IN DETAIL: CHINA INVESTMENTS
Corporate restructuring at the level of a Hong Kong holding company, however, is a straightforward process of registration and filing. Although some reporting may be required in China for the change of shareholding of a Hong Kong holding company, it is easier and more efficient than restructuring a Chinese vehicle directly.
Four: Tax benefits When investing in China through a Hong Kong company, certain advantages may be granted by the double tax agreement (DTA) between Hong Kong and China, which is one of the best established and familiar tax agreements to Chinese authorities. This offers two clear benefits: 1. Dividends: Dividends paid by a Chinese company to a foreign investor are subject to withholding tax at the rate of 10% unless reduced under a DTA. Under the DTA between Hong Kong and China, dividends paid by a Chinese company to a Hong Kong parent are subject to withholding tax at the reduced rate of 5%, provided the DTA conditions are met. 2. Interest and royalties: Interest and royalties received by a Hong Kong parent company from a Chinese subsidiary also benefit from the DTA – the maximum rate of withholding tax on both is reduced to 7%. This compares favourably with direct payment from China to other jurisdictions where the current withholding tax rate is 10%, unless otherwise reduced under a DTA. It must be noted that to take advantage of the DTA, the Hong Kong company must be able to demonstrate business substance in Hong Kong. In addition, Hong Kong adopts a territorial system of taxation where a tax exemption may be granted for profits that are not of a Hong Kong source. Profits derived in Hong Kong are only subject to a corporate tax rate of 16.5%. Hong Kong does not charge tax
Keri Wong Assistant Manager, Business Development
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Incorporating a company in Hong Kong is quick, easy and cost-effective. It can be completed within 24 hours and requires only one individual director.
on dividends received by a Hong Kong company or withholding tax on dividends paid to shareholders (local or overseas).
Five: Excellence of administration From an administrative perspective, incorporating a company in Hong Kong is quick, easy and costeffective. It can be completed within 24 hours and requires only one individual director (additional corporate and individual directors may be appointed). Although the company must have a local secretary and a Hong Kong registered office, directors do not need to be resident in Hong Kong.
Conclusion With the modernisation of foreign investment policies in China and its neighbouring countries in the region, investing directly has become significantly easier in recent years. Nevertheless, many foreign investors still opt to invest via an investment-holding vehicle based in a country that offers better protection, familiarity and flexibility as well as accessibility when entering new markets. In 2014, Hong Kong was the second largest recipient of FDI in the world, while China held the top spot. Hong Kong also ranked second in terms of FDI outflows behind only the US and ahead of China.
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