VA

NU

AT

U  

   

   

    

  

HO

NG

KO

NG

    

   

   

   

   

CH

IN

A

Company Incorporation & Administration in Hong Kong, China and Vanuatu

Vanuatu Citizenship by Investment Program

Bookkeeping & Accounting Services

Tax Planning and Filing

Legal Consulting

Human Resources

International Tax &BUSINESS ADVISORY

Masson de Morfontaine Our firm was established in 2008 by seasoned tax

and legal practitioners committed to excellent client

service and guided by high standards of business

ethics. Our consultants with an average of 15 +

years of work experience are based in Hong Kong,

Shanghai and Vanuatu and offer services in English,

Mandarin, Cantonese, French, Russian and Spanish

languages. Diverse backgrounds, nationalities and

areas of expertise of our team combined with many

years of consulting and in-house working experience

allow us to understand very clearly your challenges

of operating and investing globally, and to cover

your requirements from A to Z.

Our core value is to assist individuals, startups, SMEs

and multinationals in every stage of their

development in Hong Kong, China, Vanuatu and/or

at the international level.

We specialize in Asian, European and African

jurisdictions and partner with leading independent

global tax and legal consultants in order to deliver

seamless services across multiple jurisdictions.

Our client portfolio ranges from blue-chip

multinational companies to small and medium- sized

companies who are stepping out of their home

jurisdiction for the first time.

Company incorporation & administration in Hong Kong, China and Vanuatu     Bookkeeping & Accounting Bank Account opening Virtual / physical office services Immigration / Second passport Tax Planning & Filing Employer and employee tax issues Tax dispute resolution Foreign Direct Investment (FDI) consulting Legal consulting M&A transactions Joint ventures, franchises, trademark registration and ancillary services Human Resources consulting    

SERVICES:

Foreign investors often prefer their agreements and disputes to be governed by Hong Kong law and subject to the Hong Kong courts’ jurisdiction. Hong Kong has a well-established legal system based on English Common law. The rule of law is overseen by an independent judiciary comprising of local and international judges who are independent, professional and efficient.

Hong Kong is the first-class international transportation hub and boasts its air and sea links not only with the APAC region, but also with America, the Middle East and Europe. Half of the world population lives within a 5-hour flight to Hong Kong. It is also ideally located for logistics and shipping in and out from China. This is one of the advantages for manufacturing companies to set up their production base in the Pearl River Delta.

PRIME LOCATION

Hong Kong is one of the most tax-friendly economies in the world. The headline profits tax rate for foreign and local companies are the same, i.e. 16.5% and can be reduced by half for eligible companies.

INVESTORS FRIENDLY

Hong Kong government adopt a laissez-faire economic policy, meaning fewer restrictions on foreigners who want to set up business here. Incorporating a company could be done swiftly. Hong Kong welcomes and encourages the participation of foreign enterprises and provides a level playing field for everyone. There is no foreign exchange control in Hong Kong and no restrictions on the trading of gold, securities, futures and the like. The Basic Law, Hong Kong constitutional document, stipulates that Hong Kong shall maintain the status of a free port, pursue the policy of free trade and safeguard the free movement of goods, intangible assets and capital.

SIMPLE TAX REGIME

GATEWAY TO CHINA WHY GO THROUGH HONG KONG

I n 2 0 1 9   t h e H e r i t a g e

F o u n d a t i o n g r a n t e d H o n g K o n g t h e

f i r s t p l a c e i n t h e r a n k i n g f o r t h e

2 5 t h c o n s e c u t i v e y e a r

T H E F R E E S T E C O N O M Y

I N T H E W O R L D

I n a d d i t i o n t o t h e C h i n e s e

l a n g u a g e , E n g l i s h i s a l s o a n

o f f i c i a l l a n g u a g e u s e d b y t h e

e x e c u t i v e a u t h o r i t i e s , t h e

l e g i s l a t u r e a n d t h e j u d i c i a r y

E N G L I S H I S T H E M A J O R

W O R K I N G L A N G U A G E

A d a p t a b l e , e n t r e p r e n e u r i a l a n d

E n g l i s h - s p e a k i n g l o c a l w o r k f o r c e i s

a n a d d i t i o n a l b e n e f i t f o r i n v e s t i n g

i n H o n g K o n g

H I G H L Y S K I L L E D

W O R K F O R C E

RULE OF LAW AND INDEPENDENT JUDICIARY

INVEST IN ASIA VIA HONG KONG TO ENJOY VARIOUS TAX AND OPERATIONAL BENEFITS China is taking forward the Belt and Road initiative, the national strategy for long-term development. It is

certain that the emerging markets along the routes (covering Asia) are likely to become the new catalyst for

the future development of Hong Kong.

Financial services will be in growing demand in emerging markets. Hong Kong is well- equipped to serve

as a platform for financing and fund management for these markets. Hong Kong endeavours to facilitate

the financing of infrastructure projects and provide a platform for pooling the efforts of investors, banks

and the financial sector to offer comprehensive financial services for various infrastructure projects.

Driven by the Belt and Road initiative, multinational and Chinese enterprises will expand their overseas

business, and there will be a greater demand for business services to lower corporate financial costs and

enhance treasury risk management. Hong Kong is an ideal location to set up a corporate treasury centre

(CTC). To further attract multinational and Chinese enterprises to establish CTCs in Hong Kong, there is

a Hong Kong profits tax reduction by half (i.e. from the prevailing standard tax rate of 16.5% reduced to

8.25%) for specified treasury activities. Singapore is also aggressive in this regard to further reduce the

corporate tax rate for CTC from 10% to 8%. Having said that, Hong Kong’s tax system appears to be more

advantageous as shown below.

Tax system                                                           Hong Kong                                                                                  Singapore

Corporate tax                                                    

Corporate tax (applicable to CTC)        

Withholding tax (WHT) - dividend        

WHT - interest                                                   

WHT - interest (applicable to CTC)  

Foreign tax credits

Indirect tax (VAT/GST)

We can see from the above table that, despite the slight difference of 0.25 of a percentage point for

applicable corporate tax rate for CTC, Hong Kong’s tax system is advantageous to Singapore mainly in

terms of withholding tax on interest as well as no indirect taxes levied. Coupled with the benefits arising

from the pool of talents, proximity to Mainland China as well as the liquidity of Renminbi (RMB), Hong

Kong still takes the lead in CTC location among the nearby cities.

16.50% (8.25% on the first 2 million HKD)

8.25%

0%

0%

0%

Yes

None

17%

8%

0%

15%

10%

Yes

7%

TAX TREATY NETWORK

A T P R E S E N T , H O N G K O N G H A S C O N C L U D E D 4 0T A X T R E A T I E S W I T H O T H E R C O U N T R I E S

Many cont rac t i ng pa r t i e s to the Hong Kong tax t rea t i e s a re Be l t and Road count r i e s , such as Ch i na , Korea , Russ i a , V i e tnam , Tha i l and , Un i ted A rab Em i ra tes , Kuwa i t , I ndones i a , New Zea l and , Ma l ays i a , Roman i a , e t c .

T h e a v a i l a b i l i t y o f a t a x t r e a t y m e a n s c e r t a i n t a x t r e a t y b e n e f i t s e . g . p r e f e r e n t i a l w i t h h o l d i n g t a x r a t e s o n p a s s i v e i n c o m e s ( i n t e r e s t s , d i v i d e n d s a n d r o y a l t i e s ) , e t c . c a n b e o b t a i n e d i f c e r t a i n c o n d i t i o n s a r e m e t .   F o r e x a m p l e , u n d e r t h e C h i n a - H o n g K o n g t a x t r e a t y / m e m o r a n d u m , t h e a v a i l a b l e p r e f e r e n t i a l w i t h h o l d i n g t a x r a t e s o n d i v i d e n d s , i n t e r e s t s a n d r o y a l t i e s a r e 5 % , 7 % a n d 7 % r e s p e c t i v e l y .

CASE STUDY French investor making investment in Asia (initially China) via Hong Kong

1. SARL is engaged in trading

business of certain consumer

products

2. SARL is planning to expand the

trading business in Asia (initially in

China)

3. This will entail:

     - invest in China to set up a 

       Trading Wholly Foreign Owned

       Enterprise (WFOE);

    - lend money to the WFOE for its

       business operation;

    - subsequently invest in other

      countries in the region, e.g. New

      Zealand

BACKGROUND

    - Now if H Ltd acts as investor/shareholder of WFOE, just need to provide information on H Ltd.

•  Time to arrange documentation is shorter

    - SARL documents need to be translated into Chinese and be certified by the Chinese Embassy in

       France;

    - Documentation of H Ltd is readier for China use, and the certification process is more

       standardized and less time-consuming in Hong Kong (i.e. time and costs incurred are more

       under control).

2. Interests from WFOE

•  when WFOE pays interests to SARL, a Chinese withholding tax of 10% applies;

•  when WFOE pays interests to H Ltd, a Chinese withholding tax of 7% applies;

Benefits of using a Hong Kong company as stepping stone

Proposed arrangement

1. SARL forms a Hong Kong company “H Ltd” to act as a

corporate treasury centre for Asia trading business, with

office and staff carrying out corporate treasury activities in

Hong Kong

2. Using H Ltd as an investor to set up the China WFOE

3. Using H Ltd to advance shareholder’s loan to the WFOE

for its business operation in China

4. For future expansion, using H Ltd to set up other

subsidiaries in the region, e.g. New Zealand

Benefits

1. WFOE set up

•  Disclosing less information to China government

    - If SARL acts as investor/shareholder of WFOE, need

       to provide information of SARL to China government;

CASE STUDY French investor making investment in Asia (initially China) via Hong Kong Enjoying benefits by using a Hong Kong company as stepping stone

3. Dividends channelled via Hong Kong

•  If there is another subsidiary in the region, say in New Zealand (NZ), dividends paid by the NZ

subsidiary to France attract a 15% withholding rate. If dividends paid by NZ subsidiary to H Ltd,

the withholding rate is reduced to 5% and there is no withholding tax on dividends paid by H Ltd.

to SARL. There is a saving of 10% withholding rate if dividends are channelled via Hong Kong back

to France.

4. H Ltd, being a qualifying CTC, enjoys a preferential 8.25% profits tax rate on its qualifying

profits (standard tax rate is 16.5%).

Example: break-even for startup

1. Cost of setting up Hong Kong company = around HKD10,000;

2. Cost of annual maintenance of Hong Kong company = around HKD20,000 (including accounting

and audit fee);

3. If annual interest paid by WFOE is HKD120,000 and H Ltd earns annual corporate treasury

profits of HKD200,000

•  saving 3% of China withholding tax on interest = HKD3,600

•  saving 8.25% Hong Kong profits tax = HKD16,500

•  the total tax savings break-even the maintenance of the Hong Kong company

WW

W.M

AS

SO

N-

DE

-M

OR

FO

NT

AI

NE

.CO

M

Unit 901-903 Level 9, Jubilee Centre, 18 Fenwick Street, Wanchai Tel: +852 3953 4880

HONG KONG

29/F, Room 13, Tower 1, Jing An Kerry Centre, 1515 Nanjing Road West, Jingan District, Shanghai, China  Tel: +86 21 6103 7120

CHINA

Churchill House, Kumul Highway, PMB 65 Port Vila Tel: +678 28 880

VANUATU

These materials are provided to you for general information only and should not be used as a recommendation or basis for making any specific investment, business or commercial decision. While every care has been taken in preparing the contents, such contents are provided to you “as is” and “as available” without warranty of any kind either express or implied. In particular, no warranty regarding timeliness, accuracy and completeness of information is given in conjunction with such contents. Masson de Morfontaine Limited and/or its member companies reserve all copyright and intellectual property rights to the contents. These materials are protected by copyright and no part or parts hereof may be modified, reproduced, stored in a retrieval system, transmitted (in any form or by any means), copied, distributed, published, displayed, broadcasted or used in any other way for commercial or public purposes without the prior written consent of Masson de Morfontaine Limited and/or its member companies.

Published in April 2019