Hong Kong Companies for WFOEs

If you have read our guest contributor, Kenneth Wong’s earlier article on wholly foreign owned enterprises (WFOEs) in China, here is some additional information on how it might be advantageous to register a Hong Kong company and how it can help you to expand your enterprise into China.

By Kenneth Wong, SHEN

In the course of my work in Shanghai during the past 5 months, I had set up 5 Hong Kong Limited Companies. Some of these HK-limited companies function as entities on their own but I have found that most of these HK-limited companies are actually used as holding companies for fund transfer/tax minimization. They are also used as parent companies for new entities that wish to set up WFOEs in China. Below, we shall examine the process and reasons behind the setting-up of HK companies.

1. HK Companies- As Parent companies for setting up WFOEs

A company wishing to set up a WFOE must first have a recognized enterprise in the world. Hong Kong is one of the world’s reliable and efficient financial centers. The advantages of no exchange control, sound legal system and efficient transport/communication networks make the incorporation in Hong Kong attractive for international traders. Hong Kong is ranked the freest economy in the world.

HK companies are fast to set-up. A ready-made company takes just 3 working days to set up. A tailor-made companies may take 7-10 working days. Thus, an entrepreneur without a current company set-up could quickly set up a company with a full (minimum) company structure of one director, one reserve director and 2 shareholders in HK with HKD 4,000 (equivalent to SGD 800) in 2 weeks with a registered address and company secretary. Thereafter, he could quickly use this registered entity to set up a business in China.

Because of Hong Kong’s proximity to and it being part of China, HK companies are more recognized by China. The government authorities in China perceive HK companies as under their surveillance and thus, more authentic than most companies elsewhere in the world.

2. HK Companies- As Fund Transfer/ Transfer Pricing/Tax Minimization Vehicles

-One of the major advantages of Hong Kong company incorporation is that it will not be perceived as a tax avoidance vehicle, as Hong Kong is a major trading entity in its own right. There is no capital gains tax and exchange control. The basic law of Hong Kong guarantees free trade as well as low taxes for a Hong Kong company

WFOEs can transfer their dividends following tax clearance directly to the HK company offshore bank account. The money transferred to the HK Company can be then used for investment purposes anywhere else in the world as per international financial transactions. Usually used for companies with potentially high returns from businesses in China.

WFOEs can freely import/export goods from China without paying additional import/export tax. For example, if the cost price of a good is RMB5, the entrepreneur similarly pays RMB$5 to import the good into HK without allowing paying further import tax. This allows for further profit margins for the entrepreneur.

Related Articles
[1] Kenneth Wong, Introduction to Wholly Foreign Owned Enterprises in China, SG Entrepreneurs

About Kenneth Wong:Kenneth is currently the President of SHEN, the Shanghai House of Entrepreneurs and is doing his internship as a corporate services consultant at Willsonn Partners, a fast growing CPA firm in China. He can be contacted at Kenneth@shentrepreneur.com or Kenneth.wong@willsonn.com or via Shanghai Mobile 86-21-13402065607

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