Why Chinese Manufacturers Must Consider Hong Kong Company Formation!
By Gareth Jones - September 02, 2015
If Chinese manufacturers are currently exporting abroad, Hong Kong company formation may help improve how you are doing business in China.
Hong Kong companies offer several benefits which may be especially useful for manufacturers in China.
Given that, with the right assistance, it's easy to set up a Hong Kong company, opening your own is almost certainly an interesting option.
Keep reading to learn the ways in which a Hong Kong company will benefit your China manufacturing business...
Getting The Best Deal For Chinese Manufacturers
If you are a Chinese manufacturer who exports you will generally be taxed and attract expenses in 3 ways:
- Export duty
- Freight costs
- Insurance fees
The range of costs involved varies enormously due to different tariffs imposed on different types of products.
However, it cannot be avoided, and therefore exporting directly from China does attract the additional tax cost levied by the Chinese government.
Minimising your tax burden should always be in mind, and in order to get the best deal on tax and doing business in China in general we can look at using Hong Kong as an exporting hub.
Before we can export from Hong Kong though, Hong Kong company formation is preferable. A local presence allows Chinese manufacturers to act as a local Hong Kong company in Hong Kong, and gain certain benefits not available to Mainland Chinese companies.
What Are The Benefits Of Hong Kong Company Formation?
Having both your China HQ and a local Hong Kong office offers several benefits for manufacturers in China.
Let's take a look at them:
1. No Export Tax
All products except fuel, tobacco, and alcohol are exempt from export duty and taxes. This gives HK companies a financial advantage when exporting that Mainland counterparts simply don't have.
2. No Restrictions On Capital & Profit Transfers
Unlike Mainland China where the transfer of funds either in or out of the country is heavily regulated and subject to fees, in Hong Kong there are no restrictions meaning that a local company could transfer back into China more easily.
3. Profits Generated Outside Of Hong Kong Are Tax Free
If your China company is making profit on goods in the mainland, but exporting via the HK company they won't be subject to tax there, as only profits made in Hong Kong are taxed with corporate income tax, and then only at 16.5%. The DTA network must also be mentioned (double tax treaty), as many safeguards are in place to minimise the risk of Hong Kong companies and individuals being taxed twice, both locally and abroad in Austria, Belgium, Czech Republic, France, Hungary, Ireland, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Netherlands, Portugal, Spain, Switzerland, and the United Kingdom .
CEPA is a revolutionary free-trade agreement aimed at enhancing the relationship between Mainland China and Hong Kong.
It allows greater and easier access to both the Mainland and HK markets for companies on both sides of the border.
It may be that you require to import goods or services in order to conduct your business in China, and if you use a Hong Kong company to do so then they may well be subject to a 0% tariff. The aim of CEPA is to "progressively reduce or eliminate tariffs and non-tariff barriers on substantially all the trade in goods between the two sides" (Source: Hong Kong Trade And Industry Department), so moving forward we can expect to see more and more tax savings if using a Hong Kong company in tandem with a Mainland HQ.
5. Ease Of Doing Business
The very nature of Hong Kong stems back to its Colonial British history.
As an overseas territory of the United Kingdom, Hong Kong's laws and business practices were built on the same foundations as those in Britain, namely 'common law.'.
This means that there are three benefits:
- Overseas trading partners who you may be exporting to will know and trust the Hong Kong 'brand' a lot more than that of China, which still provokes a certain amount of fear and mistrust abroad. Foreign companies know that dealing with Hong Kong-based companies is as simple and clear as any Western country, and therefore will gain a lot of peace of mind. Therefore we can say that a Hong Kong company adds both prestige and credibility to your business.
- Doing business in Hong Kong is easier, less bureaucratic, and faster than in China. So if there are business dealings that you can take care of in Hong Kong instead of China, such as financial transactions, then you will find the local company potentially increases your efficiency by a great deal.
- Hong Kong, as a territory in Asia developed by a Western country (the UK) has excellent infrastructure for businesses, including Western standard banking, law, and service industries. Not only will it be easier to do business in Hong Kong, but it is also an attractive place to be due to the many financial and other business benefits.
"If I'm doing business in China, and exporting abroad, do I need a Hong Kong company?"
Only you can decide, given your business and the ease with which you are already able to export, transact financially, etc within China itself, if you need a Hong Kong company.
Hong Kong offers may financial benefits, as it is built upon being a centre for world commerce and takes making doing business within its borders very seriously indeed.
Chinese exporters may find that a Hong Kong company offers them:
- Lower export taxes
- Free trade between HK and China (for goods and services)
- Better, more trusting relationships between themselves and foreign clients
- A much easier time when making or receiving financial transactions abroad
- A time-saving over trying to do many business activities in China itself (which can be more bureaucratic and awkward)
How do you set up a Hong Kong company if you have little or no experience there?
You could end up wasting time and money by running down blind alleys whilst trying to figure out this unfamiliar process.
The experts from Hongda Business Services help manufacturers in China set up a fully functioning company in Hong Kong affordably, with the minimum of time and attention on their behalf, and within around just 2 weeks!
If having your own presence in Hong Kong sounds good for your business, please contact our local Hong Kong company formation experts by clicking below and get your FREE consultation today!