Foreign entrants typically choose between a special purpose vehicle (SPV) or holding company to hold their investments in China to better protect them. For a corporate structure, this is the best way to observe freedom and flexibility all with an extra layer of security.
Hong Kong, being one of the closest destinations to China, is often the first choice for foreign invested enterprises (FIEs) to set up a holding company, but that’s not the only reason. Hong Kong has been a financial hub in Asia for nearly two decades now and is known for offering one of the world’s freest economies with an advanced financial system.
Let’s take a detailed look at the benefits of setting up a holding company in Hong Kong.
Structural Benefit
A Hong Kong holding company provides a reliable set-up for companies to invest in China as it adds to the overall robustness of the holding structure. With a Hong Kong holding company, investors have more flexibility regarding the sale of investments.
China has much stricter laws and guidelines when it comes to indirect sale or disposal of shares but with a Hong Kong entity, the direct sale of taxable assets makes the process easier.
Preferential Tax Treatment
It’s common knowledge that Hong Kong’s tax system is one of the best in the world. Low tax rates and profit tax on two-tiered systems allows preferential tax treatment for a holding company established in the region.
The preferential tax regime works in a way that profit tax applies to every person, as long as the profits are made inside Hong Kong and not from an outside source. Not to mention that the corporate income tax (CIT) rates for Hong Kong are much less than in China.
Fund Pooling
As an investor, you may need to move around and re-allocate profits made from an FIE. Hong Kong offers the option to pool funds in holding company with low transaction tax rates and an easy option to invest the money wherever you want to.
Since Hong Kong mostly deals with RMB, it’s unequivocally the best option to handle all RMB-denominated transactions.
Concluding Thoughts
Even though there are clear benefits to a Hong Kong holding company, investors need to keep in mind that recently, Hong Kong has tightened its laws regarding money laundering and financial regulations which can hinder the set-up process.
With our expert help, you can easily set-up a holding company in Hong Kong that’s legally compliant and serves your purpose the best.
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