(you can see part one here)
Prepare incorporation documents.
These documents are the constituent documents of the company, including its Articles of Association and registration documents. We have also prepared a guide to the charter of Hong Kong. The Hong Kong government expects every business to have:
- Corporate secretary
- Registered address
- Business registration certificate
Register officially with the Hong Kong Registry of Companies.
You will need to submit a registration form and pay the registration fee.
Set up your accounting.
And here’s the hardest part. Accounting in any company is key. You need to take care of your accounting processes and take note of any tax breaks you may be entitled to.
You can start running your company.
You can now start your business. As far as holding companies are concerned, you can now select your subsidiaries.
Why open a company in Hong Kong?
A holding in Hong Kong is most suitable for owning a company in China and many other countries, for example, the Philippines, Pakistan and India. Today, everyone is actively continuing to invest in the Chinese market, but although the Chinese legislation is developed, it is rather complex and strictly regulates foreign investment.
Therefore, many businessmen from all over the world prefer to enter the Chinese market through a company opened in Hong Kong. One of the main advantages is that Hong Kong and China have a signed double taxation treaty, which significantly reduces the tax on dividends received in Hong Kong.
In addition, there is no tax on dividends, interest income, royalties, etc. in Hong Kong itself, and you, as the owner of the company, will be able to receive dividends directly without paying tax on them in Hong Kong territory. This is quite a significant advantage in favor of opening a company in Hong Kong.
Also, due to the fact that Hong Kong is a Special Administrative Region of China, the workflow in it is carried out in two languages: English and Chinese. If you immediately open a company in China, you will face the problem of legalization of documents on Chinese territory, since he did not sign the Hague Convention on Legalization with Apostille.
But Hong Kong is a party to this convention and all documents of your company are accepted with Apostille. Between China and Hong Kong, the legalization procedure is quite simple due to the use of two languages in Hong Kong.
Due to its advantageous geographical location, Hong Kong is the business capital of Southeast Asia and, as it is called, the “gateway” to China. Deputy Head of Asian Economy Research at Nomura Holdings, “All companies looking to be closer to China and the rest of Asia are encouraged to use the jurisdiction of Hong Kong as their base. With its competitive tax rates, Hong Kong is the best choice for setting up international headquarters! ” The number of registered headquarters in Hong Kong is the highest in the Asia-Pacific region.
Benefits of doing business in Hong Kong using holding structures
Let’s have a look at the advantages of building a business structure for working with China and Hong Kong using the example of creating a holding structure: Holding company (for example, an offshore company registered in Nevis) + Subsidiary (Hong Kong).
Such a business structure has become more and more popular recently compared to using the standard service of nominee directors and shareholders for a number of reasons:
1) Independence from third parties in conducting business and complete personal confidentiality of the beneficiaries (actual owners) of the holding structure, provided that the holding company is an offshore company registered, for example, in Nevis, where information about managers, directors and owners of the company is not publicly available as in Hong Kong);
2) Reduction of costs in comparison with the use of a nominee service;
3) Flexibility and speed in changing the ownership and management structure of a Hong Kong company;
4) Changes in the policy of the government and banks in Hong Kong;
5) Reduction of the taxable base in the case of the presence of activities on the territory of Hong Kong.
To begin with, we will dwell on the definition of the holding structure:
A holding structure is a structure of two or more companies where there is a parent company that owns all or part of its subsidiaries. In this case, the holding company can perform the functions of a management company, i.e. act as a corporate director of subsidiaries.
Let’s discuss each of the above points in more details:
1) The definition of nominee service assumes that the denominations do not have rights to the company, the beneficiary of which you are, they simply act on behalf of the company and provide their names for the register of companies, they also sign an agreement with you, where they disclaim all responsibility for the activities of the company in case of any violations on your part.
But do not forget that the denominations sign annual reports for the Registration Department, annual Audit reports and Tax Returns on behalf of the company. And also, if you appoint them to sign and contracts on behalf of the company, then they will be aware of everything that is happening with you.
In fact, you become completely dependent on them in your current business activities, which does not contribute to the preservation of confidentiality and the speed of implementation of any decisions. In addition to this, for certain reasons, recently many denominations in Hong Kong have set a condition for the owner of the company: the nominee director must have full access to the bank account of your company.
And some of them go further, they set you a condition: only a nominee director should open the company’s account, he will also manage it, which makes you completely dependent on third parties.
On the other hand, in the case of using a holding structure, you, as the owner and director of the holding company, will “remain in the shadows”, as with the use of a nominee service, your name will not appear in the state register and in the database of the Hong Kong Tax Department.
But if this gives you full power and freedom of action in your own business, you can sign all the documents yourself, or you can write a power of attorney for another person. In fact, you will control even two companies instead of one.
2) By tying yourself with a nominee service, you “get hooked”, in addition to the annual fee that will take from you the denomination, you will have to pay for each signature, which is not cheap, many denominations take an average of 100-150 USD per signature. On the other hand, by creating a holding structure, you only need to pay a fixed annual fee in the case of using, for example, an offshore company registered in Nevis.
3) At this point it is worth to point out the advantage of a holding structure associated with flexibility and speed in changing the ownership and management structure of a subsidiary of a Hong Kong company. Let’s say you registered a company in Hong Kong, registered yourself as a shareholder and director, or appointed a nominee director and shareholder. Time has passed, the company has been operating, and, for example, for a number of reasons, it becomes necessary to add partners to your business, to make them shareholders, or you just need to sell the company.
What should you do in this case? You contact the secretary company with a request to change / add shareholders, they answer you, you cannot do it right away, you need to go through a certain procedure, in fact, you need to submit an interim audit report to the Hong Kong Tax Department, which costs a lot of money and, most importantly, involves time-consuming.
This can take from one to two months, on average. On the other hand, a holding structure allows you to simply add / change shareholders of a holding (offshore) company without notifying the Hong Kong government. On this you will spend a disproportionately less amount, and the time spent will total 8-10 days. The result is obvious.
4) Due to the strengthening of the fight against money laundering throughout the world, the Hong Kong administration, and after it and local banks, are taking a number of measures aimed at identifying such facts. In particular, banks take control of ongoing transactions, the value of which exceeds 100,000USD, you may be asked questions, require supporting documents, and if there are none, there is a high probability that your account will be closed.
At the same time, the Hong Kong Administration forces banks to collect information about suspicious transfers and report it to the regulatory authorities. At the moment, the principle of bank secrecy is in effect, but the Hong Kong government has warned all local banks that if they do not provide information about the identified criminal transactions, and such information gets to the regulatory authorities from other sources, then such banks will be liable before the law for inaction.
Alternatively, a company that has a nominee director and shareholder, upon opening a bank account, immediately falls under control and is defined as suspicious, since, according to the bank, the real owner, for one reason or another, wants to hide his name.
On the other hand, if you come to a bank and open an account for your own company, taking into account that you own it through a holding company, this is perceived as normal, the account is opened according to the usual scheme, since holding structures are an integral part of doing international business. Moreover, you can open two accounts at the same time, one for a subsidiary of a Hong Kong company, the other for an offshore holding company.
5) This paragraph will focus on the clear advantages of doing business using a holding structure in Hong Kong. First of all, this concerns the reduction of the taxable base, or, moreover, the ability to legally completely avoid taxes in certain cases. As an example, you have suppliers in China, but often they offer you to pay not directly to the factory, but to the accounts of their Hong Kong companies, so that they themselves avoid taxes in China.
At the same time, they expose you to possible taxation in Hong Kong, because You are forced to interact with Hong Kong residents. In such cases, it can be extremely difficult to prove your offshore activities. We offer the following solution, in the case when you need to make payment to the account of the supplier’s Hong Kong company, you can do this from the account of your holding company, which is an offshore company, thereby excluding your subsidiary from this transaction.
In the case when you have to pay directly to China, you use a Hong Kong company as usual. The same goes for the reverse situation. For example, you have clients, but they offer to pay for your goods / services from the account of their Hong Kong company. You provide them with the bank details of your holding company, thereby excluding the subsidiary (Hong Kong) from this transaction.
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Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
