Hong Kong Business
Hong Kong is an economic “business star” for many of those who are going to start up business in China. New companies are growing up from day to day, and this happens thanks to certain mutual tax relations between Hong Kong and China.
Many of businessmen are still interested in detailed, step by step instruction of “how to”. Today, we are going to release all main secrets and help you to become a part of the successful business story.
On a way to a great business
“Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion” has given rise to comprehensive economic relations since 21 of August 2006.
The parties to the arrangement China and Hong Kong have significantly improved the business atmosphere. Main emphasize made on how to avoid double taxation. The arrangement gives a brief explanation concerning real practices for those who set up a business in China through Hong Kong.
Income, investment, and capital growth taxes are the main subjects of the core and appropriate implementation under the arrangement. So, we are on the way to reveal secrets for double taxation avoidance between Hong Kong and China relations.
Let’s take an example. A company has started a business in Hong Kong. At the same time, the company is a beneficiary in China and holds 25 % of the shares. What will be the core and rules of the key tax relations as well as main profits?
Investment profit. Interest, Dividends, Royalties
- Preferential taxation rates. In order to have an opportunity in getting taxation rates, a company located and registered in Hong Kong should possess not less than 25% of all shares that belong to the company located in China. It is a key requirement. Taxation rate in the amount of 5% (instead of 10%) will be on dividends. These dividends are paid by the company located in China in favor of its stockholder company located in Hong Kong. As to stockholder company, it is not obliged to pay dividend taxes since there are no any rules spelled out by tax legislation of Hong Kong. This is the first benefit concerning mentioned above arrangement.
- A company registered in Hong Kong, at the same time conducts business and gets profit in China. Nowadays it is an easy way to advantageous taxation relations. Profit got in the territory of China as a result of interest out payments from capital use is subject to tax on the territory of China. Its reduced rate will consist of 7% instead of 10%. Mentioned percentage sum is not beared tax on Hong Kong’s territory since obtained in China. On the contrary, income earned in Hong Kong is subject to tax.
- Royalties and interest are equal subjects to tax. Taking into consideration commercial, and economic relations between China and the most countries in the world 10% rate is laid on royalties and interest.
- Income earned by Hong Kong investors from capital gain on shares in China is not covered by an arrangement. Corresponding income is subject to a tax rate of 10% in commercial and economic relations between China and the most countries in the world. Mentioned above dividends, as well as capital gains income, are not subjects to the tax rate in Hong Kong.
Forewarned is forearmed?
Information swapping is another part of an arrangement. As a provision to the arrangement, it obliges both sides to exchange necessary information that may act as a barrier to failure to pay taxes. As a result, a company could reduce tax payment by two times in China as well as tax payments for royalties and interest.
The most enjoyable moment is the full exemption from tax payments in Hong Kong since income earned in China.
China is a reliable country in relations to trade and economic relations since Hong Kong was previously chosen to start up business. Another advantage is a bank account in Hong Kong and possibility to keep all calculations and payments in RMB that helps your business as well.