How to structure investments into China for an international business
27 August, 2015
Expanding internationally brings a lot of advantages, but also some disadvantages. The company should develop an optimal profit allocation strategy to ensure the full benefit of being international will be reached. Many international businesses may find it useful to structure investments into China via Hong Kong. Setting up a holding company in Hong Kong will help you solve many issues related to taxation and profit distribution.
Some of the benefits of adding a Hong Kong company to your China strategy:
Tax Free Dividends – there is no dividend tax in Hong Kong therefore all dividends received by the Hong Kong Holding company from the China company are tax free.
China Withholding Tax – A withholding tax on dividends payable by a Chinese subsidiary to Hong Kong parent company has been reduced from 20% to 5%.
Flexibility of company restructuring
Any change you may wish to make in the structure of the Hong Kong Holding company would be incomparably easier to conduct than changing the structure of the China Limited Company due to difficult and unsupportive behavior of the Chinese authorities.
Consolidation and international accounting standards
Hong Kong follows the international accounting standards. Consolidation with foreign parent company would be easier than consolidation of accounts with the China Limited Company.
Ease of selling China investment
If you're a foreign investor and you'd like to sell your company in China, you should prepare yourself for a difficult and time consuming process due to many government rules and regulations. Selling a Hong Kong holding company would save your from triggering approvals from Chinese authorities.
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