As mentioned in the previous article, the Trump administration imposed a 10% tariff on all Chinese goods, prompting many Chinese companies to explore overseas markets actively. In particular, they have been setting up subsidiaries in Hong Kong to achieve more flexible business operations and optimize their tax structures.
This article will explore how Chinese companies can set up Hong Kong companies for tax planning, effectively controlling costs and improving international competitiveness.
Advantages of Hong Kong
Low Taxes and Multiple Tax Reduction Systems
Corporate Income Tax: The profit tax rate is 8.25% for the first HKD 2 million, and profits exceeding that amount are subject to a 16.5% rate.
No Capital Gains Tax (VAT)
Taxation Based on Source Principle
Agreements with over 40 countries to avoid double taxation (DTA)
Various tax exemptions and reductions
Open free trade environment, no foreign exchange controls
Planning Strategies
Hong Kong Company Structure Strategy
According to Hong Kong’s tax laws, only profits from within Hong Kong are taxable. If a Hong Kong company has no local clients or business activities, the profits generated can be considered offshore profits, thus exempting them from paying profits tax.
2. Corporate Structure Planning
By utilizing tax structures in different regions along with actual operations, profits can be maximized while reducing operational risks. Of course, all transactions must comply with legal and regulatory requirements, as non-compliant activities may be seen as tax avoidance.
Case Study
Client A, the chairman of a Mainland enterprise, plans to relocate its production base to Southeast Asia to reduce production costs and has entrusted Honghai Strategies to conduct tax structure planning.We suggested establishing a Hong Kong company and using it to open a branch in Southeast Asia. This approach allows the company to benefit from Hong Kong’s established legal protections and flexible tax structure planning.
Conclusion
Hong Kong, as an important platform for tax planning and international business expansion, with its low taxes, stable rule of law, and open economic policies, has become the first choice for many Mainland enterprises venturing into the global market. By utilizing Hong Kong’s company structure, businesses can flexibly apply the tax source principle and transfer pricing strategies to significantly reduce tax costs.
If you plan to expand your business overseas or set up a company in Hong Kong, feel free to contact our consulting team. We will also publish more interesting articles in the future, so stay tuned.
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