In 2014, UNCTAD reported that China was number one foreign direct investment recipient. Investors find it irresistible, and most multinationals do not stop until they make a step in there. Despite the attractive business environment, the regulatory system in China is very restrictive.
To invest in China, it is prudent to look for different investment vehicles such as foreign-owned business, representative office, or establish a joint venture with a business that has operational jurisdiction in China. One of the best ways to do this is using Hong Kong as a gateway to entering China. In the last one year, more than 70% of all investments into China were done through Hong Kong.
Well, why are all businesses headed to Hong Kong? We bring you five key reasons for taking the business to Hong Kong in the post: Entrepreneurs: Why you should absolutely consider Hong-Kong?
Protecting your main foreign company
The best investment vehicle to get into China is a holding Company based in Hong Kong that can be used as the mother company to other businesses inside mainland China as well as other regions. However, the most preferred entity is a Hong Kong limited liability company.
The company is an independent legal entity with the main liability only limited to the shareholders’ capital. A holding or limited liability company provides better protection of your parent companies compared to joint ventures. For investors who prefer joint ventures, setting it at Hong Kong guarantees extra flexibility while keeping the risks as low as possible.
Because of the stability, independence and maturity of Hong Kong legal system that is built on the English Common Law, many investors insist that issues or disputes be addressed in Hong Kong. Besides, Hong Kong is renowned as a leader in international arbitration and commitment to the protection of intellectual property rights. Lately, government created a specific entrepreneur visa in Hong-Kong, it is a perfect welcome gift.
While transferring and/or restructuring a Chinese company is lengthy, tiresome, and very complicated, the opposite is true when it comes to Hong Kong.
Though some reporting could still be a major requirement in Mainland China, investors find it very easy when doing everything from a holding company based in Hong Kong. The Hong Kong-based company makes it very easy to streamline all investments in China and entire South East Asia.
Every investor who uses a Hong Kong investment to get into China is sure of enjoying unique benefits under DTA (double tax agreement) between China and Hong Kong. These include;
- Dividends: Under the double tax agreement, all dividends that are paid to the parent company by a Chinese company are charged withholding tax of only 5%. If you established the company in China, the withholding tax is 10%.
- Interest on royalties: All the interests and royalties sent to the parent company from a Hong Kong based company are subject to a maximum of 7% under DTA. However, the interests and royalties from a Chinese company are charged 10%.
Note that to take advantage of the DTA provisions; your company must demonstrate substance.
Cheap, efficient, and simple
Investors find it cheap, efficient, and simple to incorporate companies in Hong Kong. In fact, the process can be done in about 24 hours and will only need one director.
Note that while you must have a resident secretary and a registered office, directors can be non-residents. When it comes to investing in China, you can never get it wrong by going through Hong Kong.