Hong Kong. into China

Transcription

1 Subscribe to our FREE monthly magazine at March 2010 Volume 1 / Issue 3 ChinaInvest.biz The Monthly Magazine on Investment, Tax & Operational Issues for Foreign Companies Entering & Operating in China Hong Kong A Stepping Stone into China Plus: Interview with Matthieu Brutsaert, the Chief Representative of RFR SAS, Shanghai Representative Office Published by ChinaInvest.biz Media Limited - a Klako Group Company

2 Welcome to ChinaInvest.biz Magazine ChinaInvest.biz Media Limited is a member of Klako Group s organization and will be providing monthly insight into investment, tax and operational issues for foreign companies entering and operating in China. Many foreign companies are feeling the pressure to establish an entity in China. Often the establishment requires a high capital investment and more importantly a risk factor. Due to these aspects, more and more investors are establishing offshore companies to act as holding entities for the China investment and therewith taking over the full liability for the Chinese operation. The establishment of many of these offshore companies is an easy process and due to an uncomplicated tax system and accounting requirements, simple to operate. Double taxation agreements have been drafted and implemented between China and many of these offshore jurisdictions, which adds an additional benefit. One such jurisdiction is Hong Kong, which is an excellent location to set up a business, not only because it is one of the world s major trading, finance and service centers but also because of its simple taxation system. The foundation of a limited company in Hong Kong offers important tax and operative advantages. It enables you to save a considerable amount of costs and increase the profit from import and export. The taxation for the earned profit of the company in Hong Kong is 16.5% or if it is an offshore profit 0%. It is important for a company to evaluate its best entry strategy and all options for structuring or re-structuring their China entities. It is important to consider which option fits your profile most. YOUR CHINAINVEST.BIZ TEAM Commemorating 30 Years Klako Group has four strategically positioned offices in Hong Kong, Beijing, Shanghai and Guangdong, with over 100 professionals with comprehensive capabilities and sound local knowledge to help you with your business goals and activities in Hong Kong and throughout China. Hong Kong 10A Seapower Ind. Centre 177 Hoi Bun Road, Kwun Tong Kowloon, Hong Kong Tel: (852) Fax: (852) info@klako.com Shanghai 1504 Cross Tower 318 Fuzhou Road, Huangpu District Shanghai, Tel: (86) Fax:(86) shanghai@klako.com Beijing 14/F IBM Tower, 2A Workers Stadium Road, Chaoyang District Beijing, Tel: (86) Fax: (86) beijing@klako.com Shenzhen 901 Kerry Center, 2008 Renmin Nan Road, Luohu District Shenzhen, Tel: (86) Fax: (86) shenzhen@klako.com

3 INSIDE CHINA Hong Kong A Stepping Stone to China Written by The Foreign Direct Investment Professionals at Klako Group Asia, especially China, is emerging as the world s economic growth engine. Hong Kong is the perfect base from which to access this dynamic market. A uniquely global business city, at the heart of Asia with a Chinese perspective, is the perfect description used by HKInvest to attract foreign investors into the region. Hong Kong s status as one of the world s and Asia Pacific s leading destinations for foreign direct investment (FDI) has been reaffirmed by the World Investment Report 2009 released by the United Nations Conference on Trade and Development (UNCTAD) in September Hong Kong continues to be Asia s second largest and the world s seventh largest FDI recipient, attracting US$63 billion inward investment in This amount represented a 15.9% increase year-on-year in spite of the global financial and economic crisis that has caused FDI inflows to some developed economies to half. Hong Kong also continues to have the highest FDI stock in the region amounting to nearly US$835.8 billion. Easier Market Entry For over a decade Hong Kong has been ranked the World s Freest Economy by the Heritage Foundation / Wall Street Journal and Fraser Institute. Nowhere else in the world is the economy more free and liberal, plus attractive to foreign companies with low tax rates, uncomplicated regulations for company formations and a transparent finance and service sector. It comes to no surprise, that many multinational companies choose Hong Kong for their regional headquarter for Asia. With no trade barriers, low level of government intervention and in addition, an expansion and encouragement in its service sector, Hong Kong s position is strengthened even further. In 2009 Hong Kong was home to 1,252 Regional Headquarters and 2,328 Regional Offices. As well as Hong Kong s many other advantages, these are the top 3 reasons why leading businesses have chosen to set up their regional operations in Hong Kong; 1. Best location and transport links across Asia Pacific and internationally, 2. Gateway to China and 3. The third lowest tax in the world. Low and Simple Tax The structure of taxation in Hong Kong is relatively simple. Hong Kong imposes income tax on a territorial basis. This means that generally income is only taxed in Hong Kong if it arises in or derives from Hong Kong. There are three main direct taxes: Profits tax Salaries tax Property tax Any income that is not within any one of these categories is not subject to tax. Hong Kong does not impose any payroll, turnover, sales, value-added, dividends, withholding and capital gains taxes. Profits tax is payable by every company carrying on a trade, profession or business in Hong Kong, on profits arising in or derived from Hong Kong. Profits which have a foreign source (often termed offshore profits ) are thus generally beyond the territorial scope of Hong Kong s taxation system. Assessable profits are taxed at a rate of 16.5%, which has been lowered in 2008 from 17.5%. On the basis of this low rate, Hong Kong does not provide any special tax incentives for particular types of activity. If your company has only done offshore business, you can apply for 0% tax rate. Hong Kong is a free port therefore there are no customs tariffs on goods imported into Hong Kong apart from a few items that are subject to strict import and export licensing control. All that is generally required is for an import/export declaration to be submitted to the Commissioner of Customs and Excise within 14 days. The government collects an excise duty on four types of goods: tobacco, hydrocarbon oil, spirits and methyl alcohol. In the 2008 budget, duty on both wine and beer was cut to zero. According to the Forbes Tax Misery Index 2009, Hong Kong has the lowest tax misery in Asia Pacific and 3rd lowest in the world. Hong Kong s tax misery is 37 points below Singapore and points below Mainland China. Hand in hand with China Hong Kong, Asia s most popular city for international business is a city that works. Its enduring appeal is built on political stability, pro-business governance, rule of law and an independent legal system, free market principles, free flow of information, and English as the language of business. One country, two systems In 1997, Hong Kong returned to the sovereignty of China, but it has retained all the fundamental strengths and advantag-

4 ment of the Closer Economic Partnership Agreements (CEPA s) Hong Kong has had a head start in the more and more opening Chinese Economy. The synergy between original manufacturing orientated Hong Kong with the region that could offer cheaper labor and more space for expansions for production sites developed into a fruitful partnership, with companies utilizing Hong Kong s logistical network, tax benefits, with numerous service providers in the financial sectors and with moving the production to the close by region. Without a doubt, Hong Kong s continuous growth is closely linked with the immensely booming export orientated manufacturing base in China, first by moving production sites from Hong Kong into China and now by continuing to use Hong Kong as the financial centre. Why choose Hong Kong if the business is in China? This is a question many companies ask themselves when planning their strategy for China. Hong Kong is the natural gateway to China due to its geographic loca- es that have underpinned its success as an international business city: Level playing field for all no foreign ownership restrictions; Clean government and rule of law upheld by an independent judiciary; Free movement of capital, talent, goods and information; Fully convertible Hong Kong dollar separate from Renminbi; Hong Kong practices a high degree of autonomy from the Mainland with executive and legislative powers; Hong Kong continues to participate in international forums in its own right, including the World Trade Organisation, Asia Pacific Economic Cooperation forum and Asia Development Bank; English and Chinese are the official languages of Hong Kong In the work place, English is the usual language of business with contracts written, reviewed and executed in English. Not only the geographical closeness with China has given Hong Kong an advantage over other Asian rival cities like Singapore, but also due to the establishtion and its beneficial business, finance and legal systems. It is therefore no surprise that a Hong Kong Company is the most common entity incorporated as a holding company for businesses entering the China market. The foundation of a limited company in Hong Kong offers important tax and operative advantages. It enables one to save a considerable amount of costs and increase the profit from import and export, due to its above mentioned tax system. Structuring Requirements A Hong Kong company needs a minimum of one director and one shareholder which can be either a person or a company and Hong Kong residency is not required. The company registry in Hong Kong is public to everyone therefore if investors do not want their name to appear on any documents they can choose to use nominees who will hold the company on their behalf. A Hong Kong company needs to have a registered office address and a company secretary A standard limited company has an authorized capital of HK$10,000 (USD $1,300) and a minimum issued share

5 capital of HK$1.00 (USD $0,13). The issued share capital is also the liability of the company. Accounting and Tax Filing Requirements A Hong Kong company is required to file an audit and a tax return each year so regular bookkeeping according to Hong Kong standards is advisable. Normally a Hong Kong company will only be affected by profit tax. The standard profit tax rate in Hong Kong is 16.5%. However if the company has only conducted offshore business and is able to prove this to the Inland Revenue Department (IRD) in Hong Kong, it can apply for 0% tax rate. In order to be able to justify offshore business the company should: have no employees in Hong Kong do not issue or receive any invoices to and from other Hong Kong companies shipments should not go through Hong Kong The duration until the tax exemption is approved differs on the profit the company made in the specific tax year and very often a long negotiation process is involved. Trading with a Hong Kong Company A trading company in Hong Kong has numerous advantages, such as lower risk, a more developed trading infrastructure, as well as a free currency in and outflow. With a Hong Kong company it is possible to sell directly from Hong Kong to worldwide clients without involving the headquarters, and without goods burdening the warehouse. As a result, lower Freight On Board (FOB) Asia prices can be offered. In addition, a bank credit is not required since clients could open a transferable Letter of Credit. This frees up capital and improves the cash flow. Most importantly the business can also be operated with minimal cost. for interest received by a Hong Kong business from the PRC is 7%. Dividends received by your Hong Kong holding company from your China entity are tax free as there is no dividends tax in Hong Kong. These dividends can remain in Hong Kong and can be used for further investment in the region or worldwide. However, China has reinstated a withholding tax on dividends payable by a Chinese subsidiary to its foreign investor. The withholding tax varies between 10% if the Hong Kong parent holds less than 25% of the China entity and only 5% if the Hong Kong Company holds more than 25% of its Chinese subsidiary. Conclusion Many problems in Foreign Invested Enterprises (FIEs) in China can be traced back to their initial establishment and the project s structure. The main reason for this is that many foreign companies come into this new country and this new culture with high expectations and their western style of doing business, which may not always work in China. It is very good to come into a new market with high expectations and with these great opportunities being offered, however one should be prepared for unexpected occurrences and obstacles. After experiencing China many investors will find that everything in China does take much longer than expected and nothing ever turns out the way one imagines, however this should not be a reason for a company to give up on its China strategy. With patience and understanding for the market and the culture, many companies have been able to overcome these pressures and operate very successfully. For these very reasons it is recommended to seek advice on how to implement these strategies into the company s structure prior to filing the company setup application. Due to limited resources, some small to medium-sized Chinese companies may be reluctant to establish a Hong Kong entity. In order to minimize the financial and administrative expenses of such a business venture, service providers in Hong Kong have developed cost-effective outsourcing solutions for companies. Entrepreneurs, Small and Medium-Sized Enterprise or even larger companies do not need to rent an office in Hong Kong or hire staff. A qualified and experienced team of employees in the fields of trade, logistics and finance are usually available to manage trade transactions, accounting and financial reporting. Over the years, many companies have established their support pillar in Hong Kong in this way. The main advantage of such an outsourcing solution is the lowdegree of investment and the minimal risks involved and with the ability to save on overhead costs, especially in the beginning of the venture, when the business volume is still fairly small. Hong Kong China Double Taxation Agreement If structured accordingly, passive income received by the Hong Kong holding company from the China entity can be tax free in Hong Kong, although they generally attract a withholding tax in China of 7% and a business tax of 5%. The rate for withholding tax in China

6 Talk CHINA Interview with Matthieu Brutsaert, the Chief Representative of RFR SAS, Shanghai Representative Office RFR is an engineering company that specialises in the design of complex structures and of sophisticated envelopes, in intimate symbiosis with the physical character of the building concerned. Its competence goes far beyond construction techniques alone, to attain the creation of elegant structures that reconcile engineering and architecture. The work of RFR is founded on mastery of the technical tools and of the associated scientific concepts. Its use of the most advanced computer applications and exploitation of the most recent technologies enable the company to generate a synthesis of construction parameters which lead to solutions that are at once rigorous, innovative and efficient. RFR was founded in Paris in 1982 by Peter Rice, and is also based at Stuttgart in Germany, at Shanghai in China, and at Abu Dhabi in the Emirates. The firm has distinguished itself over the intervening years on many projects, executed in every part of the world. The wide range of skills possessed by its staff, composed of engineers, architects and industrials designers, enable it to operate in very diverse contexts, and to use the widest variety of materials. RFR has been able to design structures of high quality, intended for unique locations like the Musée du Louvre or the Louis Vuitton store on the avenue des Champs Elysées in Paris, the Capitol in Washington, the Irish Parliament building in Dublin, or the library of the Indian Parliament in New Delhi. RFR interprets its calling in terms of a global vision that is synonymous with quality. Today, RFR is a multi-award winning international multi-disciplinary Engineering Consultancy firm, which alone in their field in delivering global expertise to the highest creative and technical standards in engineering in Europe, Middle East and Asia, with fullservice offices in Paris, Abu Dhabi, Stuttgart and Shanghai- continuing to realize dreams of notable architect s -Frank Gehry LV Paris, Morphosis, Paul Andreu, Kohn Pederson Fox, SPARCH Asia (ex. SMC Alsop). The most powerful way that an engineer can contribute to the work of architects is by exploring the nature of the materials and using that knowledge to produce a special quality (...). Exploration and innovation are the keys. Peter Rice An Engineer Imagines, Paris, Artemis, 1994 What is special about the products and/or services that your company provides? All RFR projects are pro-types requiring invention / research / discovery on an ongoing bases. Employing over 125 experts from diverse fields of Architecture, Structural & Energy Engineering, Airspace, Automobiles, QC s, Quantity Surveyors, 3D Graphics and Model Making, translated into Bridges, Tall Buildings, Public Space Art, Transport Stations, Airports, Stadiums and Office Towers light weight structures, complex geometries, building envelopes, large span structures, and rehabilitation of period buildings. How do you differentiate yourself from your competitors that may already be in the China market? The large scope of competences that we provide allows us to envisage projects from many different points of views. This approach is most suitable for developers in China who seek expertise as well as innovation and creativity from foreign consultants. What are the current trends in China for your particular Industry? RFR is ahead of many new trends in architecture and engineering all over the world. With no exception, China develops its build environment while focusing on reducing energy consumption. Our expertise and experience in transportation building, high performance facades or complex geometries is at the center of the current development in the building sector in China. Why did you make the decision to set up your own entity in China? We took the advantage of several large projects with the need for a permanent team in Shanghai. Having this experience we had already the knowledge of the specificities of the fast developing China market. We see many opportunities for challenging

7 you have achieved while operating in China? Although not yet completed, our current major achievement is the key project of Shanghai North Bund Cruise Terminal Development. What is your view about your company s development in China in 2010 and in the long-term? We wish to take part in new exciting projects in the main cities in China and Asia. Design of an existing project of RFR for the Shanghai International Cruise Terminal Co Ltd. projects for which our company offers competitive services. What challenges have you faced in both the short-term and long-term development of your company in China? And how did you solve these challenges? (Please also refer to the next point) The main challenge is to adjust our service to local markets. To cope with such variable demands and keeping a service of high quality, we develop an international team with exchanges between our different entities where all competences are used in the most optimized way. Could you share a success story that Do you believe that the Expo will provide significant development to Shanghai as well as China and will be an advantage for you? The theme of this World Expo 2010 in Shanghai China is Better City Better Life, reflecting the people s longing for life and the pursuit of a social harmony. There is no doubt that this Expo will be a powerful and lasting pilot example of sustainable and harmonious urban living in Shanghai, in China and all over the world. The environmental component in architectural design combined with an efficient structural design will play a much more significant role in the future. RFR studies and optimize the building physics, and the environmental factors and provides fresh energy strategies for high-class architecture to create comfort but of low energy consumption. RFR has been on the ground in China since 2006 headed up by Matthieu Brutsaert, an Architect and Lutz Dickmann a Structural Engineer. The key skills cover Façade Technologies and Advanced Structural Engineering for complex geometries. Current high-profile projects the Shanghai Port International Cruise Terminal, Gao Yang and Hui Shan sites at the Shanghai North Bund, the ShiLiu Pu Ferry Terminal at the Shanghai South Bund, mixed-use developments in Ningbo and involvement in facade design in Kuala Lumpur, Malaysia. For Contact Details: RFR SAS, Shanghai Representative Office: 4F QingKe Mansion 138 Fen Yang Road Shanghai PRC T F info@rfr-shanghai.com

8 International Accountants & Consultants in China & Hong Kong Western Management 4 Offices Since 1979 Over 100 Employees Klako Group assists clients at all stages of their market entry and expansion strategy in China and Hong Kong by providing the following services: Incorporation Corporate Compliance Accounting & Administration Tax Advisory Audit & Assurance Executive Search Merger & Acquisition Trade & Supply Chain Visit our website at or contact our international desks at the following offices in Hong Kong and China: Hong Kong 10A Seapower Ind. Centre 177 Hoi Bun Road, Kwun Tong Kowloon, Hong Kong Tel: (852) Fax: (852) info@klako.com Shanghai 1504 Cross Tower 318 Fuzhou Road, Huangpu District Shanghai, Tel: (86) Fax:(86) shanghai@klako.com Beijing 14/F IBM Tower, 2A Workers Stadium Road, Chaoyang District Beijing, Tel: (86) Fax: (86) beijing@klako.com Shenzhen 901 Kerry Center, 2008 Renmin Nan Road, Luohu District Shenzhen, Tel: (86) Fax: (86) shenzhen@klako.com International Desks English Deutsch Nederlands Español Français Italiano Português