Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. He is also the author of The Essential Reference Guide to China Sourcing and founder of PassageMaker Sourcing Solutions. This article written by him discusses how companies can benefit from setting up buying office in Hong Kong.
I often get asked about the ins and outs of setting up a HK company to manage China purchases. I’m not a US tax expert, but here are some of my personal thoughts on jurisdictions for incorporation if you are doing business in Asia. Consult your tax guys, but for me, I am a big fan of incorporation in Hong Kong and many of my clients set up accounts in Hong Kong for the following key reasons:
1. HK is consistently voted in the top two most pro-business jurisdictions on a global level, thanks to things
a) Easy of set up and annual filings
b) Ease of internet banking (I use HSBC)
c) English language based rule of law with proper accounting and respected auditing by local authorities
d) Business transacted outside of Hong Kong (buy PRC goods and sell to USA) is TAX FREE!
e) Easy to repatriate funds and corporate dividends are not heavily taxed.
f) Manpower for Hong Kong operations can easily be based in PRC to keep costs very lowrvice in China
2. Unfortunately, Uncle Sam has some tight rules about arm’s length pricing/transfer pricing/ overseas earned income for US passport holders. So as a US citizen you won’t be able to avoid personal income tax legally when funds are eventually repatriated from Hong Kong to the USA, BUT as I understand it, you can legally defer taxes and this has a big long term advantage when you start to recycle funds.
For example, if on order #1 profits are parked in Hong Kong, then used to purchase order #2 and so on and so on, over time, because each transaction is not being taxed, the profits start to build up in HK and only once dividends are declared or funds repatriated to US based owners, does US tax kick in.I run my business, and recommend you run yours, in full accordance to China, Hong Kong and US tax code. I go above and beyond when it comes to compliance as I want no problems with the IRS, but at the same time I am happy to take full advantage of global opportunities to limit my global tax exposure in a legal fashion. So if your project takes off, as I hope it does, you may want to closely consider Hong Kong as a place to set up shop.
For professional advice on business formation, accounting and taxation, talk to the experts at Fiducia-China.com. They are the people I go to when I need support and I would be happy to make an introduction for you.
Wishing you successful China Sourcing!Best Regards,
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(Source: Mike Bellamy, China Sourcing Information Center)