Benefits to Set Up Business in Hong Kong to Target Chinese Market
Jun 03, 2021
Hong Kong is no doubt the top choice to start a business in Asia. With its free economy, straightforward and efficient government regulation, and low tax rates, Hong Kong is a super business-friendly city. Even if your business goal is to enter the enormous mainland Chinese market, there’re many advantages to setting up your business in Hong Kong first, compared with setting up a business entity directly in China. Here follows are four of the key reasons.
Easier to set up a WFOE in China
WFOE stands for the wholly foreign-owned enterprise. It is the most popular investment vehicle for foreign investors to build a business in China. In this enterprise, foreign corporate entities or individuals can register a foreign-owned limited liability company in China.
A holding company in Hong Kong can be a solid foundation for foreign investors to apply for a Chinese WFOE easily. In this way, a European company, for example, can benefit from any China entities that its Hong Kong company owns as a WFOE. The European company can also use its Hong Kong entity to manage its Chinese enterprise in many ways.
A significantly lower tax regime
There’s no VAT, sales, withholding, capital gains taxes in Hong Kong. Businesses in Hong Kong are subject to pay only profit taxes on a two-tier system. The first 2,000,000 HKD of profits earned is subject to an 8.25% profit tax. Any profits after this margin will be subjected to a 16.5% profit tax. Compared with the 25% corporate income tax in mainland China, this tax regime in Hong Kong is far more business-friendly.
Closely linked to the market with lower cost and tariff
The transportation cost for imports to Hong Kong from abroad is much cheaper than directly into mainland China. And there are zero tariffs for Hong Kong goods and products to be imported into China if your business entity complies with CEPA rules. In this light, Hong Kong is the perfect entry point to the Chinese market.
And for funds transfer, a registered Hong Kong company can send funds across the border of China with a 5% transfer fee compared to pay 25% income tax on the profits.
More convenient and efficient procedure
One key barrier for most foreign investors to set up a business in mainland China is the ambivalent and unpredictable procedure. Well, if you open up a company in Hong Kong, the government has a more consistent and straightforward requirement for setting up a business entity. Hong Kong also has a more westernised and efficient bureaucratic process to give you a smoother entrance. For example, if you want to change your business structure, in Hong Kong, the procedure takes only about one week compared with approximately two months or longer in mainland China.