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E&OE

Advantages of Hong Kong as a holding company

New Orleans, October 24, 2012

International Tax Day

► Established in 1982 in Hong Kong

► Professional service provider focused on China and

Hong Kong

► 90 Chinese and foreign specialists

► 3 China offices located in Hong Kong, Shanghai and

Shenzhen

► High level of local expertise and multicultural

experience

► Proven ability to apply international standards with

local understanding

► Close co-ordination with the client leading to long-term

relationships

► Strong support from a large network of partners, AGN

member since ‘03

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Fiducia Management Consultants

We have a 30-year track record of serving international clients in China

Case study for Hong Kong

US company (consumer business) is doing business in Hong Kong

The ultimate owner of the US company is an US individual

The Hong Kong business operations create a net result of US$ 7M and pay royalties (license fee for the use of a brand name) in the amount of US$ 2M to a non-HK resident, non-associated company.

1. Corporate set up option for the US company

2. What are the tax consequences?

3. What opportunities exist to mitigate the tax due?

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Shanghai

Hong Kong

Singapore

Seoul

Tokyo

Jakarta

KualaLumpur

Manila

Hanoi

Beijing

Taipei

Wuhan

Guangzhou

Mumbai

Ho-Chi-Minh-City

Qingdao

Chongqing

Fuzhou

Shenyang

Hong Kong and its reach within Asia

Flights from Hong Kong to Shanghai

ca. 100 daily connectionsfirst 8:00 amlast 9:20 pmFlight time ca. 2 ½ h

The circle represents approx. 3 h of flight or 1800 km

Any Conclusions?

Business with China? Choose HK or SHA

Business in SEA? Choose Singapore

Return daytrip from HK to SHA is possible but not from Singapore

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1. Options for a corporate set up in Hong Kong (1/2)1. Private Limited Company (most commonly used form of investment in HK)

Advantages:

a. A separate legal entity from its overseas parent company with limited liability to its registered capital

b. It can engage in trading, sales and all other profit making activities.

Disadvantages:

a. Must be registered with CR and IRD.

b. There are a number of statutory compliance requirements that private limited company must adhere to:- submit to the CR an annual return within 42 days of the anniversary date (date of incorporation in HK) each year.- To file Profits Tax Return and audited accounts with IRD.

2. Representative Office(often used by banks or financial institutions as a first market entry step)

Advantage:

a. No requirement for filing Annual Return, Profits Tax Return and audited accounts.

Disadvantages:

a. It can only conduct liaison work and promotion, it is unable to engage in profit making activities.

b. It cannot issue invoices.

c. Must be registered with IRD.

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3. Non-Hong Kong Company registered in Hong Kong (Similar to what is referred to as Branch)

Advantage:

a. The branch can engage in the same activities as parent company.

Disadvantages:

a. It is a branch office of the parent company, it is not a separate legal entity. Parent company is fully liable for all the debts and liabilities of the branch.

b. Must be registered with Hong Kong Companies Registry (CR) and Inland Revenue Department (IRD).

c. Subject to the similar legal and tax matters as other companies set up in HK:- According to the HK Companies Ordinance, Non-Hong Kong Company (branch) must submit to the CR an Annual Return within 42 days of the anniversary date (date of registration in HK) each year, along with the latest audited accounts of the company.- If the Non-Hong Kong Company (branch) has engaged in trading, sales and profit making activities in HK, it has to file Profits Tax Return with IRD.- It has to prepare audited accounts: the branch may initially submit the audited accounts of the parent company with IRD, in case of the audited accounts are not accepted by IRD, the branch may then prepare the audited accounts for the branch itself and submit to the IRD.

d. It has to appoint one authorised representative who is a resident in Hong Kong. (If you hire a salesperson in HK, you need to consider if it is appropriate to appoint the salesperson as the representative)

e. Banks and clients may prefer dealing with a company incorporated in Hong Kong rather than a branch

1. Options for a corporate set up in Hong Kong (2/2)

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1. Incorporation of a Hong Kong Limited Company

Private Hong Kong Limited CompanyEstablishing a business in Hong Kong is simple and straight forward. There is no need to rent office premises for the establishment of a Private Limited Company.

Name of the Company

Name of the Company

The name has to be unique and must not include certain restricted words. It may be in English or Chinese or both and can be used only once.

Memorandum and Articles of Association

Memorandum and Articles of Association

A private limited Hong Kong company can conduct any business that is legal.  A brief description is of business scope is sufficient, i.e. sourcing of products. The purpose of the company is stated under the object clause in the Memorandum of Association of the company.

Shareholders Shareholders

Shareholders can be either individual(s) or company(ies) and do not necessarily have to be resident in Hong Kong. The liability of each shareholder is limited to the share capital they have invested in the company. The structure of the Hong Kong Limited Company is very similar to the UK.

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Accounting and Bookkeeping

Accounting and Bookkeeping

A yearly audit of the accounts of a Hong Kong Limited Companies is required by the Inland Revenue Department (IRD), resulting in the need for annual accounting.

BusinessRegistration Certificate

BusinessRegistration Certificate

This document is issued by the Inland Revenue Department and must be renewed annually.

Annual AuditAnnual AuditThe accounts of the Hong Kong Limited Company have to be audited by a locally registered auditor and to be submitted to the Inland Revenue Department (IRD).

Registered OfficeRegistered Office

A company must have a registered office address in Hong Kong. This serves as the company's legal address for all notices to be sent to and for all statutory documents to be kept at. Can be different from the business address.

1. Incorporation of a Hong Kong Limited Company

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1. Example of Shelf Companies

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Low Tax Regime

► Profits tax is 16.5%► Offshore transaction

tax free► Salaries tax is 15%► No sales tax or VAT► No taxes on dividends► No Capital Gains Tax

► Profits tax is 16.5%► Offshore transaction

tax free► Salaries tax is 15%► No sales tax or VAT► No taxes on dividends► No Capital Gains Tax

Legal Environment

Banking and Financial Services Trade Friendly

Outsourcing possibilitiesExport Credit Insurance

Hong Kong’s strategic advantages

2. Tax, legal and corporate background of Hong Kong

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2. Tax Consequences in Hong Kong

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Net result: USD 7,000,000Less license fee for brand name use: USD 2,000,000Withholding tax rate for royalties to non-resident,non-associate company (4.95%) USD 99,000Profit before tax: USD 4,901,000Less Profits Tax (16.5%) USD 808,665Profit after tax: USD 4,092,335

Cash in bank in HK (no further deductions in HK) USD 4,092,335No dividend tax in Hong KongFull amount can be remitted from HK to USA. (US tax liability according to personal income tax of individual, no DTA in place)

2. Summary: General advantages of a Hong Kong holding company

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► Hong Kong company can be used for billings to other SEA countries

► Hong Kong’s coporate tax rate only 16.5%

► Company set-up in China less complicated with Hong Kong parent company

► Easy and quick realization also of more complicated ownership structures possible in Hong Kong

► In the case of changes in the shareholding structure, shares of Hong Kong entity can be transferred

► Dividends are tax free in Hong Kong

► Withholding tax for dividends paid from China to Hong Kong favorable compared to many other countries (conditions apply)

► Hong Kong´s legal system is based on British law

► Financial data of China company in Chinese are acceptable in Hong Kong

3. Case Study: How to create offshore transactions

How Fiducia efficiently processes the trade flow for our clients…

Sign back P/I

1

2

3

4

Payment

Place order online

Issue Sales Invoice

Payment

Upload shipping docs

Shipment directly to customer

Hong Kong Company

Global Customers Chinese

Manufacturer

secure web-based connection;

authorisation levels;

ERP integration

Accept order online

Generate P/I

Receive Sales Conf.

Confirm order/production

Download shipping docs

1 2 3 4Order processing

Shipping documentation

Physical goods shipment

Payment

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►Setting up a holding company in Hong Kong is fast, transparent and very cost efficient

►A holding company in Hong Kong has unique advantages when setting up a company in China

► If the company will be operational bear in mind that Hong Kong has extremely high office rent (vertical city)

Summary of Hong Kong’s advantages as a location for your holding company

Important key learnings

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Thaddaeus Mueller,Associate DirectorDirect line:+852-2258-6612  Email: tmueller@fiducia-

china.comwww.fiducia-china.com

For questions and advice on an options and solutions for your China trade please

contact: Shirley WongCorporate Service ManagerDirect line:+852-2258-6620 Email: shirleywong@fiducia-

china.com

Hong Kong

Tel: (+852) 2523 2171Fax: (+852) 2810 4494Email: info@fiducia-china.com

Shenzhen

Tel: (+86) 755 8329 2303Fax: (+86) 755 8329 0821Email: info@fiducia-china.com

Shanghai

Tel: (+86) 21 6327 9118Fax: (+86) 21 6327 9228 Email: info@fiducia-china.com

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Our offices

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