Kong. Depending on home country’s tax codes and the tax authorities views on transfer pricing, having a Hong Kong holding company can be a very effective and fully legal tax shelter.

Should you have any questions please feel free to contact Alina Moroz at alinam@zetland.biz or +852 3552 9050.