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The role of Hong Kong Companies in the International Activity

International intermediary Commercial Business.

Use of Hong Kong companies as a component of trade schemes may be the convenient way to organize international trade with the minimum taxation of profit. The most common practice is as follows: the international trading company purchases the goods in China or in the Asian states and re-sells them through Hong Kong; thus the profit is accumulated in Hong Kong, which results in important economy on the fiscal payments.

The tax advantages of such use of the Hong Kong companies are based on two particularities of the taxation regime of Hong Kong:

  • the principle of taxation by territory, i.е. the absence of taxation in the case of conducting non-resident business;
  • absence of VAT and tax on sales.

When China joined WTO, Hong Kong turned into the Chinese export channel to the western states, the basis of numerous international companies desiring to participate in actively developing Chinese economy.

There are a number of other important factors enabling the use of Hong Kong companies for international business:

  • absence of foreign exchanges control;
  • the sufficient market of skilled human resources;
  • good commercial and industrial infrastructure, good communications.

Business Financing and Accumulation of Profits from International Activity.

The Hong Kong authorities respect the principle of non-intervention in commercial activity; the right of property is protected by the laws and judicial system which is free from corruption. Hong Kong companies may without any limitations purchase foreign assets: immobility, shares, share holdings, debt securities, etc., may finance their subsidiary or independent branches.

There are no limitations in Hong Kong for foreign investments. The investor may receive the income in form of dividends or interest without any tax consequences in Hong Kong.

Hong Kong is a recognized financial center, the world’s leading financial institutions are concentrated in Hong Kong, monetary and fiscal policies are transparent, and the freedom of doing businessis not limited.

All this enables Hong Kong companies to be used as the basis for accumulation of profits received from the international activity, and  as a good platform for business financing, particularly for investments made in the Chinese market.

The tax burden on the Hong Kong company in case of such use is actually close to zero. That is as a result of the following factors:

  • the income received in form of dividends from local and foreign subsidiary branches is not subject to taxation by the tax on profit;
  • the taxes at the source of income payments are absent in Hong Kong (dividends, interests);
  • taxation of increase of the capital is absent;
  • taxation of the interest on the bank deposits placed in Hong Kong or foreign credit institutions do not exist.