Intertrust Katherine Chiu October 2007 1 Hong Kong s Role Your China Market Entry & Strategies Katherine Chiu
Intertrust Katherine Chiu October 2007 2 Welcome to China!!!
Intertrust Katherine Chiu October 2007 3 China Market characteristics Moving towards more transparent / open market Highly fragmented market Fast changing, dynamic market Guanxi with local authorities Growing consumption power the emerging middle class Change of multi-national firms strategic approach from exploration to penetration
Intertrust Katherine Chiu October 2007 4 CHINA Beijing Central Bohai Economic Zone Western Guangzhou Shanghai PRD Hong Kong Shanghai &YRD
Intertrust Katherine Chiu October 2007 5 Issues to consider entering China 1st question - why China? Perform industry analysis Identify entry mode Understand regulation regime Understand regional characteristics Identify competitive advantages Focus on positional advantage (e.g. to achieve lower cost & superior customer value)
Intertrust Katherine Chiu October 2007 6 China/HK DTA* covers in China individual income tax and foreign China/HK DTA* investment enterprise income tax in Hong Kong profits tax, salaries tax and property tax * Double Tax Arrangement
Intertrust Katherine Chiu October 2007 7 China Hong Kong DTA favourable withholding tax rates taxable item non-treaty rate normal treaty rate favourable treaty rate Hong Kong dividends (1) - 10% for companies - 20% for individuals 10% 5% interest - 10% for companies - 20% for individuals 10% 7% royalties - 10% for companies - 20% for individuals 10% 7% capital gains tax (on transfer of shares) - 10% for companies - 20% for individuals 10% - 0% (if < 25%) - 10% (for all other cases) 1) Currently after-tax dividends from an FIE are exempt from withholding tax. However, this exemption is likely to be repealed under tax unification.
Intertrust Katherine Chiu October 2007 8 extraction of profits from China Benefits of not investing directly into China EU co 0% under EU Directive shareholding Belgium / HK DTA China / HK DTA withholding tax 0% Belgian co HK co > 25% unification 5% tax of if income exemption dividends tax 1 abolished? exempted Jan 2008 shareholding China co
Intertrust Katherine Chiu October 2007 9 Benefits of not investing directly into China EU co 0% under EU Directive shareholding if profits in the foreign invested enterprises are repatriated in form of dividends it is possible that only China primary tax is payable withholding tax 0% 5% if exemption abolished? Belgian co HK co > 25% shareholding China co
Intertrust Katherine Chiu October 2007 10 Benefits of not investing directly into China EU co 0% under EU Directive shareholding gains on disposal of shares in the FIE would be taxed in China but at Hong Kong level there would be no capital gains tax withholding tax 0% 5% if exemption abolished? Belgian co HK co > 25% shareholding China co
Intertrust Katherine Chiu October 2007 11 Benefits of not investing directly into China EU co 0% under EU Directive shareholding flexibility of shareholding structure withholding tax 0% Belgian co HK co > 25% 5% if exemption abolished? shareholding China co
Intertrust Katherine Chiu October 2007 12 Benefits of not investing directly into China EU co 0% under EU Directive shareholding Hong Kong company may tap into benefits offered under CEPA withholding tax 0% Belgian co HK co > 25% 5% if exemption abolished? shareholding China co
Intertrust Katherine Chiu October 2007 13 Benefits of not investing directly into China Belgium / HK DTA China / HK DTA if profits in the foreign invested enterprises are repatriated in form of dividends it is possible that only China primary tax is payable gains on disposal of shares in the FIE would be taxed in China but at Hong Kong level there would be no capital gains tax flexibility of shareholding structure Hong Kong may tap into benefits offered under CEPA made between Hong Kong and China 0% under EU Directive withholding tax 0% 5% if exemption abolished? EU co Belgian co HK co China co shareholding > 25% shareholding
Intertrust Katherine Chiu October 2007 14 China tax regime Foreign Enterprise Income Tax Unification of Income Tax 1 Jan 08 Rate : 25% 33% Rate SEZ manufacturing: 0% - 2 years 7.5% - 3 Years 15%- 24% - 27% Rate SEZ other: Shenzen, Zhuhai, Shantou, Xiamen, Hainan & Pudong 15% (maybe) monthly/quarterly filing
Intertrust Katherine Chiu October 2007 15 China tax regime Individual Income Tax 5% - 45% top rate 45% after Euro 10,000 per month monthly filing
Intertrust Katherine Chiu October 2007 16 China tax regime Business Tax rate: 3-20% of turnover normal rate: 5%
Intertrust Katherine Chiu October 2007 17 China tax regime VAT normal taxpayer 17% small scale taxpayer 4 or 6%
Intertrust Katherine Chiu October 2007 18 China tax regime Capital Gains Tax foreign seller 10% withholding local seller 20% for individuals 33% for corporations
Intertrust Katherine Chiu October 2007 19 China tax regime Consumption Tax 0~45% product specific
Intertrust Katherine Chiu October 2007 20 China tax regime Deed Tax 3~5%
Intertrust Katherine Chiu October 2007 21 China tax regime Land Appreciation Tax
Intertrust Katherine Chiu October 2007 22 China tax regime Customs Duties
Intertrust Katherine Chiu October 2007 23 China tax regime Foreign Enterprise Income Tax : 33% 25% Individual Income Tax : 5%~45% Business Tax : 3-20% of turnover : normal rate : 5% VAT : 17% normal taxpayer : 4 or 6% small scale taxpayer Capital Gains Tax : 10% withholding for foreign sellers : 20% for individuals : 33% for corporations Consumption Tax : 0~45% Deed Tax : 3~5% Land Appreciation Tax Customs Duties
Intertrust Katherine Chiu October 2007 24 China structures representative office of foreign company China structures
Intertrust Katherine Chiu October 2007 25 China structures joint ventures cooperative JV equity JV
Intertrust Katherine Chiu October 2007 26 China structures WFOE - wholly foreign owned enterprise manufacturing servicing FICE
Intertrust Katherine Chiu October 2007 27 China structures rep office JV WFOE - wholly foreign owned enterprise manufacturing servicing Foreign Invested Commercial Enterprise (FICE)
Intertrust Katherine Chiu October 2007 28 China structures setting up a WFOE minimum capital requirement WFOE FICE wholesale FICE retail RMB30,000 (EUR3,000) RMB500,000 (EUR50,000) RMB300,000 (EUR30,000)
Intertrust Katherine Chiu October 2007 29 China structures setting up a WFOE the form of contribution in kind to total registered capital widened after 1 Jan 06 cash contribution: >30% non-cash assets: up to 70% tangible / intangible assets
Intertrust Katherine Chiu October 2007 30 China structures setting up a WFOE debt-to-equity rules USD 3 million or less 70:30 USD 3-10 million 50:50 USD 10-30 million 60:40 over USD 30 million 33:67
Intertrust Katherine Chiu October 2007 31 China structures setting up a WFOE Board of Directors 1-13 natural persons no local director requirement
Intertrust Katherine Chiu October 2007 32 China structures setting up a WFOE legal representative not necessarily a director not necessarily a resident
Intertrust Katherine Chiu October 2007 33 China structures setting up a WFOE minimum capital requirement WFOE FICE wholesale FICE - retail RMB30,000 (EUR3,000) RMB500,000 (EUR50,000) RMB300,000 (EUR30,000) contribution cash 30% - non-cash 70% debt-to-equity rules 70:30 60:40 50:50 33:67 Board of Directors 1-13 natural persons no resident director requirement legal representative not necessarily a director not necessarily a resident
Intertrust Katherine Chiu October 2007 34 China structures EU company Belgium company -95% exemption on dividends from Hong Kong subsidiary -100% exemption on capital gains on disposal of equity interest of the Hong Kong company if such company s assets do not comprise > 50% of immovable property situated in Hong Kong Belgian/HK tax treaty HK/PRC tax arrangement HK company Dividends from China -currently exempt Capital gain on disposal of equity interest -exempt if < 25% -10% rate will apply for all other cases Representative office Service WFOE FICE Manufacturing WFOE
Intertrust Katherine Chiu October 2007 35 Structure: Representative Office Belgium company Goods Goods Goods European buyers Forex HK company Forex Chinese suppliers Representative Office Limited Business Scope Perform market surveys & quality control Provide business information Carry out business liasion PRC taxes Tax on cost-plus basis BT@ 5% & FEIT 25% Tax cost approx 8.63% of the operating expenses
Intertrust Katherine Chiu October 2007 36 Structure: Service WFOE Belgium company Goods Goods Goods European buyers Forex HK company Forex Chinese suppliers Forex Provision of services Provision of services Service WFOE RMB Business Scope Take up back office support functions Perform quality control and inspection Provide sales and marketing support PRC taxes BT@ 5% on service income FEIT@ 25% on profits
Intertrust Katherine Chiu October 2007 37 Structure: FICE Goods / Invoices Forex/RMB Belgium company European suppliers HK company Goods Chinese customers FICE Business Scope Engage in full-fledged trading function Provide after-sales and technical support Perform sales and marketing, quality control functions PRC taxes VAT@ 17% on local sales BT@ 5% on service income FEIT @ 25% on profits
Intertrust Katherine Chiu October 2007 38 Structure: Manufacturing WFOE Goods / Invoices Forex/RMB Raw Materials Belgium company European suppliers HK company European buyers Chinese suppliers Manufacturing WFOE + FICE Chinese buyers Business scope Production Local or foreign customers Provide after-sales and technical support PRC taxes VAT@ 17% on value-added portion of local sales FEIT @ 25%
Intertrust Katherine Chiu October 2007 39 Structure: timeline for establishing the various investment vehicles type of establishment WFOE FICE FICE RO Services or Manufacturing Retail business or Wholesale business Retail + Wholesale business 1 2 3 4 5 6 months
Intertrust Katherine Chiu October 2007 40 Hong Kong companies companies can be set up easily off the shelf incorporation 7 working days Hong Kong companies
Intertrust Katherine Chiu October 2007 41 Hong Kong companies minimum issued share capital HK$1
Intertrust Katherine Chiu October 2007 42 Hong Kong companies one man companies one shareholder one director
Intertrust Katherine Chiu October 2007 43 Hong Kong companies no requirement for a HK director
Intertrust Katherine Chiu October 2007 44 Hong Kong companies corporate directors corporate shareholders
Intertrust Katherine Chiu October 2007 45 Hong Kong companies HK secretary required
Intertrust Katherine Chiu October 2007 46 Hong Kong companies HK registered office required
Intertrust Katherine Chiu October 2007 47 Hong Kong companies audited annual accounts and tax filing required
Intertrust Katherine Chiu October 2007 48 Hong Kong companies companies can be set up easily off the shelf incorporation 7 working days one man companies one shareholder one director no HK director requirement corporate directors / corporate shareholders HK secretary required HK registered office required minimum issued share capital - HK$1 audited annual accounts and tax filing required
Intertrust Katherine Chiu October 2007 49 Advantages of a HK holding company gateway for investment in China CEPA China/HK double tax arrangement Advantages of a HK holding company Belgium/HK double tax agreement
Intertrust Katherine Chiu October 2007 50 Advantages of a HK holding company one more layer of protection on the interest of the parent holding company shareholders agreements IP registered in HK recognised centre for arbitration
Intertrust Katherine Chiu October 2007 51 Advantages of a HK holding company easier to change shareholding structure
Intertrust Katherine Chiu October 2007 52 Advantages of a HK holding company gateway for investment in China Closer Economic Partnership Agreement China/HK double tax arrangement Belgium/HK double tax agreement one more layer of protection on the interest of the parent holding company easier to change shareholding structure
Intertrust Katherine Chiu October 2007 53 Hong Kong facts first class professional services first class all top 10 international accounting firms professional services
Intertrust Katherine Chiu October 2007 54 Hong Kong facts first class professional services all magic circle law firms
Intertrust Katherine Chiu October 2007 55 Hong Kong facts first class professional services investment bankers
Intertrust Katherine Chiu October 2007 56 Hong Kong facts first class professional services private equity houses
Intertrust Katherine Chiu October 2007 57 Hong Kong facts first class professional services real estate agents and property consultants
Intertrust Katherine Chiu October 2007 58 Hong Kong facts first class professional services all top 10 international accounting firms all magic circle law firms investment bankers private equity real estate agents and property consultants corporate services companies
Intertrust Katherine Chiu October 2007 59 Hong Kong facts first class professional services in fact, everything you would expect in a major financial centre the world s leading corporate services company Intertrust
Intertrust Katherine Chiu October 2007 60 Our Asian offices Western Central PRD Bohai Economic Zone Shanghai &YRD Beijing Shanghai Hangzhou Guangzhou Our Asian offices Hong DalianKong Singapore Wuhan Chengdu
Intertrust Katherine Chiu October 2007 61 to recap
Intertrust Katherine Chiu October 2007 62 Conclusion Asia still dynamic growth Hong Kong preferred jurisdiction for MNC to hold the investment and finance in China Our Asian offices Hong Kong Singapore China (Beijing, Shanghai, Hangzhou, Guangzhou) Our services: Business services China services Corporate services Securitisation and fund administration services Tax services Trust services
Intertrust Katherine Chiu October 2007 63 Conclusion HK / China DTA Benefits for not investing directly into China China tax regime China structures Advantages of using a Hong Kong holding company Hong Kong first class professional services Intertrust
Intertrust Katherine Chiu October 2007 64 See you at the Mall!!!
Intertrust Katherine Chiu October 2007 65 providing creating crossing Fortis professional Intertrust business, borders, services! Thank you Katherine Chiu katherine.chiu@fortisintertrust.com