Hong Kong

International Financial Centre

&
Gateway to China

A Presentation at the

CIS Wealth Moscow 2015 Conference

February 16 & 17, 2015

Moscow

by

Henning Schwarzkopf, M.C.L.

CHEURAM Consulting Group Ltd.
Hong Kong
www.cheuram.com
 Agenda

• Introduction of CHEURAM Consulting Group Limited

• Why Hong Kong?
• Hong Kong companies
• Use for business activities in China
• Questions & Answers

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CHEURAM Consulting Group Ltd.

• Based in Hong Kong

• Partners (with legal backgrounds) from China and Europe
• Offices in Hong Kong, Beijing, Hamburg and Monaco

• Office in Beijing managed by a Chinese lawyer:

Capability to provide full scope of legal services of a Mainland China (PRC) law firm
• Focus:
– Formation and administration of Hong Kong companies
– Legal & tax structures using Hong Kong
– Trust & Nominee Services
– Market entry into China for foreign companies – „China Inbound“
– Chinese business activities in Europe and the U.S. – „China Outbound“
– Domestic Chinese law (focus: commercial & corporate law)

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Hong Kong – a good location for business and investments

Sunday, June 14, 2020 CHEURAM Consulting Group Ltd.

Hong Kong
• Sovereignty was returned to China on July 1, 1997.

• According to the Sino British Joint Declaration of 1984 (between the United Kingdom and the
PRC) Hong Kong became a Special Administrative Region – SAR.

• Continuation of the existing capitalist economy and the social and legal systems (“basic law”)
for another 50 years (until 2047).

• Hong Kong will remain independent in all sectors of business, fiscal and social policy with the
exception of foreign and defence polices.

• Hong Kong is one of the most important trade, financial and service centres in Southeast Asia
and a hub for trade with China.

• According to a study by the "Census and Statistics Departments" of the Special Administrative
Region and conducted in 2014, there are 1,389 international companies having their regional
headquarters in HK supporting the fact that Hong Kong is Asia ´s economic centre.

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Hong Kong´s Advantages
• An International Business Centre

– Hong Kong is Asia's financial centre (211 institutions with 1,295 local branches owned by interest from 31 countries, 85
representative offices of foreign banks; financial services: 16.1% of GDP)
– Profound experience in international trade
– Reliable and stable legal system

• Free Flow of Capital and Goods

– Free trade, free markets, free media

– No restrictions for investments by foreign companies
– No currency restrictions

• Efficiency in Product Sourcing, Distribution and Sales

– Hong Kong is Asia's leading exhibition venue (140 exhibitions p.a. with more than 1.7 million visitors)
– Easy access to the production facilities in the Pearl River Delta
– Assistance for a successful market entry into China

• International Business Environment

– Strong and established institutions

– Pro-business environment
– Cosmopolitan spirit

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Additional reason in Hong Kong´s favor:

• Hong Kong has been elected as the "most liberal economy worldwide" for 20 years in a row. There are no trade
barriers, investment restrictions or currency controls.

• Hong Kong is a free port, i.e. most products can be imported and exported free of any duty or tax (except
alcohol, tobacco and fuel).

• Hong Kong's government is very business friendly. Foreigners can set up, own and manage their companies.
There are no restrictions on capital and profit transfers.

• The tax system is simple and tax rates are low compared to other countries. Only profits generated in Hong Kong
are subject to a low rate of 16.5%. Profits generated outside the SAR are tax free.

Special relationship with Mainland China

• The Mainland and Hong Kong Closer Economic Partnership Arrangement, or Closer Economic Partnership
Arrangement (CEPA) for short, is an economic agreement between the Hong Kong and the PRC, signed on 29 June
2003.

• CEPA is a free trade and services agreement pursuant to which qualifying products, services, companies and residents
of Hong Kong enjoy preferential access to the mainland Chinese market.

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Legal System in Hong Kong
• The law of Hong Kong is based on the rule of law (“Basic Law”) and the independence of the judiciary.

• Under the principle of “one country, two systems” the legal framework of Hong Kong is based on the
English common law supplemented by local legislation.

Tax System in Hong Kong

• Tax Jurisdiction
Taxes in Hong Kong are levied on the “territorial principle”. In other words, taxes are only levied on
income “derived from or arising in” Hong Kong and not on income sourced outside Hong Kong. Result:
“0” tax on offshore (non Hong Kong) income.

• Capital Gains Tax

There is no capital gains tax in Hong Kong. Capital loss expenses are correspondingly not allowed as
deductions.

• Corporate Tax
Hong Kong has an attractive corporate tax regime highlighted by low tax rates. The corporate tax rate is
a flat 16.5% on assessable profits.

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• Personal Tax
Individuals are taxed at progressive rates on their net chargeable income starting at 2% and is
capped at 17%; or 15% of net income, whichever is lower.

• Withholding Tax
There are no withholding taxes levied on dividends and interest.

• VAT Tax
There is no VAT or sales tax imposed in Hong Kong.

• Double Tax Treaties

Hong Kong has established a DTA network (37 treaties) that minimizes exposure of Hong Kong
residents (incl. companies) and residents of the DTA partner to double taxation.

Austria, Belgium, Czech Republic, France, Hungary, Ireland, Italy, Jersey, Liechtenstein,
Luxembourg, Malta, Netherlands, Portugal, Spain, Switzerland, United Kingdom, not
Russia

• Accounting Standards
Hong Kong has adapted a Financial Reporting Standards (FRS) framework that has been modeled
on International Financial Reporting Standards (IFRS).

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• Estate Duty
Also known as death tax or inheritance tax in some countries, estate duty has been abolished
since February 10, 2006.

• Customs and Excise Duty

Hong Kong is a free port. There is no tariff on general imports. However, there is duty on
liquors (except wine), tobacco, hydrocarbon oil and methyl alcohol. For tobacco, hydrocarbon
oil and methyl alcohol, duties are charged at specific rates per unit quantity. For liquors, duty
is assessed at different percentages of their values on the basis of three different categories
defined broadly according to alcoholic strength. There is no tax or excise duty on exports
from Hong Kong.

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Hong Kong Companies
• The most widely used company type: Private Limited Company or "Limited" or "Ltd.".

• Set up by a domestic or foreign person or company (or trust) and registered with the
Companies Registrar without the shareholder(s) having to be present in Hong Kong.

• A company is owned by the shareholder(s), who is/are entitled to the profits of the company.

• The shareholder(s) must nominate at least one director, who represents the company.
He/she does not have to be a resident of Hong Kong. Shareholder(s) and director(s) can be
identical. (One of) the director(s) must be natural person.

• The company requires a Secretary and a Registered Office. Both must have an address in
Hong Kong.

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Administration of a Hong Kong Company
• The administration of a Hong Kong company is easy. The law allows Hong Kong companies to locate their office
anywhere in the world. Only the registered office must be in Hong Kong.

• Once a year, the company must file an Annual Return confirming the current shareholders and directors.

• In addition, an annual financial statement, the Annual Accounts, must be submitted within 18 months after
formation of the company. We assist our clients in preparing these documents and offer an effective reminder
service.

Duties of the Director

A director represents the company and is responsible for all its business matters.

Duties of the Secretary

Persons as well as companies may act as a Company Secretary.

The Secretary is responsible for the records of the company and their safe keeping. He/she/it is the official
company contact for government offices.

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Registered Office

Hong Kong laws require every company to have a registered office in the SAR. It is the company´s
official legal residence in Hong Kong for receiving mail and the location where the books and
records are kept.

The Company Capital

The minimum capital of a Hong Kong private limited company is HK$1.00. It may be increased
according to the requirements. In general, companies have a capital of HKD 10,000. The issued
capital must be paid-in (since April 1, 2014)

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Summary: Advantages of using Hong Kong Companies

• Hong Kong is an established hub in Asia for international business and a financial centre
• Excellent infrasture of in the financial, legal and service industry
• Safe legal environment
• Pro-commerce tax system

Types of use for Hong Kong Companies

• Business within or outside of Hong Kong

• Vehicle for investments outside of Hong Kong
• Asset protection by use a parent company for offshore vehicles
• Trading with China

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Models for trading with China
• Outsourcing activities in China
Important to find a reliable agent in China

• Establishing a Hong Kong Trading Company

• Re-invoicing for purchases (possible „0“ taxation)

• As a subsidiary of the foreign parent or independent company
• Divdends are tax-free in Hong

• Establishing a Hong Kong Company with a Representative Office in China

• Easiest way to set up a legal presence in China

• No sales/purchase contracts, only marketing
• No capital requirements
• Subject to tax in China (app. 10% of expenses)
• Watch out for strict compliance with limited activities

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Establishing a Hong Kong Holding Company with a Limited
Company in China for Retailing & Wholesale or Franchising
Purposes
• WOFE (Wholly Foreign Owned Enterprise) or FICE (Foreign Invested Commercial
Enterprise: a WOFE which engages in retail & wholesale and franchising)
• Limited liabilty company owned by foreign investors
• Business scope must be approved, cannot be changed easily
• Difference: FICE has distribution rights
• Model: HK company as holding company for the China WOFE/FICE protecting the foreign
company, 5% withholding tax in China (less than the 10% - 20% withholding tax from other
countries.
• Disadvantages for Chinese suppliers: no VAT deductions resulting in higher prices

Important: Minumum Capital Requirements

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 Minimum Capital Requirements for a WOFE
• Minimum registered capital varies
• RMB 30,000 for single shareholder & RMB 100,000 for multiple shareholders
• No real meaning as the „adequate“ capitalization is required
• Stated registered capital required (small companies: paid-in; large companies: instalments
possible)
• Failure to pay in is a crime
• To be used, not to be held as a deposit
• Withdrawal difficult (only by repatriating profits or liquidating the company, which require
paying taxes and meeting other requirements)

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Establishing a Hong Kong Trading Company with a Limited
Joint Venture in China
• Control of production, legal rights and delivery
• Hong Kong Law is recommended
• Hong Kong company as holding company for the JV

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Business Taxes in China
• Tax revenues in China are collected and split between central and local government.
• Every company has to register with both the SAT and the local tax bureau, and Customs as
required
• Corporate Income Tax: 25% for both domestic and foreign enterprises
• Withholding Tax: 10% tax levied on China-derived income that non-resident enterprises
make by providing services to companies based in China
• Value-added Tax (VAT): 17 % (and 13%)
• Business Tax (BT):
– tax applied to all enterprises and individuals engaged in providing taxable services,
transferring intangible assets or selling immovable properties in China.
– tax is collected by the local tax bureau every month.
– tax rates vary from industries (example: services 5%)
• Consumption Tax: varies from 1% to 56%, mainly applies to luxury goods, tobacco, alcohol,
petroleum

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Summary
• Hong Kong is an ideal location to set up a company for international investments, asset
protection and trade with China.
• Widely recognized business environment with high-standard service infrastruture
• Excellent legal and low-tax system
• Many structuring options, due to double tax treaties with recognized nations
• Safe and well-developed company law allowing great amount of flexibility and secrecy.
• Revised trust law
• Bank secrecy laws strictly enforced.
• Perfect base for China activities and trade.

Sunday, June 14, 2020 CHEURAM Consulting Group Ltd.

 Thank you very much for your attention
We shall be pleased to assist you in setting up your Hong Kong company
and answer your questions

info@cheuram.com

Sunday, June 14, 2020 CHEURAM Consulting Group Ltd.