“Hong Kong as Your Basecamp for China”
Despite Hong Kong becoming politically a part of China in 1997, the city has grown in importance as the economic and financial Gateway to China. When China opened to the world economy in 1978, Hong Kong was its only interface with the West. Hong Kong quickly became the conduit through which China exported to the world, causing the city to grow into the business and finance centre that it is today.
It should not be surprising that to this day, Hong Kong remains China’s number-one trading partner, and now, with Hong Kong being part of China, we benefit from our proximity and special trade agreements with China in a way that no other country can match. As a Special Administrative Region of China, Hong Kong continues to benefit from a separate semi-autonomous local government administration, adhering to an English Common Law, jurisprudential system a low, territorial based Tax Regime, with no GST or Capital Gains Tax, and a stable US Dollar pegged currency.
For any Westerners wishing to do business in China, or with China based counterparties, it’s key to understand that China provides huge opportunities and can be in fact compared to Mount Everest or presenting an enormous challenge, but one which provides tremendous satisfaction once conquered. However, like Everest, one needs to establish a Base Camp to take advantage of these opportunities, rather than rush in risking failure or disaster through missteps. Hong Kong has provided China with a gateway to the West and in the same way Hong Kong provides a safe launching pad for Western firms looking to engage with China.
A Hong Kong Limited Company can be owned by a Parent Company, thus providing the safety net in Hong Kong for your engagement with China. Similarly, a Chinese Wholly Foreign Owned Enterprise (WFOE) can be owned directly by the Hong Kong company reaping the tax benefits provided by CEPA (The Closer Economic Partnership Agreement) between China and Hong Kong.
The key benefits of using Hong Kong as your Base Camp include;
- Rule of Law
- Free flow of Capital
- Low Profits Tax (currently 16.5%)
- No Capital Gains Tax
- No Tax on Dividends
- Territorial Tax Base
- CEPA – tax agreement between HK and China – profits flowing back from China to HK are taxed at 5% rather than 10% if going direct to Australia.
- Reciprocal enforcement of court judgments in Hong Kong and China are often applicable, in which case, contractual disputes can often be settled according to English Common Law.
- Trademark dispute resolution; with HK Companies fare better in China courts
- Issues with your China Company only impact the HK holding entity, not the Parent company in Australia.